Q1 '22 Earnings Preview

QAD (QADA) reports fiscal Q1 ’22 results after the market closes on Wednesday, May 26. Similar to the past few quarters, an improving macro backdrop coupled with relatively conservative expectations leave us constructive on shares heading into the print. We note that the Institute for Supply Management’s Manufacturing PMI readings for each month of QAD’s fiscal Q1 were above the highest month registered in the prior quarter and were considerably above year-ago levels given the onset of the global pandemic at that time. Although microchip shortages are affecting certain industries where QAD has a strong presence, the demand environment facing manufacturers appears robust with growth impacted more so by supply-side constraints. In this regard, QAD has met the moment by leaning into its Integrated Supplier Management products, highlighting customer case studies and best practices for strategic sourcing at its recent Tomorrow 2021 Thought Stream event. Lastly, the company’s traditional competitors in the ERP software market have also posted better results of late, a trend we expect QAD to continue. All told, we see potential for some upside on the top line, a bigger beat on the bottom line and no material change to the company’s guidance for the year.

For Q1, we project revenue of $78.7 million, approximately in line with consensus of $78.9 million. Included in our sales forecast are subscription and maintenance revenue of $36.5 million and $26.0 million, respectively, both of which are consistent with management’s guidance. Our projection also reflects assumptions for license and professional services revenue of $1.3 million and $15.0 million, respectively, both of which are relatively flat from year-ago levels and thus embed a high degree of conservatism. Moving to operating expenses, we have modeled a step-up in both R&D and sales and marketing, which we surmise leaves room for a beat on the bottom line given spending on travel and marketing events likely remained constrained to start the year. Overall, our operating income estimate sits slightly higher than management’s guidance for breakeven, and both our adjusted EBITDA and non-GAAP EPS estimates of $5.8 million and $0.15, respectively, are above consensus of $5.0 million and $0.12. As for the outlook, we expect QAD to reaffirm its prior FY ’22 recurring revenue and operating income guidance, and we anticipate Q2 guidance for these metrics will largely mirror current Street expectations. Our price target remains $75.00, representing a FY ’23 EV/Sales multiple of 4x.

Our report with model and disclosures is available here.