Transcript JDAS
JDA Software (JDAS)
Covering Analyst: Ian Strgar [email protected]
Company Overview
› Originally founded in 1978 as an IBM software provider in Canada › Sold in 1985, became JDA Software, developing inventory management software › Grown organically and through acquisitions to become a leading provider of supply chain management software (SCM) › More than 6,000 customer companies worldwide › Based out of Scottsdale, AZ
JDA’s Product Offerings
› Software: On-premise, Managed Service, Hosted (SaaS) › Services: Supplemental to Software
JDA’s Software Offerings
› Provides supply chain management software to primarily enterprise businesses: – Planning & Optimization Solutions (planning) › Demand management, transportation planning, allocation & replenishment – Transaction Systems (management) › Merchandise operations systems (pricing/inventory management), store systems, transportation management
JDA’s Service Offerings
› Offer services in order to maximize usability of software › Maintenance Services – Customer support (phone, email, error diagnosis) › Consulting Services – Implementation and integration › Education Services – Training programs for software › Cloud Services – Integration, error diagnosis, everything cloud (transition)
Industry Overview
› Supply Chain Management Software (SCM). Industry categories: – Supply chain planning › Modeling – Supply chain execution › Management (real time) of planned execution – Supply chain sourcing › Optimal suppliers; Procurement – Service parts planning › Multi-Echelon supply chains; dynamic manufacturing (i2)
SCM 2011 Market Shares
Market Shares 2011: $7.7 Billion SCM Market
19.9% 51.7% 16.9% SAP Oracle JDA Software Ariba Manhattan Associates Others 1.8% 4.7% 5.0% 2010-2011: 12.3% Growth 2012-2015: 9% CAGR Project 2015 Market Size: $10.9B
Macroeconomic Influences
› Globalization – Complex coordination of multiple product parts in multiple continents, countries, languages, currencies, etc.
› Multi-Channel Retail – Pressure to offer seamless cross-channel retail experience – “Showrooming” › 2016: 44% of all retail buy decision will be effected by internet access
Notable Competitors
› Oracle › SAP › Manhattan Associates › RedPrairie Software
Now to the JDA Software Business
Quick Financial Snapshot
Total Revenues
Growth
Software Sale Revenues
Growth
Net Income
Growth
EBITDA
Growth
Free Cash Flow (CFO-Capex)
Growth
2009 390,968
2.5%
95,662 27,575
7243.8%
82,732
-
85,595
-
2010 593,742
51.9%
112,633
17.7%
2,141
-92.2%
79,605
-3.8%
44,880
-47.6%
2011 691,243
16.4%
156,980
39.4%
82,688
3762.1%
183,166
130.1%
90,387
101.4%
Internal Reform
› JDA Software has hit recent road bumps (financials), but is operating under a clear plan: – I2 Technologies acquisition – Revenue Model Transformation – 3 year systems investment plan
I2 Acquisition
› Acquired in January 2010 for $600M, $275M from issuing 8% senior notes › 400 new customers › Advanced global logistics: multi-leg shipments – Discrete manufacturing
Revenue Model Transformation
