CDC Software Corporation (NASDAQ: CDCS), a global provider of
hybrid enterprise software applications and services, today
announced that, based on preliminary financial projections and
estimates, the company expects double digit growth in second
quarter 2010 application sales, which is comprised of license
revenue plus new total contract value (TCV) for
Software-as-a-Service (SaaS) sales secured during the second
quarter of 2010, compared to second quarter of 2009 which did not
include SaaS sales, as a result of increased new logo sales for its
on-premise solutions and expanded cloud sales.
“We are very pleased about our projections for double digit
application sales growth for the second quarter as a result of
strong increases in on-premise and SaaS sales we have been seeing,”
said Bruce Cameron, president of CDC Software. “We are focused on
expanding our higher margin recurring revenue stream, such as SaaS
revenue, and expect this will gradually increase our gross margin.
For instance, we are moving our lower margin Professional Services
work to our implementations partners which we expect will increase
our gross margin, as well as the percent of recurring revenue from
maintenance and from SaaS recurring revenue. As we have said
before, we believe that the key to our long-term growth strategy is
to develop recurring revenue streams reaching closer to 70 percent
of total revenue over the next few years, after completion of our
planned SaaS acquisitions and our strategic investments in SaaS
companies.”
Since late last year, CDC Software has been executing a three
prong SaaS strategy that includes acquisitions of SaaS companies,
its Strategic Cloud Investment Program (SCIPP) and the future
launch of its internally developed SaaS solutions. Since the end of
2009, CDC Software has acquired four new SaaS companies, all of
which are earnings accretive, and plans more acquisitions by the
end of the year. Under SCIPP, CDC Software plans to make minority
investments in, and form strategic reselling partnerships with,
companies offering cloud-based or point solutions which complement
its enterprise solutions portfolio. Since SCIPP’s inception in the
second quarter of 2010, CDC Software has invested in e-BizNET, a
provider of SaaS supply chain execution solutions, and
Marketbright, a provider of SaaS marketing automation solutions.
CDC Software announced last week that its CDC Respond complaint
management solution will be its first cloud application developed
on the Windows Azure platform.
Cameron added, “We have been seeing positive trends in our
on-premise sales and we have been executing on our three prong SaaS
strategy to grow recurring SaaS revenue. Already, we are very
pleased with the performance of our recently acquired companies
which have exceeded our internal expectations. For instance, we
have been seeing several six digit contracts in our SaaS pipeline
and our SaaS solutions have been proving to be very sticky, with
nearly 100 percent renewal rates. Furthermore, we believe we are
one of the first enterprise software companies with a SaaS rollup
strategy, and we plan to continue making more of these acquisitions
by the end of the year that fit within our valuation criteria. CDC
Software has solid cash on hand, and with our new Wells Fargo
credit facility, we believe we have the flexibility to acquire
larger scale SaaS companies if it is a good fit.”
According to Cameron, “Our guidance reflects our move to a
hybrid model and our focus on generating more SaaS business. As a
result, we believe that we will recognize less revenue up front
compared to our traditional license model, and will also be
realizing more expenses in R&D, sales and marketing and other
integration-related costs as we ramp up our SaaS business.
Nonetheless, we believe our 2010 and 2011 EPS forecast may be one
of the highest compared to our hybrid enterprise software peer
groups.”
Based on preliminary financial projections and estimates, CDC
Software is providing its first guidance as a hybrid enterprise
software company, and expects 2010 Non-GAAP earnings per share(a)
to be in a range of $1.15 to $1.25 and Non-GAAP revenue(a) to be in
the range of $220 to $230 million. CDC Software also expects 2011
earnings per share to be in the range of $1.35 to $1.45 and
Non-GAAP revenue to be in the range of $245 million to $255
million. The company believes that this EPS guidance for 2010
better reflects CDC Software’s hybrid enterprise software operating
model that includes increased spending in research and development
and sales and marketing, and the integration costs of its SaaS
acquisitions. The 2010 Non-GAAP revenue guidance also includes the
potential effects of two to three significant SaaS acquisitions
that the company may pursue.
