You are on page 1of 21

Buy Presentation

March 14, 2015

Blake Klasios
Siddhant Dilawari
Avneet Multani
Jeffery Lee
Adam Steinberg

Jerry Du

Table of Contents
I.
II.
III.
IV.
V.
VI.

Business Overview
Management Overview
Investment Thesis
Valuation
Risks and Catalysts
Conclusion

Business Overview

Business Overview
Business Description

Revenue Breakdown by Geography

QAD provides on-premise and cloudbased Enterprise Resource Planning


(ERP) software to the manufacturing
sector
QAD delivers solutions both in the cloud
and on-premise, providing ongoing
support to customers ensuring they have
access to the latest features of the QAD
software.
Currently, the cloud-based service
comprises 10% of QAD's business.

LA, 6%

Market Cap
52 Week Range

Current Price
EPS
Dividend

NA, 43%
EMEA,
34%

Key Financials
Ticker

AP,
17%

Market Performance
NASDAQ: QADA
385M

25
23

$17.05-23.07

21

$21.49

19

0.62

17

1.12%

15

Business Overview
QADs Approach to ERP The Effective Enterprise

At the core of our solutions is our ERP suite called QAD Enterprise Applications and is also deployed in the cloud as QAD Cloud
ERP

Business Overview
Revenue Breakdown

13%
9%
49%

Licenses
Subscription
Services

29%

On-Premise

Licenses
New customers/users
New divisions
New models
Services
New implementations
Upgrades
Maintenance
High Retention

Maintenance

Cloud

Subscriptions
New customers/users
New divisions
New models

Business Overview
QAD Solutions

Services Provided

Products and services support business


processes of global manufacturing companies
in our target industries.
The ERP suite, QAD Enterprise Applications, are
available on-premise, in the cloud as QAD
Cloud ERP or under a blended deployment
model combining both of these deployment
offerings.
QAD enables seamless integration between
QAD Enterprise Applications and common browser
applications and spreadsheets.

Implementation of QAD Solutions


Migrations
Upgrades
Conversions
Integration
Systems Management
Training and Education
Application Management
Business Process Improvement
Pre-Defined Consulting Engagements

Industries Served

31%

21%
16%

32%

Consumer &
Food/Beverage
Automotive
HighTech & Industrial
Life Sciences

Business Overview
ERP (Enterprise Resource Planning)

A process by which a company manages and integrates


the important parts of its business. An ERP system
integrates areas such as planning, purchasing, inventory,
sales, marketing, finance, human resources, etc.

Think of ERP as the glue that binds the different computer


systems for a large organization.

With ERP, each department still has their own system, but
they can communicate and share information easier with the
rest of the company.

Technology Adoption Cycle

The Cloud
QAD delivers our core ERP offering and many other solutions
in the cloud, charging a subscription fee for access to these
software-as-a-service (SaaS) solutions. We refer to these
solutions collectively as components of the QAD Enterprise
Cloud. Within the QAD Enterprise Cloud we have QAD Cloud
Apps, QAD Cloud Services and the QAD Cloud Portal.

Cloud Benefits

Full Strength & Global ERP


Flexibility
Accessible Anywhere
Reduced Risk (Cost predictability)

Management & Shareholder Analysis

Management & Shareholder Analysis


Class A and B Share Split

Class B
20%

Class A
80%

Class A

Most of the shares (11.6M out of 16.8M shares


73%) are held by the CEO and President (Insiders)

CEO recently sold 1M shares in January 2015 at a


price of $20 each, possibly to dilute his ownership
in the company and gain more external investor
interest

Mixed buy/sell activity from the institution side

High level of control held by the key officers


indicates a strong dedication towards the growth of
the company

Class B
Institutions 17%

Institutions 23%

77%

83%

Tikvah Management is the


largest institutional holder,
with 3.7% of Class A shares

Invest in small to large


cap stocks, mainly
financials and technology.

