KING OF PRUSSIA, Pa., Aug. 14, 2006 (PRIMEZONE) -- Neoware, Inc. (Nasdaq:NWRE), the leading supplier of thin client software and devices, today reported financial results for its fiscal fourth quarter and year ended June 30, 2006.
Q4 Financial Highlights:
-- Revenues were $23,553,000, compared to $23,009,000 in the prior
year fourth quarter.
-- Gross profit was 37% of revenue, compared to 44% of revenue in the
prior year fourth quarter. Non-GAAP gross profit was 38% of
revenue, compared to 45% of revenue in the prior year fourth
quarter.
-- Operating expenses were $8,825,000, or 38% of revenue, compared to
$7,399,000, or 32% of revenue, in the prior year fourth quarter.
Non-GAAP operating expenses were $7,174,000, or 31% of revenue,
compared to $6,721,000, or 29% of revenue, in the prior year fourth
quarter.
-- Net income for the quarter was $.02 per diluted share, compared to
$.14 per diluted share in the prior year fourth quarter.
-- Non-GAAP net income for the quarter was $.09 per diluted share,
compared to $.18 per diluted share in the prior year fourth
quarter.
-- The Company ended the quarter with $114.0 million of cash and
marketable securities.
-- Non-GAAP results exclude amortization of acquisition-related
intangibles, stock-based compensation and the write off of
acquisition related in-process research and development and apply a
non-GAAP tax rate of 33% and 24% in the fourth quarters of fiscal
2006 and 2005, respectively, for the purpose of showing a
comparable view of the Company's performance from period to period.
-- The Company's diluted shares outstanding were 20.4 million compared
to 16.4 million in the year ago quarter as a result of the
Company's public offering of its common stock in February 2006.
FY06 Financial Highlights:
-- Revenues for the year increased 36% to $107,219,000, from
$78,784,000 in the prior year.
-- Gross profit was 41% of revenue, compared to 43% of revenue in the
prior year. Non-GAAP gross profit was 43% of revenue, compared to
44% of revenue in the prior year.
-- Operating expenses were $35,126,000, or 33% of revenue, compared to
$23,926,000, or 30% of revenue, in the prior year. Non-GAAP
operating expenses were $29,861,000, or 28% of revenue, compared to
$22,534,000, or 29% of revenue, in the prior year.
-- Net income for the year was $.39 per diluted share, compared to
$.46 per diluted share in the prior year, which did not include the
effect of stock option expense.
-- Non-GAAP net income for the year was $.66 per diluted share,
compared to $.55 per diluted share, in the prior year.
-- The Company generated approximately $8.4 million in cash from
operations in the fiscal year.
-- Non-GAAP results exclude amortization of acquisition-related
intangibles, stock-based compensation, the write off of acquisition
related in-process research and development and the write off of
deferred acquisition expenses and apply a non-GAAP tax rate of 33%
and 31% in fiscal 2006 and 2005,respectively, for the purpose of
showing a comparable view of the Company's performance from period
to period.
"As previously disclosed, the fourth quarter's results were impacted by the insolvency of one of our German distributors and by the fact that several of our large enterprise customers did not purchase in the quarter," commented Michael Kantrowitz, Neoware's Chairman and CEO. "These facts, along with normal product mix variation, resulted in lower than expected revenues and gross margins for the quarter.
"What we experienced this quarter is not new for us, and doesn't change our positive outlook for our business and our market. We have consistently communicated that our revenues are subject to quarterly variation -- both positive and negative -- based on the timing of individual orders. In fact, we experienced similar quarterly variation to the positive in the first quarter of fiscal 2006, when our revenues were significantly above the expectations we communicated approximately three weeks before quarter end.
"The good news is that, even with lower revenues, we were profitable and cash-flow positive, and for the year we grew our revenues by 36%, our non-GAAP earnings by 33% and our non-GAAP EPS by 20%. We also ended the year with a record $114 million of cash and marketable securities, providing us with the resources to continue to invest in our business," Mr. Kantrowitz continued.
"We believe that our market opportunity remains strong and is growing, and that our products solve real problems for enterprise customers. Neoware thin client software and devices significantly improve the security and manageability of corporate computing, and help enterprises reduce their costs. We are seeing increased interest in our solutions from our traditional vertical markets, including retail, healthcare, and transportation, as well as from new ones like finance and the Federal Government.
"Because of our confidence in the growth opportunities in our core markets, we are expanding our marketing and sales initiatives in 2007, including increasing our focus on systems integrators, distributors and VARs by increasing our sales headcount and marketing programs aimed at these channels. At the same time, we will also increase our investments in selling and marketing programs aimed at large enterprise customers through partnerships, including those with IBM and Lenovo.
