1. QAD Revenue Recognition Solution
QAD March 2017 Launch/ MWUG Meeting
QAD Revenue Recognition Solution
Patrick Grace, QAD Solutions Consultant
March 20th 2017
Today I will provide you with an update on the QAD Revenue Recognition solution offered to assist customers meet both existing revenue recognition requirements and to aid compliance with new accounting guidelines ASC 606 & IFRS 15. I will also review the release status of the QAD offering and provide an overview of market research conducted on customer revenue recognition requirements.

2. Safe Harbor Statement QAD Revenue Recognition Solution
This presentation includes forward-looking statements about QAD and its business. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in QAD’s SEC filings, including the company's latest Annual Report on Form 10-K dated April 15, 2016 and in particular the section titled “Risk Factors” therein and other periodic reports the company files with the Securities and Exchange Commission thereafter. This presentation contains certain references to financial measures that have been adjusted to exclude certain expenses and other specified items. These financial measures differ from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in that they exclude unusual or non-recurring charges, losses, credits or gains. This presentation identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Management believes that financial presentations excluding the impact of these items provide useful supplemental information that is important to a proper understanding of the Company’s business results by investors. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies. The following is intended to outline QAD’s general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, functional capabilities, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functional capabilities described for QAD’s products remains at the sole discretion of QAD. QAD undertakes no obligation to update forward-looking statements.
Before we start, please make sure you are aware of the QAD Safe Harbor Statement.
To summarize, the following presentation outlines QAD’s general product direction, but cannot be incorporated into any contract or referred to as a commitment.

3. Topics QAD Revenue Solution Background Examples of Impacted Areas
QAD Revenue Recognition Solution
Topics
QAD Revenue Solution Background
Examples of Impacted Areas
Revenue Module Functionality
Revenue Recognition Challenges Solved
Who Can Benefit and Value
QAD Revenue Recognition Solution
What’s Unique
Release Status
Market Research Update
Potential Future Scenarios
The topics I will cover today begin with a review of the QAD revenue recognition solution and <C>details of the revenue module functionality. <C>I will explain the benefits customers can derive from implementing the module and the business challenges that can be overcome. <C> and then outline the benefits to customers of using the QAD Revenue solution. <C> I will describe what is unique about our offering <C> Then I will move on to discuss the release status of the revenue module <C> and also provide some insights into QAD market research in the area. <C> Finally I will outline potential future scenarios that may arise for customers impacted by revenue recognition requirements. <C>

4. QAD Revenue Module Background
QAD Revenue Recognition Module
QAD Revenue Module Background
Existing revenue recognition requirements within customer base
Effective date for public entities with annual reporting periods beginning after December 15, 2017
ASC 606 / IFRS 15 – Revenue from contracts with customers
Revenue recognition can become more complicated for manufacturing companies
Identify contract with customer
Identify performance obligations in contract
Determine transaction price
Allocate transaction price to performance obligations
Recognize revenue when (or as) entity satisfies performance obligation
The drive behind creation of the QAD Revenue Solution was due to new converged accounting standards for revenue recognition Accounting Standards Codification (ASC 606) & International Financial Reporting Stanndard (IFRS 15) becoming effective after December 15th <C> The revenue accounting guidelines can introduce new complexities to the timing and amount of revenue recognised in financial statements for manufacturing companies. <C>It is worth noting, customers in certain industries already face similar revenue recognition requirements under either US or International accounting standards before now. There has been limited support for revenue recognition in QAD applications, with that support largely limited to SSM, or to the use of consignment type functionality to control the point at which revenue is recognised. <C>
The QAD Revenue module provides functionality to assist existing and new revenue recognition requirements for customers across all QAD verticals. The chart shown outlines the five step process for revenue recognition as defined by the new standards and requests companies to use these steps in a conceptual manner depending on their business circumstances. The solution offered by QAD aims to reduce manual intervention and assist customers with effective compliance.

