JDAS Jda Software Grp., Inc. (MM)

JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply Chain Company®, today announced financial results for the first quarter ended March 31, 2011. JDA reported record first quarter revenues of $163.6 million, a 24 percent increase from $131.6 million of revenue reported in first quarter 2010. Software license and subscription revenues in the first quarter 2011 increased 27 percent to $36.5 million from $28.7 million in first quarter 2010.

Adjusted EBITDA increased 20 percent to $37.8 million in first quarter 2011 from $31.4 million in the first quarter of 2010. JDA also reported adjusted non-GAAP earnings per share for first quarter 2011 of $0.45, an 18 percent increase from the $0.38 per share reported in first quarter 2010. Adjusted non-GAAP earnings exclude amortization of acquired software technology and intangibles, restructuring charges, stock-based compensation and costs related to the acquisition and transition of i2 Technologies, Inc. (i2). Adjusted non-GAAP earnings in the first quarter 2011 also exclude a $37.5 million pre-tax credit associated with the favorable settlement of the patent infringement case against Oracle Corporation, of which $35.0 million in cash was received in the first quarter. GAAP net income attributable to common shareholders for first quarter 2011 was $45.5 million or $1.07 per diluted share, compared to a loss of $4.3 million or $0.11 per share in first quarter 2010. Results for 2010 include the completion of the acquisition of i2 as of January 28, 2010.

“We opened the year with a strong performance driven by record revenues in every line of business and finished the quarter with over $260 million of cash on hand,” said JDA Software President and Chief Executive Officer Hamish Brewer. “With a strong software pipeline outlook for the year we believe we are well positioned to achieve our overall goals for 2011.”

Software and Subscription

Software and subscription revenue increased 27 percent to $36.5 million in the first quarter 2011 from $28.7 million in the first quarter 2010. The increase was driven by continued strength in North America and solid results from the EMEA region. The average sales price for the trailing 12 months ended March 31, 2011 increased to $720,000 from $618,000 for the trailing 12 months ended March 31, 2010.

Maintenance and Support Services

Maintenance revenue increased 14 percent to $64.8 million in the first quarter 2011 from $57.1 million in the first quarter 2010. This increase was due to the acquisition of i2 and the strong attachment of maintenance contracts to new license deals. In addition, the year-to-date customer retention rate in the first quarter 2011 improved to 98.5 percent from 98.3 percent in 2010.

Consulting Services

Consulting services revenue increased 36 percent to $62.4 million in the first quarter 2011 from $45.8 million in the first quarter 2010. This increase was primarily due to the acquisition of i2 and increased implementation services work associated with larger software sales. Consulting services gross margins increased to 18 percent in first quarter 2011 from 17 percent in the first quarter 2010.

Other Financial Data

• Operating expenses as a percent of revenue continue to show the positive operating leverage effects of the i2 acquisition. Product development expenses as a percent of revenue improved to 12.3 percent in the first quarter 2011 compared to 13.1 percent in the first quarter 2010. Sales and marketing expenses as a percent of revenue remained constant at 16.0 percent in the first quarter 2011 compared to 16.0 percent in the first quarter 2010. General and administrative expenses as a percent of revenue increased slightly to 13.5 percent in the first quarter 2011 compared to 13.4 percent in the first quarter 2010.
• Cash flow provided by operations was $58.7 million (including $35.0 million from the Oracle litigation settlement) in first quarter 2011 compared to cash flow from operations of $12.2 million in first quarter 2010.
• Cash and cash equivalents, including restricted cash, increased $93 million to $260.5 million at March 31, 2011, from $167.5 million at March 31, 2010. The Company’s debt position, net of cash, at March 31, 2011 was $12.3 million.
• On March 18, 2011, JDA completed a $100 million Senior Secured Revolving Credit Facility providing additional liquidity to the company while taking advantage of the favorable rate environment. No amounts were drawn on the facility at March 31, 2011.

