Neoware Reports Fiscal 2005 Third Quarter Revenue and Earnings KING
OF PRUSSIA, Pa., May 3 /PRNewswire-FirstCall/ -- Neoware Systems,
Inc. (NASDAQ:NWRE), the leading supplier of enterprise software,
thin client appliances and related services that make computing
more open, secure, reliable, affordable, and manageable, today
reported record revenues for its fiscal third quarter and nine
months ended March 31, 2005. FY05 Q3 Financial Highlights: --
Revenues increased 21% to $19,001,000 from $15,750,000 in the prior
year third quarter. -- Gross profit was $8,253,000, or 43% of
revenue, compared to $7,424,000, or 47% of revenue, in the prior
year third quarter, as a result of the Company's growth strategy
implemented this fiscal year. Amortization of intangibles as a
result of acquisitions included in cost of sales was $179,000 in
the current quarter and $101,000 in the prior year third quarter.
-- Operating expenses were $5,809,000, or 31% of revenue, compared
to $5,681,000, or 36% of revenue, in the prior year third quarter.
Amortization of intangibles as a result of acquisitions included in
operating expenses was $291,000 in the current quarter and $177,000
in the prior year third quarter. -- GAAP net income for the quarter
was $1,765,000, or $.11 per diluted share, compared to $1,658,000,
or $.10 per diluted share in the prior year third quarter. The
prior year third quarter included an income tax benefit of
approximately $435,000 from the recovery of prior year taxes and an
adjustment of the effective tax rate. -- Non-GAAP net income was
$2,082,000, or $.13 per diluted share in the current quarter,
compared to $1,406,000 or $.09 per fully diluted share, in the year
ago quarter. Non-GAAP net income excludes amortization of
intangibles as a result of acquisitions and the related tax effect,
as well as the effect in the prior year of an income tax benefit of
approximately $435,000 from the recovery of prior year taxes and an
adjustment of the effective tax rate. A reconciliation of the
non-GAAP to GAAP net income, and of all other non-GAAP measures to
the most comparable GAAP measures, is included in the attached
schedule. -- Cash and cash equivalents were $45.3 million at March
31, 2005, compared with $52.5 million at December 31, 2004, the
result of positive cash flow from operations, partially offset by
acquisition costs. FY05 Nine Month Financial Highlights: --
Revenues increased 21% to $55,775,000 from $46,086,000 in the prior
year nine month period. -- Gross profit was $24,089,000, or 43% of
revenue, compared to $23,027,000, or 50% of revenue, in the prior
year nine month period. -- Operating expenses were $16,528,000, or
29% of revenue, compared to $16,367,000, or 36% of revenue, in the
prior year nine month period. -- GAAP net income was $5,220,000, or
$.32 per diluted share, compared to $4,917,000, or $.31 per diluted
share, in the prior year nine month period. -- Non-GAAP net income
excluding amortization of intangibles as a result of acquisitions
and the related tax effect and the effect in the prior year of a
tax benefit was $5,976,000, or $.37 per diluted share in the
current quarter compared to $5,101,000 or $.32 per fully diluted
share, in the year ago nine month period. "We are increasingly
confident that thin client computing is gaining significant
traction with corporate customers, enabling enterprises around the
globe to improve security, enhance manageability and lower their
costs," stated Michael Kantrowitz, Neoware's Chairman and CEO.
"Neoware is delivering higher revenues and profits, and we're
seeing strong demand from our customers. We believe that our
strategy is working and we must continue to invest in our business
in order to continue to drive increases in revenue and profit.