5. Examples of Impacted Areas
QAD Revenue Recognition Module
Examples of Impacted Areas
Interrelated goods & services on same sales order
Tooling & Engineering
Interdependent items on the same sales order
Changing prices during life of an order
Provision of warranty with goods
Sale of goods with:
volume discounts
rebates
financing arrangements
discounted settlement terms
sale or return basis
The following are business practices that may be affected by differences in timing between invoicing and revenue recognition. The Revenue module provides an automated solution to deal with these circumstances. L

6. Revenue Module Functionality
QAD Revenue Recognition Solution
Revenue Module Functionality
Revenue contract creation
Identify and create performance obligations
Pre-defined revenue recognition rules
Support for allocated transaction price
Revenue recognition engine
Detailed sub ledger transactions
Audit trail on contract changes
Management and statutory reporting
Functionality within the revenue module has been designed to assist existing and new customer revenue recognition requirements and includes the following aspects: <C>
The identification of contracts for revenue recognition purposes, which may not match with a single sales order in the system <C>
The definition of individual performance obligations within the contract against which revenue may be allocated and recognised once the performance obligation has been met <C>
Revenue rules to define the timing and pattern of revenue recognition, for example point in time or over time <C>
Support for allocated transaction price which allocates revenue to discounted items in a contract based on each items standalone selling price <C>
A revenue engine calculates and posts revenue to the general ledger based on amounts defined for each item in a contract, the satisfaction of a performance obligation and which type of revenue rule has been assigned <C>
Detailed sub ledger of all revenue postings <C>
Audit trail on posted transactions, contract changes and revisions <C>
And management and statutory reporting using predefined reports and existing QAD Financials FRW reporting tool <C>

7. Revenue Recognition Module
QAD Revenue Recognition Module Introduction
Revenue Recognition Module
Enterprise Edition only solution
The QAD Revenue Module is an Enterprise Edition only solution and links system functionality to accounting standard guidelines. R

8. Revenue Recognition Challenges Solved
QAD Revenue Recognition Solution
Revenue Recognition Challenges Solved
Business Driver
Customer Pain
Industries
High level overview of most common business drivers.
What pain does this cause the customer?
Which industries does this affect?
Interrelated goods and services on same contract
Revenue may need to be recognised only when all items are delivered
Auto, LS, CP/ F&B
Sales of goods with discounts / rebates
Amount & timing of revenue recognition may change
Auto, LS, CP/ F&B
Medical bill and hold practices
Revenue can be recognised before delivery to customer LS
Automotive Tooling and Engineering charges
Charging customer for contractually agreed T&E services
Auto
<C> The accounting guidance for revenue recognition has established principles to report information to users of financial statements about the nature, amount, timing and uncertainty of revenue from contracts with customers. Now I will outline some business practices requiring specific treatment for revenue recognition compliance that are targeted by the revenue solution. <C>
Goods and services on same order that are interrelated or cannot be used independently. In this instance revenue may need to be recognized only when all elements in the contract are delivered <C>
Selling goods with contractually agreed volume discounts, rebates or financing arrangements; the amount and timing of revenue to be recognized might have to change. Price changes may need to be anticipated and allocated to goods delivered. <C>
Certain customers of QAD have practices whereby the rules to recognise revenue have been met but the customer has requested delayed delivery of goods for example in the Life Sciences industry. <C>
In the automotive industry it is common to bill customers for tooling and engineering costs incurred during the production cycle. The customers we have spoken with are still investigating how to account for this practice under the new revenue guidance so we await an update in this area.
R&D have additional examples of customer specific requirements to recognise revenue if you require more information to assist with customer engagements.