Management & Shareholder Analysis


Management tenure has been very long
compared to the industry

CEO and President both served for 34+


years

All key officers have 10+ years of


service at QAD

Indicates a high level of attachment to


the company and dedication to drive
good results in the future

QAD Vision: The Effective Enterprise


Consists of businesses (clients)
operating at peak efficiency through
QADs system software solutions

Investment Thesis
I. Transition from on-premise software to cloud-based
II. Improving margins from conversion
III. Undervalued compared peers (Valuation)

Transition to Cloud-based Software


Cloud-based software will drive revenue growth
In past three years, QAD has grown its cloud business at 40%+ due to strong investment and
focus
Forecasted to continue growing subscription-based cloud business for the nest three years at

40-50%
Companies in the automotive, consumer, food and beverage, technology, and life sciences
industries are interested in paying a subscription fee instead of maintaining IT infrastructure

Conversion to cloud
Grow
cloud
revenues

Revenue Breakdown

On
premise
customers

10%

Cloud
On Premise
Realize 34x the
annual
revenue

Convert to
cloud

90%

Improving Margins from Conversion


Strong margins from cloud
Currently operates at a 40% gross margin; however, this is projected to improve to 60-70% in
the next five years
Can cut R&D expense and realize leverage across its hardware and storage, software, and IT

administrative personnel costs


As revenue increases, gross margins will trend toward the 65% level

Valuation
I. Discounted Cash Flow
II. Comparable Companies

Valuation: Comparable Companies


Ticker

Name

Mkt Cap (USD $M)

P/E

EV/EBITDA T12M EV/Sales T12M

GSB US Equity

GLOBALSCAPE INC

66.5

21.1x

8.9x

1.6x

RKN CN Equity

REDKNEE SOLUTIONS INC

329.7

N/A

17.4x

1.1x

IL US Equity

INTRALINKS HOLDINGS INC

585.4

N/A

18.8x

2.x

VDSI US Equity

VASCO DATA SECURITY INTL

868.3

26.8x

22.2x

4.9x

PRGS US Equity

PROGRESS SOFTWARE CORP

1,352.8

24.4x

10.5x

3.x

PEGA US Equity

PEGASYSTEMS INC

1,513.5

46.6x

17.9x

2.3x

MSTR US Equity

MICROSTRATEGY INC-CL A

1,845.3

123.8x

49.1x

2.6x

CVLT US Equity

COMMVAULT SYSTEMS INC

2,033.4

56.6x

29.2x

3.2x

SWI US Equity

SOLARWINDS INC

3,652.4

41.9x

25.4x

8.2x

MEDIAN

41.9x

18.8x

2.6x

AVG

48.7x

22.2x

3.2x

MIN

21.1x

8.9x

1.1x

25TH

25.6x

17.4x

2.0x

75TH

51.6x

25.4x

3.2x

MAX

123.8x

49.1x

8.2x

37.4x

12.1x

0.8x

QADA US Equity

QAD INC-A

385.5

Valuation: DCF

Implied Share Price:

$26.16

Valuation: DCF

Risks & Catalysts

Risks & Catalysts


There are a number of discernible catalysts that will positively affect QADs share value
in the near future
Risks

QAD has a unique dual share structure,


which makes it difficult for shareholders to
replace the management group

This could depress future value if the


management team is inefficient and
performs poorly
QAD faces substantial currency risk, as 55%
of its revenues are generated overseas

The business does not hedge against


currency fluctuations
The businesss cloud business has margins
of 40%, below its overall gross margins

There must be a focus on improving


margins in the cloud business

Catalysts

In the past, QAD has had limited analyst


coverage

Limited coverage has depressed share


value
QADs cloud business is poised to grow
substantially in the future

Analysts are projecting annual growth rates


of over 40% in the industry of the new few
years

This will provide additional subscriptionbased revenue


QAD is transitioning its products to cloudbased software

This will grow the businesss top-line


revenue and bolster margins

Thank You.