First Quarter 2011 Highlights

The following presents a high-level summary of JDA’s regional software sales performance:

• JDA reported $21.1 million in software license and subscription revenues in its Americas region during first quarter 2011, compared to $18.9 million in first quarter 2010. Companies signing new software licenses in first quarter 2011 include: Anna’s Linens, Inc., Black Photo Corporation, Brightpoint, Inc., Chico’s FAS, Inc., Coca-Cola Bottling Company Consolidated, Cooper Tire & Rubber Company, Nalco Holding Company, and Stonyfield Farm.
• Software license and subscription revenues in the Europe, Middle East and Africa (EMEA) region increased to $12.6 million in first quarter 2011, from $5.4 million in first quarter 2010. New software deals in the EMEA region include: Bon Preau SAU, Esselunga Supermercati SpA, Gloria Jeans, Soitec SA, and Gruppo Bennet.
• JDA’s Asia-Pacific region posted software license and subscription revenues of $2.8 million in first quarter 2011, compared to $4.4 million in first quarter 2010. Wins in this region include: SVI Public Company Limited.

Conference Call Information

JDA Software Group, Inc. will host a conference call at 4:45 p.m. Eastern time today to discuss earnings results for its first quarter ended March 31, 2011. To participate in the call, dial 1-877-941-4775 (United States) or 1-480-629-9761 (International) and ask the operator for the "JDA Software Group, Inc. First Quarter 2011 Earnings Conference Call." A live audio webcast of the conference call and detailed slide deck can be accessed by logging onto www.jda.com in the Investor Relations section.

A replay of the conference call will begin on April 26, 2011 at 8:00 p.m. Eastern time and will end on May 26, 2011. To hear a replay of the call over the Internet, access JDA’s website at www.jda.com.

About JDA Software Group, Inc.

JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply Chain Company®, is a leading global provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies®, Manugistics®, E3®, Intactix® and Arthur®. JDA’s multiple service options, delivered via the JDA® Private Cloud, provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise. To learn more, visit www.jda.com or e-mail info@jda.com.

JDA SOFTWARE GROUP, INC. Q1 2011 FINANCIAL RESULTS CONSOLIDATED STATEMENT OF OPERATIONS ($ in thousands, except per share data)    

Three Months Ended March 31,

 

% Increase

(Decrease)

  2011    

% ofRevenues

   

2010 (1)

 

 

% ofRevenues

  REVENUES:       Software licenses $ 31,480 19 % $ 24,437 19 % 29 % Subscriptions and other recurring revenues 4,994 3 % 4,287 3 % 16 % Maintenance services   64,768     40 %     57,060     43 % 14 % Product revenues 101,242 62 % 85,784 65 % 18 %   Consulting services 57,644 35 % 43,002 33 % 34 % Reimbursed expenses   4,720     3 %     2,845     2 % 66 % Services revenue 62,364 38 % 45,847 35 % 36 %               Total Revenues 163,606 100 % 131,631 100 % 24 %   COST OF REVENUES: Cost of software licenses 949 1 % 1,008 1 % -6 % Amortization of acquired software technology 1,834 1 % 1,576 1 % 16 % Cost of maintenance services   13,986     9 %     12,033     9 % 16 % Cost of product revenues 16,769 10 % 14,617 11 % 15 %   Cost of consulting services 46,602 28 % 35,269 27 % 32 % Reimbursed expenses   4,720     3 %     2,845     2 % 66 % Cost of service revenue 51,322 31 % 38,114 29 % 35 %               Total Cost of Revenues 68,091 42 % 52,731 40 % 29 %               GROSS PROFIT 95,515 58 % 78,900 60 % 21 %   OPERATING EXPENSES: Product development 20,136 12 % 17,277 13 % 17 % Sales and marketing 26,240 16 % 21,112 16 % 24 % General and administrative 22,088 14 % 17,697 13 % 25 % Amortization of intangibles 9,718 6 % 8,566 7 % 13 % Restructuring charges 542 0 % 7,758 6 % -93 % Acquisition-related costs - 0 % 6,743 5 % -100 % Litigation settlement (37,500 ) -23 % - 0 % NM               Total Operating Expenses 41,224 25 % 79,153 60 % -48 %               OPERATING INCOME (LOSS) 54,291 33 % (253 ) 0 % NM Interest expense and amortization of loan fees 6,211 4 % 6,086 5 % 2 % Interest income and other, net (1,270 ) -1 % (1,123 ) -1 % NM               INCOME (LOSS) BEFORE INCOME TAXES 49,350 30 % (5,216 ) -4 % NM Income tax provision (benefit) 3,822 2 % (948 ) -1 % NM               NET INCOME (LOSS) $ 45,528     28 %

 

$ (4,268 )   -3 % NM   EARNINGS PER SHARE: Basic $ 1.08 $ (0.11 ) NM Diluted $ 1.07 $ (0.11 ) NM WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 42,133 39,343 7 % Diluted 42,607 39,343 8 %

(1)

 

Includes results of i2 acquisition as of January 28, 2010.