"We believe we are better positioned than ever to grow our market, and to build upon our leadership position within it," Mr. Kantrowitz concluded.
Fiscal Year 2007 Guidance
Based upon currently available information, the Company is updating its guidance as follows:
-- Revenues for the year are expected to increase by 18% to 20%
compared to fiscal 2006.
-- Gross profit is expected to be in the 40% range, plus or minus a
point or two in individual quarters based upon product mix.
-- Non-GAAP operating expenses, excluding amortization of stock-based
compensation and amortization of acquisition related intangibles,
are projected to increase by approximately $7.0 million for the
year, similar to the increase from fiscal 2005 to 2006.
-- Amortization of stock-based compensation is expected to be
approximately $900,000 per quarter.
-- Amortization of acquisition related intangibles is expected to be
approximately $340,000 charged to cost of sales and $600,000
charged to sales and marketing expense per quarter.
-- The Company's effective tax rate is expected to decline
approximately one to two percent as a result of the positive impact
of tax free investment income.
-- Fully diluted share count is expected to be approximately 20.7
million shares.
CONFERENCE CALL INFORMATION
Neoware will host a conference call at 5:00 PM on August 14, 2006. The conference call will be available live at www.vcall.com and on the Neoware website at www.neoware.com. To participate, please go to the website 10 minutes prior to the call to register, download and install any necessary audio software. If you are unable to attend the live conference call, an Internet replay of the call will be archived and available after the call through October 20, 2006.
The call will also be accessible by dialing 1-800-974-9436 from the U.S. and +1-641-297-7617 for international calls. The conference ID will be NEOWARE. A replay of the call will be available through November 14, 2006, by dialing 1-800-645-7959 in the U.S. and +1- 973-854-1361 internationally. A copy of the press release announcing the Company's earnings and other financial and statistical information about the period to be presented in the conference call will be available at the section of the Company's website entitled "News" at www.neoware.com.
Non-GAAP Financial Measures
Neoware presents the following non-GAAP financial measures: non-GAAP gross profit and margin; non-GAAP operating expenses; non-GAAP operating income and margin; non-GAAP effective income tax rate; non-GAAP income taxes; non-GAAP net income; and non-GAAP earnings per share. We exclude the following items in the development of the non-GAAP financial measures presented:
Stock-based compensation expenses. Our non-GAAP financial measures exclude stock-based compensation expenses, which consist of expenses for stock-based compensation that we began recording under SFAS 123(R) in the first quarter of fiscal 2006. We exclude these expenses from our non-GAAP financial measures primarily because (i) they are non-cash expenses that we do not consider part of ongoing operating results when assessing the performance of our business, (ii) the exclusion of these expenses facilitates the comparison of results for fiscal 2006 with results for prior periods, which did not include stock-based compensation expenses and (iii) exclusion of these expenses allows more meaningful comparisons against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis. In addition, stock-based compensation amounts are difficult to forecast, because the magnitude of the charges depends upon the volume and timing of stock option and other equity-based compensation grants, which can vary dramatically from period to period, and external factors such as interest rates and the trading price and volatility of our common stock. We believe that excluding these stock-based compensation amounts improves comparability of the operating performance of the business.
Amortization of acquired intangible assets. In accordance with GAAP, cost of sales and operating expenses include amortization of acquired intangible assets such as intellectual property, customer lists and covenants not to compete. We exclude these items from our non-GAAP financial measures because (i) they are non-cash expenses that we do not consider part of ongoing cash operating results when assessing the performance of our business, as the timing and amount of the expenses vary from period to period, (ii) we believe that doing so facilitates comparisons to our historical operating results and to the results of other companies in our industry, which have their own unique acquisition histories, and (iii) exclusion of these expenses better allows comparison against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis.
Income taxes. We use a non-GAAP effective income tax rate based on a derived amount which excludes the impact of the non-deductible portion of stock-based compensation expense as we believe this reflects income tax expense without the impact of stock-based compensation and provides a more meaningful comparison against our historical effective income tax rate for fiscal 2005, which did not include any impact of stock-based compensation expense.
The Company believes that its non-GAAP financial measures provide meaningful supplemental information regarding the Company's operating results because they exclude amounts that the Company excludes as part of its monitoring of operating results and assessing the performance of the business. For example, the Company uses non-GAAP measures, including gross profit, operating expense and operating income excluding amortization and stock-based compensation expense, in its financial and operational decision making, including decisions regarding staffing, future management priorities and how the Company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, the Company has established incentive compensation programs utilizing, in part, such non-GAAP financial measures, including non-GAAP operating income. For the same reasons, management also uses this information in its budgeting and forecasting activities and in quarterly reports to its Board of Directors.