Based upon current projections and estimates, total annualized
recurring revenue is also expected to be approximately 55 percent
of total revenue by the end of 2010 and approximately 60 percent by
the end of 2011. Also, SaaS revenue is expected to be about $18.9
million for 2010 and $48 million for 2011. TCV is expected to be
about $50 million by Dec. 31, 2010 and close to $100 million by the
end of 2011. With TCV, plus CDC Software’s approximately $100
million maintenance revenue, the Total Contracted Recurring revenue
is expected to be close to $200 million by 2011.
Cameron concluded, “With our healthy sales momentum, recurring
revenue growth, organic growth, efficient cost management and the
synergistic acquisitions we have recently completed, along with the
inroads we made with license sales in emerging growth economies
such as India and China, I feel cautiously optimistic on our
long-term prospects. I also believe that CDC Software will continue
to strive to improve its business fundamentals and operational
metrics in the future.”
(a) Adjusted Financial Measures
This press release includes Non-GAAP earnings per share and
Non-GAAP revenue, which are not prepared in accordance with GAAP
("Non-GAAP Financial Measures"). Non-GAAP Financial Measures are
not alternatives for measures such as earnings per share or revenue
prepared under generally accepted accounting principles in the
United States ("GAAP"). These Non-GAAP Financial measures may also
be different from Non-GAAP measures used by other companies.
Non-GAAP Financial Measures should not be used as a substitute for,
or considered superior to, measures of financial performance
prepared in accordance with GAAP.
Investors should be aware that these Non-GAAP Financial Measures
have inherent limitations, including their variance from certain of
the financial measurement principals underlying GAAP, should not be
considered as a replacement for GAAP performance measures, and
should be read in conjunction with our consolidated financial
statements prepared in accordance with GAAP. These supplemental
Non-GAAP Financial Measures should not be construed as an inference
that the Company's future results will be unaffected by similar
adjustments to net earnings determined in accordance with GAAP.
* Special Note Regarding CDC Software Financial Projections and
Guidance
The financial estimates and guidance contained herein apply only
to CDC Software Corporation, a subsidiary of CDC Corporation. These
estimates and guidance amounts do not apply to, and are not
indicative of, the expected consolidated financial performance of
CDC Corporation, or the expected financial performance of CDC Games
Corporation, China.com, Inc. or any of their respective
subsidiaries. Investors are cautioned not to place reliance on the
financial estimates and guidance set forth herein for purposes of
any investment decision with respect to the shares of CDC
Corporation, and should read the foregoing in conjunction with the
reports and other materials filed with the United States Securities
and Exchange Commission by CDC Corporation and CDC Software
Corporation, from time to time.
About CDC
Software
CDC Software (NASDAQ: CDCS), The Customer-Driven Company™, is a
hybrid enterprise software provider of on-premise and cloud
deployments. Leveraging a service-oriented architecture (SOA), CDC
Software offers multiple delivery options for their solutions
including on-premise, hosted, cloud-based Software as a Service
(SaaS) or blended-hybrid deployment offerings. CDC Software’s
solutions include enterprise resource planning (ERP), manufacturing
operations management, enterprise manufacturing intelligence,
supply chain management (demand management, order management and
warehouse and transportation management), global trade management,
e-Commerce, human capital management, customer relationship
management (CRM), complaint management and aged care solutions.
CDC Software’s recent acquisitions are part of its “acquire,
integrate, innovate and grow” strategy. Fueling the success of this
strategy is the company’s global scalable business and
technology infrastructure featuring multiple complementary
applications and services, domain expertise in vertical markets,
cost effective product engineering centers in India and China, a
highly collaborative and fast product development process utilizing
Agile methodologies, and a worldwide network of direct sales and
channel operations. This strategy has helped CDC Software deliver
innovative and industry-specific solutions to 8,000 customers
worldwide within the manufacturing, distribution, transportation,
retail, government, real estate, financial services, health care,
and not-for-profit industries. For more information, please visit
www.cdcsoftware.com.