"We're building our business organically, as well as through
acquisitions designed to enhance our portfolio of software
solutions and increase our geographic reach. During the third
quarter, we acquired Mangrove's thin client software business,
which provides us with innovative technology in the growing Linux
market and enhances our ability to support enterprise customers in
Southern Europe. We acquired the ThinTune thin client business,
which gives us greater resources to develop and support customers
in Central and Eastern Europe. We entered into a definitive
agreement to acquire TeleVideo's thin client business and pending
the closing of that transaction, we are the exclusive reseller for
TeleVideo thin clients, which broadens our product offerings. After
the quarter ended, we acquired Qualystem Technology, an innovative
provider of on-demand streaming software that lowers the cost and
improves the security and manageability of PC and thin client
computing. "Although we do not generally give quarterly guidance,
we now believe that the combination of the demand we are seeing in
our core markets and our acquisition activities will lead to
accelerating growth in revenues in our fiscal year 2006,"
Kantrowitz continued. "While our results in any particular period
will vary due to the timing of individual orders, we now believe
that we can achieve revenue growth in fiscal 2006 compared to
fiscal 2005 that is toward the upper end of the 20% to 30% range
that we previously communicated, or higher. We expect our gross
profit margin targets during this period to continue to be in the
40% to 45% range. To capitalize on the opportunities that we see,
and including additional costs as a result of compliance with the
internal controls provisions of the Sarbanes-Oxley Act, operating
expenses will increase in the near term to approximately $7 million
per quarter, including approximately $500,000 of amortization of
intangibles as a result of acquisitions. Over the coming year,
while we will further increase operating expenses in order to
capitalize on the opportunity in front of us, we also intend to
leverage these operating expense increases with revenue growth, and
continue to target operating expenses near 30% of revenues during
fiscal 2006. "We believe that the benefits of thin client computing
are being increasingly recognized by customers, and that thin
client computing is delivering tangible results for enterprises
around the globe. Neoware is a leader in delivering these solutions
to customers, and is investing to capitalize on the significant
growth opportunities we see. Our ownership of core software
technologies, our software-focused business model, our alliances
with IBM and other industry leaders, and our financial strength
make us the clear choice for organizations looking to improve the
security and manageability of their computing infrastructure and to
lower their costs," Mr. Kantrowitz concluded. CONFERENCE CALL
INFORMATION In connection with this release, management of Neoware
will host a conference call at 5:00 PM Eastern Time on May 3, 2005.
The conference call will be available live at http://www.vcall.com/
and on the Neoware website at http://www.neoware.com/. To
participate, 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. A copy
of this press release announcing the Company's earnings and other
financial and statistical information about the periods to be
presented in the conference call will be available on the Company's
website at http://www.neoware.com/. The call will also be
accessible by dialing 1-800-895-1715 for domestic calls and
+1-785-424-1059 for international calls. The conference ID will be
NEOWARE. A replay of the call will be available through June 3,
2005 by dialing 1-800-934-7615 domestically and +1-402-220-6981
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 on the Company's website at http://www.neoware.com/.
Non-GAAP Financial Measures In this earnings release and during our
earnings conference call as described above, we use or plan to
discuss certain financial measures which are considered non-GAAP
financial measures. Generally, a non-GAAP financial measure is a
numerical measure of a company's performance, financial position or
cash flows that either excludes or includes amounts that are not
normally excluded or included in the most directly comparable
measure calculated and presented in accordance with generally
accepted accounting principles in the United States, or GAAP. A
reconciliation between non-GAAP and GAAP measures can be found in
the accompanying schedule and in the News/Press Release section of
our web site at http://www.neoware.com/. We have provided the non-
GAAP measures in order to present information about the Company's
financial performance without these expenses, as we believe it
provides a more comparable view of the financial performance of the
Company's core business and trends relating to its financial
condition and results of operations. We compute non-GAAP net income
by adjusting GAAP net income for amortization of acquired
intangible assets such as intellectual property, customer lists and
non-compete agreements. In addition, we used an effective tax rate
of 34% for each of the third quarter periods and nine month periods
of fiscal 2005 and 2004, respectively. This compares to a GAAP
effective tax rate for the same periods of 34% and 11% for the 2005
and 2004 third quarter periods, respectively, and 34% and 29%
percent in the 2005 and 2004 nine month periods ended March 31,
respectively. During the three months ended March 31, 2004, the
Company adjusted the estimated annual effective income tax rate for
fiscal 2004 downward to 34%. This reduction is due to an increased
estimated benefit from the Extraterritorial Income Exclusion (EIE).
The EIE provides a tax benefit by excluding a portion of income
from qualified foreign sales from gross income. Also during the
three months ended March 31, 2004, the Company recorded an income
tax benefit of $332,000 from the recovery of prior years' EIE
benefits. About Neoware Neoware is a leading provider of enterprise
software, thin client appliances, and related services that make
computing more open, secure, reliable, affordable and manageable.