Note: Subtotals may not add due to rounding.

JDA SOFTWARE GROUP, INC. Q1 2011 FINANCIAL RESULTS RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1) ($ in thousands, except per share data)               Three Months Ended March 31,  

% Increase(Decrease)

2011GAAP

 

Adj.

 

2011Non-GAAP

 

2010 (2)GAAP

 

Adj.

 

2010Non-GAAP

 

Non-GAAP

 

TOTAL COST OF REVENUES

$ 68,091 $ (2,665 ) $ 65,426 $ 52,731 $ (2,138 ) $ 50,593 29 % Stock-based compensation: Cost of maintenance services 13,986 (167 ) 13,819 12,033 (114 ) 11,919 Cost of consulting services 46,602 (664 ) 45,938 35,269 (448 ) 34,821   Amortization: Amortization of acquired software technology 1,834 (1,834 ) - 1,576 (1,576 ) -   TOTAL OPERATING EXPENSES $ 41,224 $ 22,498 $ 63,722 $ 79,153 $ (26,499 ) $ 52,654 21 % Stock-based compensation: Product development 20,136 (692 ) 19,444 17,277 (333 ) 16,944 Sales and marketing 26,240 (1,441 ) 24,799 21,112 (866 ) 20,246 General and administrative 22,088 (2,609 ) 19,479 17,697 (1,516 ) 16,181   Amortization of intangibles 9,718 (9,718 ) - 8,566 (8,566 ) - Restructuring charges 542 (542 ) - 7,758 (7,758 ) - Acquisition-related costs - - - 6,743 (6,743 ) -

Non-recurring transition costs to integrate acquisition

- - - 717 (717 ) - Litigation settlement (37,500 ) 37,500 - - - -   OPERATING INCOME (LOSS) $ 54,291 $ (19,833 ) $ 34,458 $ (253 ) $ 28,637 $ 28,384 21 %   OPERATING MARGIN % 33 % 21 % 0 % 22 % -1 %   INCOME TAX EFFECTS (3) $ 3,822 $ 6,509 $ 10,331 $ (948 ) $ 9,145 $ 8,197 26 %   NET INCOME (LOSS) $ 45,528 $ 19,186 $ (4,268 ) $ 15,224 26 %   DILUTED EARNINGS PER SHARE $ 1.07 $ 0.45 $ (0.11 ) $ 0.38 18 %   DILUTED WEIGHTED AVERAGE COMMON

SHARES OUTSTANDING

42,607 42,607 39,343 682 40,025 6 %  

2011Non-Adjusted

 

Adj.

 

2011Adjusted

 

2010Non-Adjusted

 

Adj.

 

2010Adjusted

  Net income (loss) $ 45,528 $ (4,268 ) Income tax provision (benefit) 3,822 (948 ) Interest expense and amortization of loan fees 6,211 6,086 Amortization of acquired software technology 1,834 1,576 Amortization of intangibles 9,718 8,566 Depreciation   3,364     3,006     EBITDA $ 70,477 $ 14,018   Restructuring charges $ 542 $ 7,758 Stock-based compensation 5,573 3,277 Acquisition-related costs - 6,743 Interest income and other, net (1,270 ) (1,123 )

Non-recurring transition costs to integrate acquisition

- 717 Litigation settlement   (37,500 )   -     EBITDA $ 70,477 $ (32,655 ) $ 37,822 $ 14,018 $ 17,372 $ 31,390 20 %   EBITDA MARGIN % 43 % 23 % 11 % 24 %

(1) This presentation includes Non-GAAP measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP. Management's presentation of non-GAAP financial measures is intended to be supplemental in nature and should not be considered in isolation or as a substitute for the most directly comparable GAAP measures.

