QAD Inc. (NASDAQ:QADB) Q3 2018 Earnings Conference Call - Final Transcript

Nov 20, 2018 • 05:00 am ET

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QAD Inc. (NASDAQ:QADB) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, thank you for standing by. Welcome to the QAD Fiscal 2019 Third Quarter Financial Results Call. At this time, all participants are in a listen-only mode. And later we will conduct a question-and-answer session, instructions will be given at that time. (Operator Instructions) As a reminder, the conference is being recorded.

recorded.

And I'll now turn the meeting over to our host, CAO, Kara Bellamy. Please go ahead.

Executive
Kara Bellamy

Hello, everybody, and welcome to today's call.

(Forward-Looking Cautionary Statements)

Please also note that during this call, we will be discussing non-GAAP pretax income, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release which is posted on the company's website.

Now, I would like to turn the call over to Daniel Lender, QAD's CFO.

Executive
Daniel Lender

Well, thank you very much, Kara. Good afternoon, everyone. Thank you for joining us to discuss QAD's third quarter results. Pam Lopker, President is joining me on the call. Before we begin, I want to acknowledge, as most of you know, that we recently lost Karl, our CEO, a great friend, colleague and co-founder of QAD. He helped build the great company and an outstanding team that will continue a legacy of helping global manufacturers, better manage their operations. While we are back to business as usual here at QAD, Karl is and will be sorely missed. I would like to thank all of you for your heartfelt thoughts and sympathy during this time.

Let's now review our results. While total revenue was slightly below guidance due to our services business, subscription revenue on profit exceeded our expectations. Currency had a negative $1.4 million to revenue compared with last year, but no impact to our bottom line. My comments about revenue growth are given on a performance basis, unless otherwise noted. Compared to the same quarter last year, third quarter revenue increased by 5%. Subscription revenue grew 40%, and is now approaching 30% of our business. Subscription margins rose to 64%, up from 56% a year ago and 63% for the second quarter. We expect margin of about 63% for the full-year and just a reminder, our goal is to grow margins by 1 percentage to 2 percentage points annually after fiscal '19.

Maintenance and other revenues was roughly equal to last quarter at $30.4 million, but was down about 4.5% year-over-year, primarily related to continued customer conversions to the cloud and historical attrition. As car conversions increase, maintenance revenue is expected to decline. Recurring revenue which equaled subscription plus maintenance revenue grew 11% from the prior year and accounted for 68% of total revenue for the third quarter, up 4 percentage points from last year's third quarter.

Our professional services revenue was $20.7 million, the same as in last year's third quarter. Services margins remained positive for the quarter. During the quarter, the multi-site global implementation we discussed on our last earnings