9. Who Can Benefit and Value
QAD Revenue Recognition Solution
Who Can Benefit and Value
Who Can Benefit
Value
CEO, CFO
Revenue standard compliance allows approval of financial statements by auditors
Revenue Accountant/ Manager
Efficient processing of customer revenue in accounting system to agree with new revenue rules
Revenue Official / Administrator
Streamlined processing of revenue transactions in accounting system with minimal manual effort
The finance department of each organization is responsible for revenue accounting. The new rules can introduce a significant change to accounting processes regarding when and how to recognize revenue. The goal of the revenue recognition solution is to reduce the impact of these changes and provide solutions for existing customer revenue recognition requirements.
The target personas begin at corporate level and filter down to administration. <C>
The CEO requires the financial statements to reflect a true & fair view of the business activities for the reporting period. The CFO has overall responsibility for company finances and requires accurate, compliant accounts that will be signed off by auditors. <C>
The Revenue Accountant is responsible for all aspects of revenue recording and reporting and will want transactions processed correctly and efficiently. <C>
The Revenue Official will want transactions processed in the correct manner with a low amount of manual intervention.

10. QAD Revenue Module Benefits
QAD Revenue Recognition Solution
QAD Revenue Module Benefits
Risk reduction
Replace manual processes
Audit trail
Improved visibility
Single vendor
Integrated system
Reduce cost
Less expensive than manual processes and 3rd party solutions
The QAD revenue module will assist customers to ensure accuracy of revenue in the financial accounts with improved automation of transaction processing. This will help reduce the risk of error when reporting revenue. Audit trail is provided on transaction flows and contract changes offering improved visibility of revenue contracts within a business. This comes from an integrated revenue module within the QAD suite of products. <C>
The module eliminates the requirement to use expensive third party software thus allowing an integrated system for all financial transaction processing. The cost of third party specialist software can be prohibitive for a company wishing to implement an automated revenue solution and QAD offers a more cost effective alternative.

11. QAD Revenue Recognition Solution
Revenue Recognition Assessment
Services Q-Scan
Revenue Recognition Module
Enterprise Edition only
Embedded in QAD Financials 2017
Module separately charged
Revenue Recognition Hub
Under investigation
The QAD revenue recognition solution includes three aspects: <C>
A Revenue Q-Scan provided by services will review customer systems and help choose the most suitable course of action to aid compliance with the new accounting guidelines. A prerequisite prior to customer engagement is the customer should have completed research into the area and engaged with auditors to discuss accounting effects of the guidelines on their business. <C>
The Revenue Recognition module will provide functionality to assist manufacturing companies as they account for revenue and meet existing and new compliance requirements. The module is available within Enterprise Edition and will be separately sold<C>
A proposed revenue recognition hub is under investigation and may provide functionality to customers on Standard Edition or earlier releases who cannot upgrade to Enterprise Edition. This option is currently pending customer interest.

12. Revenue Recognition Hub
QAD Revenue Recognition Module
Revenue Recognition Hub
Optional solution for pre-EE customers to use the Revenue Recognition module
Ability to integrate to all versions of QAD and other ERPs
Rev Rec
Hub
Other ERP SE
eB2
9.0
For pre EE customers there is an optional solution to use an existing or new EE implementation as a Revenue hub by communicating with earlier QAD versions to process revenue recognition calculations and transactions. This option is currently pending customer interest.

13. What’s Unique About the Solution?
QAD Revenue Recognition Solution
What’s Unique About the Solution?
Some 3rd party packages have well defined revenue recognition functionality targeted at the software industry
QAD Revenue Recognition solution targeted at manufacturing sector
Functionality integrated with core processes
Revenue sub ledger embedded in QAD Financials
Some of our competitors have well developed revenue recognition functionality that has primarily been targeted at the software industry. The biggest advantage of the QAD solution is how we target the manufacturing sector which for the first time is required to review revenue accounting under a conceptual framework. <C>
QAD offers a revenue solution specific to business practices in targeted verticals gained from working directly with customers in the area. <C>
From a system perspective, the revenue module is an integral part of QAD Financials with a familiar UI and same database eliminating the need for interfacing. <C>

14. Release Status Customer interpretation of new revenue rules ongoing
QAD Revenue Recognition Solution
Release Status
Customer interpretation of new revenue rules ongoing
Unique event in accounting world due to conceptual standard rather than rule based
Limited release QAD Financials for revenue recognition customers only
Contact your Account Executive if you want to discuss in more detail
Development of the revenue module is ongoing and will continue into 2017 due to the ongoing global interpretation of the revenue guidelines. <C>
The new accounting standards are conceptual rather than rule based so require interpretation by customers in each QAD vertical. In many cases our customers are waiting to see what competitors / industry norms are going to be before making a decision themselves on what route they take for compliance. <C>
R&D are targeting a limited release of QAD Financials to cater for customers willing to become early adopters of the revenue module. It is envisaged development would proceed working closely with industry specific requirements. <C>