  (2) Includes results of i2 acquisition as of January 28, 2010.   (3) Non-GAAP income tax effect calculated by using the Federal statutory rate of 35%. JDA SOFTWARE GROUP, INC. Q1 2011 FINANCIAL RESULTS CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands)    

March 31,2011

 

December 31,2010

  ASSETS   Current Assets: Cash and cash equivalents $ 226,131 $ 171,618 Restricted cash 34,397 34,855 Accounts receivable, net 138,680 102,118 Deferred tax assets—current portion 42,389

43,753

Prepaid expenses and other current assets   38,644       27,723   Total Current Assets 480,241 380,067   Non-Current Assets: Property and equipment, net 47,399 47,447 Goodwill 226,863 226,863 Other intangibles, net 175,846 187,398 Deferred tax assets—long-term portion 253,523 255,386 Other non-current assets   18,908       16,367   Total Non-Current Assets 722,539 733,461       TOTAL ASSETS $ 1,202,780     $ 1,113,528     LIABILITIES AND STOCKHOLDERS’ EQUITY   Current Liabilities: Accounts payable $ 12,093 $ 21,092 Accrued expenses and other liabilities 91,360 83,938 Income taxes payable - 318 Deferred revenue—current portion   130,379       88,055   Total Current Liabilities 233,832 193,403   Non-Current Liabilities: Long-term debt 272,818 272,695 Accrued exit and disposal obligations 6,296 7,360 Liability for uncertain tax positions 6,052 6,873 Deferred revenue—long-term portion   7,668       9,090   Total Non-Current Liabilities 292,834 296,018       TOTAL LIABILITIES $ 526,666     $ 489,421     Stockholders' Equity: Common stock 444 439 Additional paid-in capital 558,423 550,177 Retained earnings 137,260 91,732 Accumulated other comprehensive income 10,430 8,980 Treasury stock   (30,443 )     (27,221 ) Total Stockholders’ Equity 676,114 624,107       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,202,780     $ 1,113,528   JDA SOFTWARE GROUP, INC. Q1 2011 FINANCIAL RESULTS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW ($ in thousands)     Three Months Ended March 31,   2011       2010     Cash Flows From Operating Activities:   Net income (loss) $ 45,528 $ (4,268 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 14,916 13,148 Amortization of loan fees 501 427 Net (gain) loss on disposal of property and equipment (5 ) (5 ) Stock-based compensation 5,573 3,277 Deferred income taxes 3,226 (2,546 ) Changes in assets and liabilities, net of effects from business acquisition: Accounts receivable (36,417 ) (7,211 ) Income tax receivable (856 ) 1,076 Prepaid expenses and other assets (11,282 ) (7,889 ) Accounts payable (8,963 ) 550 Accrued expenses and other liabilities 6,532 (11,101 ) Income tax payable (1,134 ) (2,127 ) Deferred revenue   41,064     28,864   Net cash provided by operating activities $ 58,683   $ 12,195     Cash Flow From Investing Activities:   Change in restricted cash 458 276,177 Purchase of i2 Technologies, Inc. - (213,427 ) Payment of direct costs related to acquisitions (840 ) (850 ) Purchase of property and equipment (2,997 ) (533 )

Proceeds from disposal of property and equipment

  26     17   Net cash (used in) provided by investing activities $ (3,353 ) $ 61,384     Cash Flow From Financing Activities: Issuance of common stock—equity plans 3,002 10,904 Purchase of treasury stock and other, net (3,222 ) (3,392 ) Debt issuance costs   (1,656 )   -   Net cash (used in) provided by financing activities $ (1,876 ) $ 7,512     Effect of exchange rates on cash and cash equivalents   1,059     (1,248 ) Net increase in cash and cash equivalents $ 54,513   $ 79,843   Cash and Cash Equivalents, Beginning of Period $ 171,618   $ 75,974   Cash and Cash Equivalents, End of Period $ 226,131   $ 155,817   JDA SOFTWARE GROUP, INC. Q1 2011 FINANCIAL RESULTS SUPPLEMENTAL DATA ($ in thousands)    

2010 (1)