› Beginning 2012 › Company wide initiative to change current customer’s strategies; sell SaaS to new customers › Compensation incentives › IDC on SaaS: $40.5B by 2014; CAGR of 25.3%
3 Year Systems Investment Plan
› Sales process review and optimization › Implement a new CRM systems › Implement a new HR system: support leadership training – (leadership replacements) › Upgrading financial and contract management system › TC= $20M
For these reasons, JDA acquired by RedPrairie
› November 1 st , Definitive merger agreement › $45 per share, $1.9B: a 16% premium to JDA’s all time high and 33% premium to JDA’s October 26 th close › Tender offer commenced November 15 th – Expiration: December 14 th , 11:59 pm ECT, unless extended or terminated – Minimum condition: 79% of shares outstanding – “Top-Up” option to ensure majority vote (90%)
Discounted Cash Flow Valuation
Revenue Model
› Transition from on-premise to subscription › Maintenance services and consulting services remain strong Revenue Model
($ in thousands)
Software Licenses
% Growth Sequential % Growth Y/Y % of Total Revenue
Subscriptions & Recurring Revenues
% Growth Sequential % Growth Y/Y % of Total Revenue
Maintenance Services
% Growth Sequential % Growth Y/Y % of Total Revenue
Total Product Revenues
% Growth Sequential % Growth Y/Y % of Total Revenue
Consulting Services
% Growth Sequential % Growth Y/Y % of Total Revenue
Reimbursed Expenses
% Growth Sequential % Growth Y/Y % of Total Revenue
Total Service Revenues
% Growth Sequential % Growth Y/Y % of Total Revenue
Total Revenue
% Growth Sequential % Growth Y/Y
2009A 91,789
23.5%
3,873
1.0%
179,256
45.8%
274,918
70.3%
105,990
27.1%
10,060
2.6%
116,050
29.7%
390,968
2.5% 2.5%
2010A 91,490
-0.3% 15.4%
21,143
445.9% 3.6%
245,777
37.1% 41.4%
358,410
30.4% 60.4%
215,470
103.3% 36.3%
19,862
97.4% 3.3%
235,332
102.8% 39.6%
593,742
51.9% 51.9%
2011A 140,217
53.3% 20.3%
16,763
-20.7% 2.4%
265,785
8.1% 38.5%
422,765
18.0% 61.2%
245,046
13.7% 35.5%
23,432
18.0% 3.4%
268,478
14.1% 38.8%
691,243
16.4% 16.4%
Q1 03/31/2012A 25,393
-35.9% -28.8% 15.7%
4,032
-3.6% -19.3% 2.5%
66,713
-0.8% 3.0% 41.1%
96,138
-13.4% -8.8% 59.3%
60,489
-10.9% 5.4% 37.3%
5,559
-9.9% 17.8% 3.4%
66,048
-10.8% 6.4% 40.7%
162,186
161.2% -3.2%
Q2 06/30/2012A 32,040
26.2% 6.0% 19.0%
3,754
-6.9% -2.5% 2.2%
66,815
0.2% 1.0% 39.6%
102,609
6.7% 2.4% 60.8%
60,273
-0.4% 2.5% 35.7%
5,875
5.7% -9.8% 3.5%
66,148
0.2% 1.3% 39.2%
168,757
4.1% 2.0%
Q3 09/30/2012A 27,544
-14.0% -20.7% 16.7%
3,909
4.1% 4.6% 2.4%
68,784
2.9% 1.7% 41.8%
100,237
-2.3% -5.5% 60.9%
59,090
-2.0% -3.1% 35.9%
5,193
-11.6% -13.9% 3.2%
64,283
-2.8% -4.1% 39.1%
164,520
-2.5% -5.0%
Q4 12/31/2012E 39,912
44.9% 0.7% 21.6%
4,523
15.7% 8.2% 2.5%
69,241
0.7% 3.0% 37.5%
113,676
13.4% 2.4% 61.6%
64,902
9.8% -4.4% 35.2%
5,912
13.8% -4.1% 3.2%
70,814
10.2% -4.4% 38.4%
184,490
12.1% -0.3%
2012E 124,889
-10.9% 18.4%
16,218
-3.3% 2.4%
271,553
2.2% 39.9%
412,660
-2.4% 60.7%
244,754
-0.1% 36.0%
22,539
-3.8% 3.3%
267,293
-0.4% 39.3%
679,953
-1.6%
Q1 03/31/2013E 28,415
-28.8% 11.9% 16.7%
4,851
7.3% 20.3% 2.8%
69,212
0.0% 3.7% 40.6%
102,478
-9.9% 6.6% 60.1%
61,988
-4.5% 2.5% 36.4%
