TEXT-S&P revises JDA Software outlook to stable from negative

Thu Aug 16, 2012 10:59am EDT

Overview
     -- U.S. software applications provider JDA Software Group filed its 
Annual Report for the year ended Dec. 31, 2011, is current on its 2012 
Quarterly reports, and is in compliance with applicable filing requirements.
     -- The reports contain restated selected financial data for the years 
2007-2010. The restated results reflect a change in the timing of recorded 
revenue over the indicated periods.
     -- We are revising the outlook on JDA to stable from negative and are 
affirming our 'BB-' corporate credit rating and senior unsecured ratings on 
the company.
     -- The stable rating outlook incorporates our expectation that leverage 
will be managed at 4x or below over time.. 

Rating Action
On Aug. 16, 2012, Standard & Poor's Ratings Services revised its outlook on 
Scottsdale, Ariz.-based JDA Software Group Inc. to stable from
negative. We also affirmed our ratings on JDA, including our 'BB-' corporate
credit rating and our 'BB-' senior unsecured rating. The '3' recovery rating on
the senior unsecured debt remains unchanged.

The internal investigation led by JDA's audit committee found no indication of 
fraud or intentional wrongdoing. Additionally, the internal investigation did 
not reveal any issues with the existence of the recorded revenue or any impact 
to actual cash received or reported cash balances as of December 2011, 2010, 
and 2009. With its filings, JDA believes it is in compliance with applicable 
requirements.

Rationale
The ratings on JDA reflect its second-tier presence in a highly competitive 
and consolidating industry and its niche product offerings. A solid base of 
recurring revenues and currently moderate leverage for the rating partially 
offset these fundamental business characteristics. 

JDA is a provider of software applications offering a comprehensive suite of 
products, specializing in enterprise resource planning (ERP), 
supply-and-demand chain optimization, and analytics.

The acquisition of I2 Technologies Inc. expanded JDA's customer base and 
product capabilities into the discrete manufacturing market, provided 
additional scale, and should help JDA realize cost synergies through higher 
utilization and rationalization of the combined sales, product development, 
and service organizations. Revenues for 2011 were about $700 million with more 
than one-third of that amount from recurring annual service and subscription 
fees. Since the rating incorporates Standard & Poor's expectation for 
continued acquisitive growth, the company's established track record of 
integrating operations helps temper acquisition-related risk concerns.

Oracle Corp. and SAP AG are the foremost players in the market for core ERP 
software and services. They hold the majority share of the market, while the 
remaining ERP marketplace is highly fragmented. Oracle and SAP derive much of 
their business from large companies (greater than $5 billion in revenues). JDA 
primarily focuses on smaller, midsize companies ($100 million to $5 billion in 
revenues), a less penetrated market with higher growth prospects. 

JDA's "fair" business risk reflects its high customer retention rates, along 
with the fact that roughly 40% of revenues derive from maintenance contracts, 
support good revenue visibility, and enhance JDA's business position. Despite 
JDA's good market position in its niche, the company still faces competitive 
pressures from the leading players, which also participate in this segment and 
possess greater financial resources and technical capabilities.

JDA's "significant" financial risk profile reflects EBITDA margins in the 
mid-20% area, largely because of increased scale and cost-reduction efforts. 
JDA generated moderate free operating cash flow (FOCF; about $92 million in 
2011), helped, in part, by low capital expenditures (less than 3% of revenues) 
and minimal working capital requirements. Total debt to EBITDA is in the2x 
area. 

The company's financial flexibility has improved following the favorable 
settlement and final resolution of a lawsuit filed by a customer. 

JDA received a notice from the SEC requesting information related to revenue 
recognition and other accounting and financial reporting matters for certain 
past fiscal years. 

Liquidity
The company has "adequate" liquidity and can cover its needs for the 
foreseeable future, even if EBITDA declines moderately. In addition to good 
free cash flow generation, other liquidity sources consist of cash of $366 
million as of June 30, 2012), and currently full availability under its $100 
million revolving credit facility. The company is in compliance with all debt 
covenants.

Outlook
The stable rating outlook incorporates our expectation that leverage will be 
managed at 4x or below over time. We could, however, lower the rating if the 
company has issues integrating acquired operations, shifts to a more 
aggressive growth strategy, or implements shareholder-friendly initiatives 
leading to sustained leverage above 4.5x. 

A possible upgrade is not likely over the near term. We will monitor 
developments regarding the ongoing SEC inquiry and progress of remediating its 
material weakness in its internal control of financial reporting. 

Related Criteria And Research
     -- Industry Economic Outlook: Despite Economic Headwinds, Global 
Technology Shows Balanced Ratings Trend, July 9, 2012
     -- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, June 
29, 2012
     -- Performance For U.S. Semiconductor Equipment Makers Has Been Volatile, 
But Ratings Remain Stable, June 11, 2012
     -- Top 10 Investor Questions: How Will The Global Technology Industry 
Fare Amid An Economy In Flux?, April 26, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Global 
High Technology Industry, Oct. 15, 2009
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Ratings Affirmed; Outlook Action
                                        To                 From
JDA Software Group Inc.
 Corporate Credit Rating                BB-/Stable/--      BB-/Negative/--

Ratings Affirmed; Recovery Rating Unchanged

JDA Software Group Inc.
 Senior Unsecured                       BB-                
   Recovery Rating                      3                 


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article