Non-GAAP financial measures should not be considered as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Neoware's non-GAAP financial measures do not reflect a comprehensive system of accounting, and they differ from GAAP measures with similar names and from non-GAAP financial measures with the same or similar names that are used by other companies. We strongly urge investors and potential investors in our securities to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures that are included in this release, and our consolidated financial statements, including the notes thereto, and the other financial information contained in our periodic filings with the SEC and not to rely on any single financial measure to evaluate our business. The principal limitation of Neoware's non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded. In addition, non-GAAP financial measures are subject to inherent limitations because they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. To mitigate this limitation, Neoware presents its non-GAAP financial measures in connection with its GAAP results, and recommends that investors do not give undue weight to its non-GAAP financial measures.
A reconciliation between non-GAAP and GAAP measures can be found in the accompanying schedule and in the News section of our web site at www.neoware.com.
About Neoware
Neoware, Inc. (Nasdaq:NWRE) provides enterprises throughout the world with thin client computing devices, software that turns PCs into thin clients, and services that adapt thin client technology to virtually any enterprise computing environment. Neoware's software powers, manages and secures thin client devices and traditional personal computers, enabling them to run Windows(r) and Web applications across a network, stream operating systems on demand, and connect to mainframes, mid-range, UNIX and Linux systems. Headquartered in King of Prussia, PA, USA, Neoware has offices in Australia, Austria, China, France, Germany, and the United Kingdom. Neoware's products are available worldwide from select, knowledgeable resellers, as well as via its partnerships with IBM, Lenovo and ClearCube. Neoware can be reached by email at info@neoware.com.
Neoware is a registered trademark of Neoware, Inc. All other names products and services are trademarks or registered trademarks of their respective holders.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding: our belief that our market opportunity remains strong and is growing; increased interest in our solutions from our traditional vertical markets; our intent to expand our marketing and sales initiatives in fiscal year 2007; increasing our focus on systems integrators, distributors and VARs by increasing our headcount and marketing programs; our increased investments in marketing programs aimed at large enterprise customers through IBM and Lenovo; and our ability to grow our market and our leadership position. Factors that could cause actual results to differ materially from those predicted in such forward-looking statements include: our success in implementing our expanded marketing and sales initiatives and increasing sales to the targeted customers; our inability to manage our expanded organization; our inability to successfully integrate our recent acquisitions; the timing and receipt of future orders; our timely development and customers' acceptance of our products; pricing pressures; rapid technological changes in the industry; growth of overall thin client sales; our ability to maintain our partnerships; our dependence on our suppliers and distributors; increased competition; our continued ability to sell our products through Lenovo to IBM's customers; our ability to attract and retain qualified personnel; adverse changes in customer order patterns; our ability to identify and successfully consummate and integrate future acquisitions; adverse changes in general economic conditions in the U. S. and internationally; risks associated with foreign operations; and political and economic uncertainties associated with current world events. These and other risks are detailed from time to time in Neoware's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, our annual report on Form 10-K for the year ended June 30, 2005 and our quarterly reports on Forms 10-Q for the quarters ended September 30, 2005, December 31, 2005 and March 31, 2006.
NEOWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, June 30,
ASSETS 2006 2005
-------- --------
Current assets:
Cash and cash equivalents $ 86,223 $ 8,285
Short-term investments 27,903 34,874
Accounts receivable, net 16,877 17,165
Inventories 7,734 3,051
Prepaid expenses and other 3,231 2,627
Deferred income taxes 1,064 1,015
-------- --------
Total current assets 143,032 67,017
Goodwill 41,268 31,223
Intangibles, net 12,175 9,386
Deferred income taxes 1,451 --
Property and equipment, net 1,586 416
Other 61 --
-------- --------
$199,573 $108,042
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,989 $ 8,408
Accrued compensation and benefits 2,021 2,018
Restructuring Reserve 600 --
Income taxes payable 158 2,290
Other accrued expenses 4,159 3,166
Deferred revenue 973 734
-------- --------
Total current liabilities 16,900 16,616
Deferred income taxes 755 1,151
Deferred revenue 316 306
-------- --------
Total liabilities 17,971 18,073
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 20 16
Additional paid-in capital 158,672 74,577
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income (loss) 556 118
Retained earnings 22,454 15,358
-------- --------
Total stockholders' equity 181,602 89,969
-------- --------
$199,573 $108,042
======== ========
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Twelve Months Ended
June 30, June 30,
------------------ --------------------
2006 2005 2006 2005
------- ------- -------- --------
Net revenues $23,553 $23,009 $107,219 $ 78,784
Cost of revenues
Cost of products (a) 14,556 12,612 61,607 43,862
Amortization of
intangibles 347 271 1,260 708
------- ------- -------- --------
Total cost of revenues 14,903 12,883 62,867 44,570
------- ------- -------- --------
------- ------- -------- --------
Gross profit 8,650 10,126 44,352 34,214
------- ------- -------- --------
Operating expenses
Sales and marketing 4,056 3,433 16,920 12,134
Research and development 1,584 1,535 6,030 3,834
General and administrative 2,597 2,053 10,211 6,900
Amortization of
intangibles 588 378 1,965 1,058
------- ------- -------- --------
Total operating
expenses (b) 8,825 7,399 35,126 23,926
------- ------- -------- --------
Operating income (175) 2,727 9,226 10,288
Foreign exchange loss (123) (40) (59) (283)
Interest income, net 939 268 1,937 859
------- ------- -------- --------
Income before
income taxes 641 2,955 11,104 10,864
Income taxes 240 734 4,007 3,425
------- ------- -------- --------
Net income $ 401 $ 2,221 $ 7,097 $ 7,439
======= ======= ======== ========
Earnings per share:
Basic $ 0.02 $ 0.14 $ 0.40 $ 0.47
======= ======= ======== ========
Diluted $ 0.02 $ 0.14 $ 0.39 $ 0.46
======= ======= ======== ========
Weighted average number of
common shares outstanding:
Basic 19,874 16,219 17,665 15,931
======= ======= ======== ========
Diluted 20,408 16,406 18,105 16,202
======= ======= ======== ========
(a) includes stock-based compensation expense of $26 and $86 for
the three and twelve months ended June 30, 2006.
(b) includes stock-based compensation expense of $1,063 and $3,300
for the three and twelve months ended June 30, 2006.
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended Twelve Months Ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
------- -------- -------- --------
Cash flows from operating
activities:
Net income $ 401 $ 2,221 $ 7,097 $ 7,439
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Amortization of intangibles 935 678 3,225 1,795
Depreciation 118 91 421 290
In process research and
development -- 300 -- 300
Non-cash share-based
compensation 1,088 -- 3,386 --
Income tax benefit on
stock option exercises -- (271) -- 114
Deferred income taxes (820) (3) (820) (3)
Changes in operating assets
and liabilities- net of
effect from acquisition-
Accounts receivable 5,301 (3,143) 1,062 (6,156)
Inventories (1,610) 587 (1,144) (1,596)
Prepaid expenses and other 653 (1,351) 1,032 (753)
Accounts payable (3,555) 3,120 (451) 2,641
Accrued expenses (1,562) 482 (5,493) 3,143
Deferred revenue 7 (259) 115 33
------- -------- -------- --------
Net cash provided by
operating activities 956 2,452 8,430 7,247
------- -------- -------- --------
Cash flows from investing
activities:
Acquisition of Maxspeed,
net of cash acquired 71 -- (11,982) --
Purchase of TeleVideo thin
client business -- -- (3,520) --
Purchase of Visara thin
client business -- -- (2,107) (3,804)
Purchase of ThinTune thin
client business, net of
cash acq. -- (704) -- (10,087)
Purchase of Mangrove Systems
SAS, net of cash acquired -- 99 -- (2,744)
Purchase of Qualystem SAS,
net of cash acquired -- (4,232) -- (4,232)
Purchase of short-term
investments (2,050) (28,596) (28,338) (48,829)
Sales of short-term
investments 2,962 -- 36,188 52,177
Purchases of property
and equipment (86) (66) (1,498) (157)
------- -------- -------- --------
Net cash provided by (used
in) investing activities 897 (33,499) (11,257) (17,676)
------- -------- -------- --------
Cash flows from financing
activities:
Repayments of capital leases -- (2) -- (6)