5,930
0.3% 6.7% 3.5%
67,918
-4.1% 2.8% 39.9%
170,396
-7.6% 5.1%
Q2 06/30/2013E 34,686
22.1% 8.3% 19.2%
5,092
5.0% 35.6% 2.8%
70,111
1.3% 4.9% 38.9%
109,889
7.2% 7.1% 60.9%
64,569
4.2% 7.1% 35.8%
5,922
-0.1% 0.8% 3.3%
70,491
3.8% 6.6% 39.1%
180,380
5.9% 6.9%
Q3 09/30/2013E 36,425
5.0% 32.2% 19.7%
5,303
4.1% 35.7% 2.9%
70,541
0.6% 2.6% 38.2%
112,269
2.2% 12.0% 60.8%
66,289
2.7% 12.2% 35.9%
5,946
0.4% 14.5% 3.2%
72,235
2.5% 12.4% 39.2%
184,504
2.3% 12.1%
Q4 12/31/2013E 44,211
21.4% 10.8% 21.9%
5,639
6.3% 24.7% 2.8%
73,313
3.9% 5.9% 36.2%
123,163
9.7% 8.3% 60.9%
73,201
10.4% 12.8% 36.2%
5,952
0.1% 0.7% 2.9%
79,153
9.6% 11.8% 39.1%
202,316
9.7% 9.7%
2013E 143,737
15.1% 19.5%
20,885
28.8% 2.8%
283,177
4.3% 38.4%
447,799
3.8%
37.1%
476,752
3.9%
35.7%
510,459
4.3%
34.2%
550,336
8.5% 60.7%
266,047
8.7% 36.1%
23,750
5.4% 3.2%
289,797
1.3% 3.0%
315,737
1.1% 2.8%
344,941
2.8% 2.7%
380,835
8.5%
2014E 155,412 8.1% 19.6% 27,378 31.1% 3.5% 293,962 6.5% 60.2% 291,681 9.6% 36.8% 24,056 7.4% 2015E 166,289 7.0% 19.4% 38,645 41.2% 4.5% 305,525 7.1% 59.7% 320,629 9.9% 37.5% 24,312 7.9% 2016E 177,364 6.7% 19.0% 54,327 40.6% 5.8% 318,645 7.8% 59.1% 355,854 11.0% 38.2% 24,981 8.9% 2017E 190,641 7.5% 18.8% 75,643 39.2% 7.5% 331,605
4.1%
32.7%
597,889
8.6% 59.0% 389,512 9.5% 38.4% 25,684 2.8% 2.5%
415,196
8.4% 39.3%
737,596
9.0% 39.8%
792,489
9.2% 40.3%
855,400
10.4% 40.9%
931,171
9.0% 41.0%
1,013,085
8.8%
Working Capital Model
› Most projections done as % of revenue › Accounts receivable and accounts payable projected based off historical efficiency ratios – Days payable outstanding, days sales outstanding
Working Capital Model
($ in thousands)
Total Revenue Current Assets
Cash and cash equivalents
% of Revenue
Restricted Cash - current portion
% of Revenue
Accounts Receivable
Days Sales Outstanding A/R recievables turnover % of Revenue
Deferred tax assets - current portion
% of Revenue
Prepaid expenses and other current assets
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning Capital Expenditures Depreciation and Amortization Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding % of Revenue
Accrued Expenses and Other Liabilities
% of Revenue
Deferred Revenue - Current Portion
% of Revenue
Total Current Liabilities
% of Revenue
2010A 593,742 171,618 28.9% 34,126 5.7% 111,042 61 5.35
18.7% 50,816 8.6% 25,615 4.3% 393,217 66.2% 43,381 16,866 (12,800) 47,447 440,664 74.2% 21,092 30 3.6% 88,028 14.8% 115,904 19.5% 225,024 37.9% 2011A 691,243 Q1 03/31/2012A 162,186 Q2 06/30/2012A 168,757 Q3 09/30/2012A 164,520 Q4 12/31/2012E 184,490 2012E 679,953 Q1 Q2 Q3 Q4 03/31/2013E 06/30/2013E 09/30/2013E 12/31/2013E 170,396 180,380 184,504 202,316 2013E 737,596 285,512 41.3% 8,733 1.3% 114,778 56 6.02
16.6% 32,063 4.6% 24,584 3.6% 465,670 67.4% 47,447 19,444 (14,350) 52,541 518,211 75.0% 7,740 10 1.1% 73,111 10.6% 108,217 15.7% 189,068 27.4% 337,382 208.0% 3,315 2.0% 131,953 73 1.23
81.4% 33,412 20.6% 27,117 16.7% 533,179 328.7% 52,541 3,000 (3,383) 52,158 585,337 360.9% 8,378 11 5.2% 76,226 47.0% 142,636 87.9% 227,240 140.1% 362,430 214.8% 3,314 2.0% 126,368 67 1.34