Neoware was recently ranked America's eighth fastest-growing
company by Fortune Magazine. By leveraging open technologies and
eliminating the obsolescence that is built into standard PC
architectures, Neoware enables enterprises to leverage server-based
computing architectures to increase security, flexibility and
choice, as well as lower up-front and total costs. Neoware's
software products enable enterprises to gain control of their
desktops, stream software on-demand, and to integrate mainframe,
midrange, UNIX and Linux applications with Windows(R) environments
and the web. Neoware's thin client appliances and software enable
enterprises to run applications on servers and to display them
across wired or wireless networks on secure, managed, reliable
appliances that cost as little as one-fourth the price of today's
typical business PC. Neoware's global development, services, and
support provide customers with customized solutions that facilitate
their specialized computing needs. Neoware's products are available
worldwide from IBM, as well as from select, knowledgeable
resellers. More information about Neoware can be found on the Web
at http://www.neoware.com/ or via email at . Neoware's global
headquarters is in King of Prussia, PA. This press release contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
regarding: anticipated increased adoption of thin client computing
by our customers; our investment in our business to drive increases
in revenues and profits; growth opportunities generated internally
and through acquisitions in coming periods; our ability to support
enterprise and other customers in Europe; accelerating growth in
revenues in fiscal year 2006; revenue growth, gross profit margin
targets and operating expense levels for the 2006 fiscal year; our
anticipated investments to capitalize on significant growth
opportunities; and increased acceptance of thin client products in
the market resulting in a gain in market share. These
forward-looking statements involve risks and uncertainties. Factors
that could cause actual results to differ materially from those
predicted in such forward-looking statements include: our inability
to consummate and successfully integrate the TeleVideo acquisition;
our inability to achieve our expectations for the 2006 fiscal year;
our inability to successfully integrate our recent acquisitions;
the timing and receipt of future orders; our timely development and
customers' acceptance of our products, including our new products;
pricing pressures; rapid technological changes in the industry;
growth of overall thin client sales through the capture of a
greater portion of the PC market, including sales to large
enterprise customers; our dependence on our suppliers; increased
competition; our continued ability to sell our products through IBM
to its customers; our ability to attract and retain qualified
personnel, including the former employees of the businesses we
acquired; 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, its reports on
Form 10-K for the year ended June 30, 2004 and Forms 10-Q for the
quarters ended September 30, 2004 and December 31, 2004. Neoware is
a trademark of Neoware Systems, Inc. All other names products and
services are trademarks or registered trademarks of their
respective holders. NEOWARE SYSTEMS, INC. CONSOLIDATED BALANCE
SHEETS (in thousands, except per share data) (Unaudited)
(Unaudited) ASSETS March 31, June 30, 2005 2004 Current assets:
Cash and cash equivalents $39,087 $17,119 Short-term investments
6,233 38,177 Accounts receivable, net 13,891 10,580 Inventories
2,978 795 Prepaid expenses and other 1,271 1,628 Deferred income
taxes 643 643 Total current assets 64,103 68,942 Property and
equipment, net 414 509 Goodwill 27,775 17,466 Intangibles, net
10,038 3,545 Deferred income taxes 145 145 $102,475 $90,607
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable $5,264 $5,685 Accrued compensation and benefits 1,624 1,534
Other accrued expenses 2,857 1,071 Income taxes payable 2,326 854
Deferred revenue 989 739 Total current liabilities 13,060 9,883
Deferred revenue 310 235 Total liabilities 13,370 10,118
Stockholders' equity: Preferred stock - - Common stock 16 16
Additional paid-in capital 74,571 71,718 Treasury stock, 100,000