Cautionary Note Regarding Forward-Looking Statements
This press release includes "forward-looking statements" within
the meaning of the United States Private Securities Litigation
Reform Act of 1995. These forward-looking statements include
statements regarding our expectations relating to our expectations
for increases in second quarter 2010 application sales and the
magnitude thereof, our projections regarding increases in on
premise and SaaS sales, our expectations regarding potential
increases in gross margin and the reasons therefor, our beliefs
regarding our long-term strategy and the manner in which to achieve
it, our beliefs regarding any trends or patterns we have seen, and
the potential continuation thereof, our beliefs regarding planned
acquisitions and the completion thereof, our beliefs and plans with
respect to future products, such as the development of CDC Respond
on the Windows Azure platform, our expectations regarding recent
deal size in our SaaS pipeline, our beliefs regarding stickiness or
renewal rates of our contracts, our beliefs regarding cash on hand
and our ability to consummate larger scale SaaS acquisitions, our
beliefs regarding revenue recognition and expenses, our beliefs
regarding planned future acquisitions and strategic investments,
our beliefs regarding 2010 and 2011 earnings per share and our
expectations in relation to the performance of our peers, our
expectations regarding 2010 and 2011 Non-GAAP earnings per share
and Non-GAAP revenue, our beliefs regarding our estimates and
projections, our beliefs regarding total annualized recurring
revenue, SaaS revenue, TCV and Total Contracted Revenue, our
beliefs regarding improvements in our business fundamentals and
operational metrics in the future, our beliefs regarding our Q2
2010 pipeline and our expectations regarding increases in new logo
license sales, sales to our installed base customers and our sales
pipeline, our beliefs regarding license sales from newly-acquired
companies including the continuation thereof, our beliefs regarding
reasons for increases in revenues, and other statements that are
not historical fact, the achievement of which involve risks,
uncertainties and assumptions. If any such risks or uncertainties
materialize or if any of the assumptions proves incorrect, our
results could differ materially from the results expressed or
implied by the forward-looking statements we make. These statements
are based on management's current expectations and are subject to
risks and uncertainties and changes in circumstances. There are
important factors that could cause actual results to differ
materially from those anticipated in the forward looking
statements, including the following: (a) the ability to realize
strategic objectives by taking advantage of market opportunities in
targeted geographic markets; (b) the ability to make changes in
business strategy, development plans and product offerings to
respond to the needs of current, new and potential customers,
suppliers and strategic partners; (c) the effects of restructurings
and rationalization of operations; (d) the ability to address
technological changes and developments including the development
and enhancement of products; (e) the entry of new competitors and
their technological advances; (f) the need to develop, integrate
and deploy enterprise software applications to meet customer's
requirements; (g) the possibility of development or deployment
difficulties or delays; (h) the dependence on customer satisfaction
with the company's software products and services; (i) continued
commitment to the deployment of the enterprise software solutions;
(j) risks involved in developing software solutions and integrating
them with third-party software and services; (k) the continued
ability of the company's enterprise software solutions to address
client-specific requirements; (l) demand for and market acceptance
of new and existing enterprise software and services and the
positioning of the company's solutions; (m) the ability of staff to
operate the enterprise software and extract and utilize information
from the company's enterprise software solutions; (n) the continued
cooperation of our strategic and business partners; (o) risks
relating to economic conditions and other matters beyond our
control; and (p) the risk that the preliminary financial results
provided herein could differ from our actual results. Further
information on risks or other factors that could cause results to
differ is detailed in our filings or submissions with the United
States Securities and Exchange Commission, and those of our
ultimate parent company, CDC Corporation, located at www.sec.gov.
All forward-looking statements included in this press release are
based upon information available to management as of the date of
the press release, and you are cautioned not to place undue
reliance on any forward looking statements which speak only as of
the date of this press release. The company assumes no obligation
to update or alter the forward looking statements whether as a
result of new information, future events or otherwise. Historical
results are not indicative of future performance.
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