74.9% 36,540 21.7% 24,240 14.4% 552,892 327.6% 52,158 4,836 (4,163) 52,831 605,723 358.9% 10,375 14 6.1% 71,381 42.3% 140,284 83.1% 222,040 131.6% 408,284 248.2% 3,004 1.8% 96,814 53 1.70
58.8% 36,660 22.3% 26,723 16.2% 571,485 347.4% 52,831 8,875 (9,051) 52,655 624,140 379.4% 8,342 11 5.1% 80,760 49.1% 116,372 70.7% 205,474 124.9% 382,621 207.4% 3,251 1.8% 121,351 64 1.52
65.8% 35,640 19.3% 29,504 16.0% 572,367 310.2% 52,655 5,681 (11,629) 46,707 619,074 335.6% 8,745 12 4.7% 82,545 44.7% 110,512 59.9% 201,802 109.4% 382,621 56.3% 3,251 0.5% 121,351 64 5.60
17.8% 35,640 5.2% 29,504 4.3% 572,367 84.2% 52,541 22,392 (28,226) 46,707 619,074 91.0% 8,745 12 1.3% 82,545 12.1% 110,512 16.3% 201,802 29.7% 402,603 236.3% 3,561 2.1% 133,570 65 1.28
78.4% 32,604 19.1% 34,208 20.1% 606,546 356.0% 46,707 7,514 (8,269) 45,952 652,498 382.9% 9,121 16 5.4% 72,465 42.5% 145,883 85.6% 227,469 133.5% 407,894 226.1% 3,641 2.0% 143,557 63 1.26
79.6% 29,045 16.1% 30,564 16.9% 614,701 340.8% 45,952 6,280 (9,977) 42,255 656,956 364.2% 9,545 11 5.3% 74,608 41.4% 142,771 79.2% 226,924 125.8% 416,821 225.9% 3,687 2.0% 135,340 62 1.36
73.4% 26,405 14.3% 31,717 17.2% 613,970 332.8% 42,255 7,050 (9,521) 39,784 653,754 354.3% 10,635 12 5.8% 77,965 42.3% 134,564 72.9% 223,164 121.0% 432,501 213.8% 4,019 2.0% 140,521 65 1.44
69.5% 22,064 10.9% 30,251 15.0% 629,356 311.1% 39,784 8,154 (8,554) 39,384 668,740 330.5% 9,367 14 4.6% 88,545 43.8% 134,979 66.7% 232,891 115.1% 432,501 58.6% 4,019 0.5% 140,521 64 5.25
19.1% 22,064 3.0% 30,251 4.1% 629,356 85.3% 46,707 28,998 (36,321) 39,384 668,740 90.7% 9,367 13 1.3% 88,545 12.0% 134,979 18.3% 232,891 31.6% 2014E 792,489 461,502 58.2% 20,614 2.6% 132,605 62 5.98
16.7% 15,809 2.0% 36,949 4.7% 667,479 84.2% 39,384 35,617 (32,614) 42,387 709,866 89.6% 15,480 15 2.0% 96,777 12.2% 155,744 19.7% 268,001 33.8% 2015E 855,400 462,353 54.1% 21,807 2.5% 132,230 60 6.47
15.5% 10,647 1.2% 36,580 4.3% 663,617 77.6% 42,387 33,202 (30,481) 45,108 708,725 82.9% 17,930 13 2.1% 95,646 11.2% 159,505 18.6% 273,081 31.9% 2016E 931,171 462,228 49.6% 21,589 2.3% 140,244 64 6.64
15.1% 5,707 0.6% 36,666 3.9% 666,434 71.6% 45,108 33,505 (30,629) 47,984 714,418 76.7% 20,948 14 2.2% 95,606 10.3% 164,471 17.7% 281,025 30.2% 2017E 1,013,085 490,559 48.4% 21,521 2.1% 145,131 65 6.98
14.3% 0 0.0% 37,954 3.7% 695,165 68.6% 47,984 28,645 (32,917) 43,712 738,877 72.9% 20,847 13 2.1% 103,255 10.2% 181,874 18.0% 305,976 30.2%
DCF Details
› COGS: % of revenue › R&D: Historically 11-12% of revenue, projected the top of this range for 2013 due to final i2 integration › S&M: Historically 14-16% of revenue, projected this going forward but slightly more aggressively in 2013 (top 250 marketing plan) › G&A: Historically between 10-12% of revenue (except 2012- SEC investigation), projected to decrease due to SaaS transition, more efficiently handling costs
DCF Details cont…