shares at cost (100) (100) Accumulated other comprehensive income
1,479 936 Retained earnings 13,139 7,919 Total stockholders' equity
89,105 80,489 $102,475 $90,607 NEOWARE SYSTEMS, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands, except per share data)
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended March
31, December 31, 2005 2004 2005 2004 Net revenues $19,001 $15,750
$55,775 $46,086 Cost of revenues 10,748 8,326 31,686 23,059 Gross
profit 8,253 7,424 24,089 23,027 Sales and marketing 3,100 3,442
9,381 9,785 Research and development 866 712 2,299 2,120 General
and administrative 1,843 1,527 4,848 4,462 Operating expenses 5,809
5,681 16,528 16,367 Operating income 2,444 1,743 7,561 6,660
Foreign exchange loss (7) - (243) - Interest income, net 241 109
594 287 Income before income taxes 2,678 1,852 7,912 6,947 Income
taxes 913 194 2,692 2,030 Net income $1,765 $1,658 $5,220 $4,917
Earnings per share: Basic $0.11 $0.11 $.33 $.31 Diluted $0.11 $0.10
$.32 $.31 Weighted average number of common shares outstanding:
Basic 16,061 15,769 15,836 15,652 Diluted 16,404 16,171 16,207
15,942 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data) (Unaudited) (Unaudited) Three
Months Ended Nine Months Ended March 31, March 31, 2005 2004 2005
2004 Cash flows from operating activities: Net income $1,765 $1,658
$5,220 $4,917 Adjustments to reconcile net income to net cash
provided by operating activities- Income tax benefit, primarily
from stock option exercises 264 90 385 1,708 Depreciation 70 72 199
209 Amortization of intangibles 471 278 1,117 782 Changes in
operating assets and liabilities - net of effect from acquisition-
Accounts receivable (270) (1,912) (3,013) (94) Inventories 869 (8)
(2,183) 24 Prepaid expenses and other 545 (125) 595 (231) Accounts
payable 880 1,471 (479) 897 Accrued expenses 30 584 2,662 163
Deferred revenue 7 97 292 284 Net cash provided by operating
activities 4,631 2,205 4,795 8,659 Cash flows from investing
activities: Purchase of Visara thin client business (6) - (3,805) -
Purchase of Thintune thin client business (9,383) - (9,383) -
Purchase of Mangrove Systems, SAS (2,843) - (2,843) - Purchase of
the TeemTalk software business - - - (9,995) Purchase of short-term
investments - (28,129) (20,233) (50,186) Sales of short-term
investments 9,993 6,738 52,177 21,153 Purchase of intangible assets
- - - (125) Purchases of property and equipment (24) (23) (90)
(129) Net cash used in investing activities (2,263) (21,414) 15,823
(39,282) Cash flows from financing activities: Repayments of
capital leases (1) (2) (5) (4) Sale of common stock, net of
expenses - - - 24,609 Expenses for prior issuance of common stock -
- - (3) Exercise of stock options and warrants 432 5 1,168 834 Net
cash provided by financing activities 431 3 1,163 25,436 Effect of
foreign exchange rate changes on cash 2 25 187 (4) Increase
(decrease) in cash and cash equivalents 2,801 (19,181) 21,968
(5,191) Cash and cash equivalents, beginning of period 36,286
40,004 17,119 26,014 Cash and cash equivalents, end of period
$39,087 $20,823 $39,087 $20,823 Supplemental disclosures: Cash paid
for income taxes $14 $- $60 $264 Cash paid for interest - 2 3 8
NEOWARE SYSTEMS, INC. RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data) (Unaudited) Three Months
Ended Nine Months Ended March 31, March 31, 2005 2004 2005 2004
GAAP Net Income $1,765 $1,658 $5,220 $4,917 Amortization of
purchased intangible assets included within cost of sales 179 101
432 290 Amortization of purchased intangible assets included within
operating expenses 291 177 685 492 Income tax effect of
amortization of purchased intangible assets (153) (95) (361) (266)
Prior year EIE income tax benefit (435) (332) Total net income
impact 317 (252) 756 184 Non GAAP Net Income $2,082 $1,406 $5,976
$5,101 Non GAAP Earnings per share: Basic $0.13 $0.09 $.38 $.33
Diluted $0.13 $0.09 $.37 $.32 Weighted average number of common
shares outstanding: Basic 16,061 15,769 15,836 15,652 Diluted
16,404 16,171 16,207 15,942 DATASOURCE: Neoware Systems, Inc.
CONTACT: Investor Relations - Kevin McGrath of Cameron Associates,
+1-212-245-8000 x 203, ; or Keith Schneck, CFO of Neoware Systems,
+1-610-277-8300, Web site: http://www.neoware.com/
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