  2011 Q1   Q2   Q3   Q4   TOTAL   Q1   Q2   Q3   Q4   TOTAL                   REVENUES: Software licenses $ 24,437 $ 32,152 $ 16,276 $ 36,681 $ 109,546 $ 31,480 $ 31,480 Subscriptions and other recurring revenues 4,287 5,806 5,758 5,292 21,143 4,994 4,994 Maintenance services   57,060       60,594       64,186       64,401       246,241       64,768                   64,768   Product revenues 85,784 98,552 86,220 106,374 376,930 101,242 101,242   Consulting services 43,003 55,255 65,947 56,213 220,418 57,644 57,644 Reimbursed expenses   2,844       4,566       6,276       6,175       19,861       4,720                   4,720   Services revenue   45,847       59,821       72,223       62,388       240,279       62,364                   62,364   Total Revenues $ 131,631     $ 158,373     $ 158,443     $ 168,762     $ 617,209     $ 163,606                 $ 163,606     AS REPORTED REVENUE GROWTH RATES: Software licenses 70 % 21 % 0 % 33 % 29 % 29 % Subscriptions and other recurring revenues 343 % 483 % 543 % 422 % 446 % 16 % Maintenance services 33 % 37 % 43 % 37 % 37 % 14 % Product revenues 47 % 37 % 38 % 41 % 41 % 18 %   Consulting services 87 % 120 % 114 % 96 % 105 % 34 % Reimbursed expenses 44 % 86 % 128 % 114 % 97 % 66 % Services revenue 83 % 117 % 115 % 98 % 104 % 36 % Total Revenues 58 % 59 % 65 % 58 % 60 % 24 %                                         SOFTWARE LICENSE AND SUBSCRIPTION REVENUES: Americas $ 18,917 $ 27,080 $ 16,590 $ 31,026 $ 93,613 $ 21,104 $ 21,104 ASPAC 4,404 6,105 2,039 3,046 15,594 2,758 2,758 EMEA   5,403       4,773       3,405       7,901       21,482       12,612                   12,612   Total Software Revenues $ 28,724     $ 37,958     $ 22,034     $ 41,973     $ 130,689     $ 36,474                 $ 36,474     New sales $ 8,415 $ 8,080 $ 2,603 $ 8,042 $ 27,140 $ 4,819 $ 4,819 Install-base sales   20,309       29,878       19,431       33,931       103,549     $ 31,655                 $ 31,655   Total Software Revenues $ 28,724     $ 37,958     $ 22,034     $ 41,973     $ 130,689     $ 36,474                 $ 36,474     As % of Total New sales 29 % 21 % 12 % 19 % 21 % 13 % 13 % Install-base sales   71 %     79 %     88 %     81 %     79 %     87 %                 87 % Total Software Revenues 100 % 100 % 100 % 100 % 100 % 100 % 100 %                                         GROSS PROFIT MARGINS BY LINE OF BUSINESS (2) Software 91.0 % 92.9 % 86.7 % 92.7 % 91.4 % 92.4 % Maintenance 78.9 % 76.5 % 79.9 % 79.3 % 78.7 % 78.4 % Services 16.9 % 24.3 % 23.5 % 18.2 % 21.1 % 17.7 % Overall Gross Profit Margin 59.9 % 60.7 % 55.1 % 60.0 % 58.9 % 58.4 %  

MISCELLANEOUS

Average sales price (ASP) (3) $ 618 $ 608 $ 573 $ 601 $ 720 Multiple product deals (3) 21 18 17 19 21 Large deal count (greater than $1M) (3) 24 25 25 25 23 Quota carrying sales representatives 96 92 98 92 106 Maintenance Retention 98.3 % 97.3 % 95.9 % 95.6 % 98.5 %                                         FREE CASH FLOW (4) GAAP Operating Cash Flow $ 12,195 $ (2,627 ) $ 29,425 $ 26,179 $ 65,172 $ 58,683 Capital Expenditures   (533 )     (5,864 )     (8,388 )     (2,081 )     (16,866 )     (2,997 ) Free Cash Flow (5) $ 11,662     $ (8,491 )   $ 21,037     $ 24,098     $ 48,306     $ 55,686     % Growth over prior year -64 % -131 % 32 % 68 % -46 % 368 % (1) Includes results of i2 acquisition as of January 28, 2010. (2) Gross Profit Margins are calculated using line of business Revenue, less line of business Cost of Revenue, divided by line of business Revenue. (3) Trailing twelve months

(4) This presentation includes Non-GAAP measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP. Management's presentation of non-GAAP financial measures is intended to be supplemental in nature and should not be considered in isolation or as a substitute for the most directly comparable GAAP measures.

(5)Q1 2011 results Include $35.0 million of cash received from the settlement with Oracle Corporation.