15. Market Research Update
QAD Revenue Recognition Solution
Market Research Update
Customer validation meetings
CAG meetings and survey
Focus Group
SyncDev Wave
Many customers have not completed analysis
Majority of customers ascertain being unaffected
Might affect only specific cases
Automotive (Tooling & Engineering)
Medical (Bill and Hold)
During the development process customer feedback has been sought in a number of forums. Customer engagement has been slow with many stating they are not affected by the revenue guidance either by fact or by choice. <C>
To solicit feedback there has been engagement with the Customer Advisory Group, a focus group of 3 customers was created and SyncDev wave was completed with 5 customers. It was envisaged more customers would be engaged as part of the market research process however many customers approached declined a meeting due to being unaffected by the revenue guidelines. <C>
The feedback received has shown many customers have either not completed their analysis of how the revenue rules affect them <C> or are not affected. Some customers who are affected have existing revenue recognition solutions in place already. <C>
It is possible the new rules may affect specific cases only, like automotive or life sciences, however more customer feedback is required to come to a definitive conclusion.

16. Possible Future Scenarios
QAD Revenue Recognition Solution
Possible Future Scenarios
Immediate applicability for selected group of customers
Other customers not affected or compliance not possible
Next year wake up call as effective date looms
Auditors may not agree with limited interpretations and demand compliance
May cause scramble for solutions
A number of customer applicability scenarios exist that may play out based on market research so far conducted. <C>
Certain customers are already affected by revenue recognition rules and will continue to do so after the effective date of the new standards. <C>
Other customers have made the decision they are not affected while others claim the cost of compliance is too high <C>
As the effective date of the new standards gets closer customers may receive a wake up call from their auditors <C> whereby the auditors do not agree with a customers opinion for non applicability of the guidelines.

17. QAD Revenue Recognition Solution
Future Developments
Services/project part of manufacturing companies keeps developing
Move to subscription based revenue models
Demand for revenue recognition solution keeps growing
Many companies have customizations in the area of revenue recognition
There is a trend in the manufacturing industry towards increased focus on services and project type business models as companies move away from traditional manufacturing methods. These models result in revenue flows becoming more consistent with less peaks and troughs over time thus satisfying investors. <C>
The revenue model associated with these business models leads to a subscription based approach requiring revenue recognition module functionality due to its time based nature. <C>
The switch to new business models and the focus brought on revenue recognition due to the new accounting standards should create more opportunities for the QAD solution in both the short and longer term. <C>
In addition many companies have existing customisations for revenue recognition within older software requiring enhanced functionality to meet new business requirements. This creates opportunities for the QAD Revenue Solution.

18. Summary QAD revenue solution Revenue module functionality
QAD Revenue Recognition Solution
Summary
QAD revenue solution
Revenue module functionality
Business drivers and target personas
Release status
Market research update
Future scenarios
Now to wrap up I will summarise what we have discussed today: <C>
First we reviewed what the QAD revenue solution offers and explained the background as to why demand for a solution has increased. <C>
We then outlined functionality of the QAD revenue module and how it assists with reducing manual effort in the area of revenue accounting for finance departments. <C>
We gave examples of business circumstances where the revenue module can be used and who are the target personas in the finance section of an enterprise. <C>
We discussed the release status of the new module, <C> outlined the results of market research conducted to date <C> and reviewed what the possible future scenarios are for our customers in the area of revenue accounting.

19. For More Information Contact your QAD Account Executive
QAD Revenue Recognition Solution
For More Information
Contact your QAD Account Executive

20. www.qad.com QAD Revenue Recognition Solution © QAD Inc
Thank you for taking the time to listen to this presentation and I hope you found it interesting and helpful.