› Amortization of intangibles: projected % of revenues going forward, slight decreases (no huge acquisitions) › Restructuring charges: Projected slightly high (relative to historicals) due to 3 year investment plan through 2015 › Acquisition: Left room for a small acquisition › Litigation settlement: Competitive advantage for JDA Software, projected normalized, small amounts of income from litigation settlements
Beta
› 3 year optimal time frame: balance of long/short term › Hamada: chosen to encompass industry behavior/risk while acknowledging JDA’s capital structure 5 Year Daily 5 Year Weekly 3 Year Daily 3 Year Weekly 1 Year Daily 3 Year Daily Hamada JDA Software Beta Beta 0.99
1.04
1.23
1.12
1.02
1.05
1.09
SD 0.04
Weighting 10% 0.09
0.07
0.15
0.15
0.08
10% 20% 20% 15% 25%
Growth Rates
› 4% intermediate growth rate chosen to smooth cash flow growth; reflect more accurate FCF growth and growth decline › 3% terminal growth to reflect projected economic growth into perpetuity
Final DCF Valuation
Tax Rate Risk Free Rate Beta Market Risk Premium % Equity % Debt Cost of Debt CAPM WACC Discounted Free Cash Flow Assumptions 32.75% Terminal Growth Rate 1.75% Terminal Value 1.09 PV of Terminal Value 7.00% Sum of PV Free Cash Flows 84.23% Firm Value 15.77% Total Debt 8.00% Cash & Cash Equivalents (0% incl.) 9.37% Market Capitalization 8.74% Fully Diluted Shares Implied Price 3.00% 3,196,707 1,354,517 874,548 2,229,065 273,484 362,430 1,955,581 43,095 $ 45.38
Pre-Acquisition Price Undervalued $ 33.92
33.78% Considerations
Comparable Analysis: Two Groups
Industry Comparables
› Comparability lies in product offering, industry risk, projected growth › SAP (20%), Oracle (15%), Manhattan Associates (35%), Retalix (30%)
Fundamental Comparables
› Comparability lies in growth rates, sizes, capital structures, and geographical revenue spreads › CA Technologies (25%), ValueClick (25%), SS&C Technology (25%), Acuity Brands (25%)
Metrics/Multiples
› For both groups of comparables, I chose the following weights: Metric EV/Revenue EV/Gross Profit EV/EBIT EV/EBITDA EV/(EBITDA-Capex) EV/Unlevered FCF P/E Weight 10% 10% 0% 10% 20% 50% 0% › FCF proxies: cash generation representative of competitive offering › Remaining 30% on metrics that represent ability to generate revenues and sustain healthy margins
Final Relative Valuation
Final Relative Valuation Multiple EV/Revenue Weight Final Multiple EV/Gross Profit Weight Final Multiple EV/EBIT Weight Final Multiple EV/EBITDA Weight Final Multiple EV/(EBITDA-Capex) Weight Final Multiple EV/Levered FCF Weight Final Multiple P/E Weight Final Multiple Price Target Pre-Acquisition Price Undervalued Industry $42.47
65.0% $43.69
65.0% $30.86
65.0% $39.80
65.0% $38.89
65.0% $47.98
65.0% $27.73
65.0% Fundamentals $39.70
35.0% $43.28
35.0% $26.55
35.0% $31.68
35.0% $33.20
35.0% $38.77
35.0% $21.49
35.0% Final Implied Price Final Weight $41.50
$43.55
$29.35
$36.96
$36.90
$44.76
10.00% 10.00% 0.00% 10.00% 20.00% 50.00% $25.55
$41.96
33.92
23.70% 0.00%
Final Valuation
Final Price Target Discounted Free Cash Flow Comparable Analysis Current Price Final Price Target Implied Price $45.38
$41.96
Weight 50% 50% $33.92
$43.67
Given JDA’s current acquisition situation, how relevant is this information?