“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally accompanied by words such as “will,” and “expect” and other words with forward-looking connotations. In this press release, such forward-looking statements include, without limitation, Mr. Brewer’s statement regarding having a strong software pipeline for the year and our belief that we are well positioned to achieve our overall goals for 2011. The occurrence of future events may involve a number of risks and uncertainties, including, but not limited to, the risk that for numerous reasons we may not convert our strong 2011 software pipeline into closed 2011 license transactions at the rate we expect, which would prevent us from achieving our 2011 goals, and other risks detailed from time to time in the “Risk Factors” section of our filings with the Securities and Exchange Commission. Additional information relating to the uncertainty affecting our business is contained in our filings with the SEC. As a result of these and other risks, actual results may differ materially from those predicted. JDA is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Information

This press release and the related conference call contain non-GAAP financial measures. In evaluating the Company’s performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP. Management’s presentation of non-GAAP financial measures is intended to be supplemental in nature and should not be considered in isolation or as a substitute for the most directly comparable GAAP measures.

Use and Economic Substance of Non-GAAP Financial Measures Used by JDA

The Company uses non-GAAP measures of performance, including adjusted net income, EBITDA (earnings before interest, taxes, depreciation and amortization) and earnings per share, in its public statements. Management uses, and chooses to disclose, these non-GAAP financial measures because (i) such measures provide an additional analytical tool to clarify the Company’s results from operations and help the Company to identify underlying trends in its results of operations; (ii) the Company uses non-GAAP earnings measures, including EBITDA, as a measure of profitability because such measures help the Company compare its performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company’s management in its own evaluation of performance and are utilized in financial and operational decision making processes, such as budget planning and forecasting. The Company also internally uses adjusted EBITDA measures for determining (a) compliance with certain financial covenants in its credit agreement and (b) executive and employee compensation. Set forth below are additional reasons why specific items are excluded from the Company’s non-GAAP financial measures:

• Amortization charges for acquired software technology are excluded because they result from prior acquisitions, rather than ongoing operations, and absent additional acquisitions, are expected to decline over time.
• Amortization charges for other intangibles are excluded because they are non-cash expenses, and while tangible and intangible assets support our business, we do not believe the related amortization costs are directly attributable to the operating performance of our business.
• Restructuring charges are significant non-routine expenses that cannot be predicted and typically relate to a change in our business model or to a change in our estimate of the costs to complete a plan to exit an activity of an acquired company. The exclusion of these charges promotes period-to-period comparisons and transparency. Such charges are primarily related to severance costs and/or the disposition of excess facilities driven by the changes to our business model.
• Stock-based compensation is not an expense that typically requires or will require cash settlement by the Company.
• Acquisition-related costs associated with the acquisition of i2, the settlement offer related to inherited i2 litigation and the non-recurring transition costs to integrate the acquisition are significant non-routine expenses. Exclusion of these costs promotes period-to-period comparisons and transparency as we do not believe these costs are directly attributable to the operating performance of our business.

Material Limitations (and Compensation thereof) Associated with the Use of Non-GAAP Financial Measures

Non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for the Company’s GAAP results. In the future, the Company expects to continue reporting non-GAAP financial measures excluding items described above and the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above. Accordingly, exclusion of these and other similar items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Some of the limitations in relying on non-GAAP financial measures are:

• Amortization of acquired technology and intangibles, though not directly affecting our current cash position, represent the loss in value as the technology in our industry evolves, is advanced or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry which is addressed through our research and development program.
• The Company may engage in acquisition transactions in the future. In addition, we incur other restructuring charges from time to time when necessary to adjust our business model. Restructuring related charges may therefore continue to be incurred and should not be viewed as non-recurring.
• Stock-based compensation is an important component of our incentive compensation arrangements and will be reflected as expenses in our GAAP results for the foreseeable future.
• Other companies, including other companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure.

We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP financial measures only supplementally. We also provide reconciliations of each non-GAAP financial measure to our most directly comparable GAAP measure, and we encourage investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

The Company believes that the presentation of these non-GAAP financial measures is warranted for several reasons. First, such non-GAAP financial measures provide investors and management an additional analytical tool for understanding the Company’s financial performance by excluding the impact of items which may obscure trends in the core operating performance of the business. Second, since the Company has historically reported non-GAAP results to the investment community, the Company believes the inclusion of non-GAAP numbers provides consistency and enhances investors’ ability to compare the Company’s performance across financial reporting periods.