During the third quarter of 2010, Non-GAAP EPS was impacted by several factors, including those related to the company’s transition to its hybrid software model where SaaS implementation costs are recognized when incurred, while the related professional service revenue typically is recognized over the estimated customer life. In addition, profitability was also affected by higher sales and marketing and R&D expenses.
CDC Software has shown a strong track record in successfully integrating acquisitions that can be largely attributed to its global technology and business infrastructure that offers compelling economies of scale, especially when utilizing the company’s global sales and back office shared services center.
For example, the CDC gomembers business, which was acquired late in the fourth quarter of 2009, recorded more than $1.0 million in total application sales for the third quarter 2010 and has continued to invest in business development initiatives. The company has also seen solid growth in its SaaS business, which included an increase in SaaS renewals and upselling.
CDC TradeBeam reported its best quarter in closed business for the year that included a Fortune 500 company, a seven digit multi-year expansion contract with a leading global manufacturer and a new logo sale with a multi-billion dollar technology company. CDC eCommerce, with its multi-channel commerce offerings, will soon be integrated with the CDC Supply Chain fulfillment platform at a leading retailing customer. This integration was the result of a cross-sell worth more than $700,000.
During the third quarter of 2010, CDC Software introduced several new products and version upgrades for its core on-premise ERP, supply chain management and complaint management applications including Ross PLM, its new product lifecycle management application, CDC Supply Chain’s iWMS v7 for extended warehouse and delivery management and Advance Order Management v10.1 and Respond 5.4, featuring additional multi-language support for Chinese, French, and Spanish. The company also delivered major versions of its Public and Not-for-Profit SaaS solutions with the launch of CDC gomembers version 4 and 4gov version 10, and a major upgrade of its multi-tenant, cloud-based CDC eCommerce platform with a new solution supporting mobile browsing and shopping. With the new CDC eCommerce upgrade, CDC Software delivers another channel to its multichannel commerce strategy that includes innovative technology directly addressing the call center, public marketplaces like eBay, the web and now mobile communications.
As we previously announced, CDC Software was recently recognized by Forrester Research as one of four companies cited as “Emerging Players to Watch” in the October 21, 2010 report: “The Forrester Wave™: B2C eCommerce Platforms, Q4 2010.”
CDC Software’s growth in its business is highlighted by increases in license revenue, new logo sales, application sales, and record cross-selling.
Sales highlights in the third quarter included new SaaS sales accounting for 43 percent of Total Contract Value (TCV); a balanced mix of sales in key verticals such as food and beverage, manufacturing, financial services, retail/wholesale and the not-for-profit/public sector; the highest number of new logo sales for Ross ERP products in two years; the CDC Factory product line, which generated 12 percent of total license revenues; and SaaS deals including a seven figure contract and two other separate deals between $700,000 and $750,000 each, one of which was a cross-sale with CDC Supply Chain and CDC eCommerce.
Another key part of CDC Software’s growth strategy is its Strategic Alliance Program. During the third quarter of 2010, CDC Software added one new original equipment manufacturer (OEM). CDC Software’s OEM sales pipeline has grown from $150,000 in the fourth quarter of 2009 to $1.5 million in the third quarter of 2010. In addition, partner revenue increased 21 percent to $5.8 million for the first nine months of 2010, compared to $4.8 million in the first nine months of 2009.
CDC Software is continuing to focus on emerging economies such as India, China and Russia since the company believes those regions present significant growth opportunities in the future. The Strategic Alliance Program is expected to be instrumental in expanding in those markets, and already through this program, a sizeable Pivotal CRM sale was completed in Russia during the third quarter of this year.
In addition, CDC Software is adding Beijing Hinge Xin Yuan Software Co, as its new franchise partner in China, which will help the company expand its CDC Platinum HRM solution into the large state-owned enterprise market. Through its Franchise Partner Program, CDC Software funds investments through the acquisition of majority control or minority stakes in strategic partners located in high growth geographies.
Since August 2010, CDC Software has purchased a total of 161,122 shares at an average price of $5.66 per share. To date, CDC Software, management and certain affiliates of the company, have purchased an aggregate of approximately 986,769 shares at an average price of $8.58 per share.
Peter Yip, CEO of CDC Software, said, “CDC Software was one of the first on-premise enterprise software companies to aggressively launch a hybrid software strategy last year and our third quarter results show not only healthy growth in our top line revenue, but also remarkable progress in expansion of our hybrid business. With an impressive 35 percent improvement in third quarter Total Contracted Backlog of $133.9 million compared to $99.3 million in the third quarter 2009, and increases in our recurring revenue for the third quarter, we expect to accomplish our previously announced goal to develop recurring revenue streams reaching closer to 70 percent of total revenue over the next few years.