What else can we look at to gain insights into JDA’s acquisition valuation?
Comparable Acquisition Analysis
› Four enterprise software acquisitions: look at relevant metrics that may give insights into fair valuation for the JDA acquisition… › Weights Product: SCM Software CRM Software HCM Software HCM Software Acquired By: SAP Oracle IBM SAP Price: $4.3B $1.5B $1.3B $3.4B
Relevant Metrics
› Acquisition Price Premium › Merger Arbitrage Spread Comparable Acquisitions Analysis (All Numbers in T housands) Weight
Pricing
Pre-Acquisition Price Acquisition Price
Buyout Spread
Post Buyout Minimum Post Buyout Maximum Midpoint
EV Calculations
Total Debt Less Cash & Cash Equivalents Net Debt Diluted Shares Outstanding Market Cap Pre Buyout Market Cap Post Buyout EV Pre Buyout EV Post Buyout
Comparable Metrics
Acquisition Price Premium Risk (Merger Arbitrage Spread) Min Max Median Weighted Average $ 26.25
$ 40.00
$ 37.64
$ 46.00
$ 34.18
$ 44.00
$ 33.98
$ 43.80
JDA Software (11/1/12) $33.92
$45.00
Ariba (5/21/12) 40% RightNow Technologies (10/24/11) 20% Kenexa (8/27/12) 20% SuccessFactors (12/3/11) 20% $37.64
$45.00
$35.96
$43.00
$32.39
$46.00
$26.25
$40.00
39.64
39.97
39.81
0 (362,430) (248,331) 27,415.17
273,484 (82,758) (55,247) 99,510.00
13,756 (221,431) (148,119) 58,630.62
887,977 1,261,098 832,730 1,205,851 19.6% 0.251% 45.79
45.98
45.89
3,745,556 4,477,950 3,551,026 4,283,420 52.4% 0.490% 43.51
44.11
43.81
1,699,579 2,394,821 1,524,560 2,219,802 30.8% 0.433% 43.36
43.88
43.62
40,502 (199,371) (158,869) 68,739.28
2,355,649 3,001,328 2,196,780 2,842,459 30.6% 0.413% 44.72
44.85
44.79
273,484 (362,430) (88,946) 42,811 1,452,153 1,926,500 1,363,207 1,837,554 32.7% 0.480% 44.37
45.22
44.80
0 (194,530) (194,530) 99,510 3,745,556 4,477,950 3,551,026 4,283,420 19.6% 0.458% 42.65
43.00
42.83
175,000 (276,707) (101,707) 33,064 1,188,974 1,421,744 1,087,267 1,320,037 19.6% 0.409% 45.79
45.98
45.89
27,511 (82,758) (55,247) 27,415 887,977 1,261,098 832,730 1,205,851 42.0% 0.251% 39.64
39.97
39.81
0 (248,331) (248,331) 84,197 2,210,183 3,367,898 1,961,852 3,119,567 52.4% 0.490%
Conclusion
› Final valuation PT: $43.67, a 3% discount to acquisition price › JDA’s comparable acquisition metrics are in line with comps › Bloomberg: 60+ enterprise software acquisitions since 2002 median multiple of 16x EV/EBITDA – JDA Acquisition: 11x EV/EBITDA – Growth Rates › In conclusion, I believe the JDA acquisition is fairly valued at $45 per share, $1.9B
Recommendation
› Due to JDA Software’s RedPrairie acquisition, I am happy to be forced to recommend a sell – Svigals return: 50.2%, should we sell in the tender offer – Tall Firs return: 48.8% (sold for $44.72 on Friday Nov. 9 th )