Proceeds from issuance of
common stock, net of
expenses (80) -- 71,156 --
Exercise of stock options 1,882 278 7,896 1,445
Tax benefit from share-based
payment arrangements (73) -- 1,661 --
------- -------- -------- --------
Net cash provided by
financing activities 1,729 276 80,713 1,439
------- -------- -------- --------
Effect of foreign exchange
rate changes on cash 213 (30) 52 156
------- -------- -------- --------
Increase (decrease) in
cash equivalents 3,795 (30,801) 77,938 (8,834)
Cash and cash equivalents,
beginning of period 82,428 39,086 8,285 17,119
------- -------- -------- --------
Cash and cash equivalents,
end of period $86,223 $ 8,285 $ 86,223 $ 8,285
======= ======== ======== ========
Supplemental disclosures:
Cash paid for income taxes $ 963 $ 858 $ 6,189 $ 918
Issuance of common stock
for purchase of Mangrove
Systems, SAS -- -- -- 1,300
NEOWARE, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
Twelve Month Ended
June 30, 2006
--------------------------------------
GAAP Adjustments Non-GAAP
--------------------------------------
Gross profit 44,352 1,346 A,B 45,698
=================== ======
Gross profit percentage 41% 43%
Operating expenses
Sales and marketing 16,920 (1,238) A 15,682
Research and development 6,030 (394) A 5,636
General and administrative 10,211 (1,668) A 8,543
Amortization of intangibles 1,965 (1,965) B --
------------------- ------
Operating expenses 35,126 (5,265) 29,861
=================== ======
Operating income 9,226 6,611 A,B 15,837
=================== ======
Income taxes 4,007 1,839 C 5,846
=================== ======
Net income $7,097 $11,869
====== =======
Earnings per share - diluted $ 0.39 $ 0.66
====== =======
Weighted average shares
outstanding - diluted 18,105 18,105
====== =======
Twelve Month Ended
June 30, 2005
--------------------------------------
GAAP Adjustments Non-GAAP
--------------------------------------
Gross profit 34,214 708 B 34,922
=================== ======
Gross profit percentage 43% 44%
Operating expenses
Sales and marketing 12,134 -- 12,134
Research and development 3,834 (300) D 3,534
General and administrative 6,900 (34) E 6,866
Amortization of intangibles 1,058 (1,058) B --
------------------- ------
Operating expenses 23,926 (1,392) 22,534
=================== ======
Operating income 10,288 2,100 B 12,388
=================== ======
Income taxes 3,425 593 C 4,018
=================== ======
Net income $7,439 $8,946
====== ======
Earnings per share - diluted $ 0.46 $ 0.55
====== ======
Weighted average shares
outstanding - diluted 16,202 16,202
====== ======
A - To exclude the effect of stock-based compensation expense.
B - To exclude the effects of the amortization of intangible
assets related to business combinations.
C - To adjust to an effective tax rate of 33% and 31% for the
twelve months ended June 30, 2006 and 2005 respectively.
D - To exclude the write off of acquisition related in-process
research and development.
E - To exclude the write off of deferred acquisition expenses.
NEOWARE, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30, 2006
--------------------------------------
GAAP Adjustments Non-GAAP
--------------------------------------
Gross profit 8,650 373 A, B 9,023
=================== ======
Gross profit percentage 37% 38%
Operating expenses
Sales and marketing 4,056 (409) A 3,647
Research and development 1,584 (89) A 1,495
General and administrative 2,597 (565) A 2,032
Amortization of intangibles 588 (588) B --
------------------- ------
Operating expenses 8,825 (1,651) 7,174
=================== ======
Operating income (175) 2,024 A, B 1,849
=================== ======
Income taxes 240 639 C 879
=================== ======
Net income $ 401 $1,786
====== ======
Earnings per share - diluted $ 0.02 $ 0.09
====== ======
Weighted average shares
outstanding - diluted 20,408 20,408
====== ======
Three Months Ended
June 30, 2005
--------------------------------------
GAAP Adjustments Non-GAAP
--------------------------------------
Gross profit 10,126 271 B 10,397
=================== ======
Gross profit percentage 44% 45%
Operating expenses
Sales and marketing 3,433 -- 3,433
Research and development 1,535 (300) D 1,235
General and administrative 2,053 -- 2,053
Amortization of intangibles 378 (378) B --
------------------- ------
Operating expenses 7,399 (678) 6,721
=================== ======
Operating income 2,727 949 B 3,676
=================== ======
Income taxes 734 203 C 937
=================== ======
Net income $2,221 $2,967
====== ======
Earnings per share - diluted $ 0.14 $ 0.18
====== ======
Weighted average shares
outstanding - diluted 16,406 16,406
====== ======
A - To exclude the effect of stock-based compensation expense.
B - To exclude the effects of the amortization of intangible
assets related to business combinations.
C - To adjust to an effective tax rate of 33% and 24% for the
three months ended June 30, 2006 and 2005 respectively.
D - To exclude the write off of acquisition related in-process
research and development.