Neoware Reports Fiscal 2004 and Fourth Quarter Revenue and Earnings
KING OF PRUSSIA, Pa., Aug. 5 /PRNewswire-FirstCall/ -- Neoware
Systems, Inc. (NASDAQ:NWRE), the leading supplier of software,
services and appliances for thin client computing, today reported
financial results for its fiscal fourth quarter and year ended June
30, 2004. For the quarter ended June 30, 2004: -- Revenues
increased to a record $17,080,000 from $15,824,000 in the prior
year fourth quarter as a result of positive customer response to
the Company's new product and market strategies and increased sales
through IBM to large enterprise customers. -- Gross profit was
$7,353,000, or 43% of revenue, compared to $7,491,000, or 47% of
revenue, in the prior year fourth quarter as a result of higher
enterprise sales and the introduction of new products designed to
build market share and expand the thin client segment of the PC
market. -- In June 2004, the Company wrote off approximately $1.6
million in deferred expenses for acquisitions that were determined
to be unlikely to be consummated in the near future. Excluding this
charge, operating expenses were $5,032,000, compared to $4,893,000
in the prior year and $5,681,000 in the prior quarter, as the
Company maintained control of its expenditures. -- Excluding the
write-off of deferred acquisition costs and the associated income
tax benefit, net income was $1,536,000, or $.10 per diluted share,
compared to $1,701,000, or $.12 per diluted share, in the year ago
quarter. On a GAAP basis, net income was $477,000, or $.03 per
diluted share. For the fiscal year ended June 30, 2004: -- Revenues
increased to a record $63,165,000 from $57,522,000 in the prior
year. -- Excluding the write-off of deferred acquisition costs and
the associated income tax benefit, net income was $6,453,000, or
$.40 per diluted share, compared to $6,312,000, or $.43 per diluted
share, in the prior year. On a GAAP basis, net income was
$5,394,000, or $.34 per diluted share Accompanying this release is
a schedule of a reconciliation of these non- GAAP measures to GAAP
financial measures presented in this release. Customer Highlights
-- Selected customers in the quarter included BMC Software,
Computer Sciences Corporation, Corestaff Services, CVS, Federated
Department Stores, Goodyear Tire and Rubber, Haven Healthcare
Management, Independence Air, Johnson and Johnson, Kansas Board of
Public Utilities, Kroger, Lockheed Martin, Meridian Health,
National Asset Recovery Services, Nike, Renault, Siemens Medical
Systems, and Wal- Mart. "Our new operating plan is producing
positive results, as evidenced by our fourth quarter financials,"
stated Michael Kantrowitz, Neoware's Chairman and CEO. "Record
sales to large enterprise customers resulted in the highest
quarterly revenues we have ever delivered, and excluding the
write-off of acquisition expenses, the second highest net income we
achieved this year. Our alliance with IBM delivered substantial
sales that were significantly higher than in any previous period.
"During this year we faced challenges in our market and we
responded by introducing a number of new initiatives. We are now
more proactive in our marketing and selling efforts and have
developed new products - including the industry's only $199 thin
client from a major provider - that are designed to grow the thin
client segment of the PC market and our share of it. While we are
disappointed that we spent resources this year on an acquisition
that we did not complete, we see a real opportunity to pursue
acquisitions that we believe can provide additional value for our
shareholders. We have this opportunity because our Company is
solidly profitable, generated more than $10 million in cash this
fiscal year, and ended the year with more than $55 million in cash
and short term investments with virtually no debt - the strongest
financial position ever for Neoware. "Looking forward, we project
continued top line growth, driven by increased sales of thin client
appliances, as well as our TeemTalk and ThinPC software, through
IBM and our other channels. While our results may vary in any given
quarter, we are comfortable with current analyst revenue estimates
of $70 to $71 million in the coming fiscal year, and believe that
if we continue to see positive results from our new product and
marketing strategies we may be in a position to raise this guidance
in the future. We also believe that we can achieve our existing
estimate of 40% to 45% gross margins, and intend to drive operating
expenses below 30% as a percentage of revenue, generating
improvements in operating and net income. Based on these results,
we are comfortable with current analyst estimates of earnings
between $.35 and $.42 per share for fiscal 2005, assuming 16
million fully diluted shares. The effects of potential acquisitions
that we are pursuing, should any be consummated, are not included
in these projections. "Neoware's products are more secure,
reliable, affordable and manageable than personal computers, and
they eliminate the obsolescence built into traditional PCs. These
benefits are increasingly known throughout our potential customer
base and we believe they will continue to drive acceptance of our
products and the financial performance of our Company," Mr.
Kantrowitz concluded. UPCOMING INVESTOR EVENTS Neoware plans to
participate in the following investor events. Note that dates are
subject to change - please confirm via the Company's web site
closer to the event date. Roth Capital Partners Technology
Conference New York, NY September 13, 2004 AEA Classic San Diego,
CA November 9-10, 2004 Neoware Annual Meeting King of Prussia, PA
December 1, 2004 CONFERENCE CALL INFORMATION In connection with
this release, management of Neoware will host a conference call at
5:00 PM Eastern Time on August 5, 2004. 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 1.866.238.1636 for domestic calls and +1.703.639.1160 for
international calls. The conference ID will be 509420. A replay of
the call will be available through August 14, 2004 by dialing
1.888.266.2081 domestically and +1.703.925.2533 internationally.
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. Operating expenses for the fiscal year
and fourth quarter ended June 30, 2004 included a charge of
$1,604,000, and net income included the charge and an associated
income tax benefit of $545,000, that resulted from the write-off of
deferred expenses incurred over the last year in connection with
acquisitions that the Company determined to be unlikely to be
consummated in the near future. We have, therefore, provided the
non-GAAP measures in order to present information about the
Company's financial performance without this expense, as we believe
it provides a more comparable view of the financial performance of
the Company's core business. About Neoware Neoware's software,
services, and thin client appliances make computing more secure,
manageable, reliable and affordable by enabling global enterprises
to fully leverage server-based computing. By incorporating open,
standards-based technologies and eliminating the obsolescence that
is built into standard PC architectures, Neoware provides
enterprises with increased flexibility and choice, as well as lower
up-front and total costs. Neoware's software products enable
enterprises to gain control of their desktops, and to integrate
mainframe, midrange, UNIX and Linux applications with Windows(R)
and the web. Neoware's thin client appliances enable enterprises to
run applications on servers, and 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 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 is based 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: our new operating plan; our proactive
marketing and sales efforts; our new products designed to grow the
thin client segment of the PC market and our market share; our
acquisition strategy to provide shareholder value; expectations for
fiscal year 2005 revenue of $70 to $71 million, and the possibility
of raising this guidance, gross margins in the 40% to 45% range,
operating expenses at near current levels, and earnings per share
in the range of $0.35 to $0.42; the continued success of our IBM
relationship; and the benefits of our products driving our
financial performance. 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 ability to achieve our expectations for our
2005 fiscal year, 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 through the capture of a
greater portion of the PC market, increased competition, our
continued ability to sell our products through IBM to its
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, its reports on Form 10-K
for the year ended June 30, 2003 and Form 10-Q for the quarter
ended March 31, 2004. Neoware, ThinPC, and TeemTalk are trademarks
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) ASSETS June 30, June 30, 2004 2003 CURRENT
ASSETS: Cash and cash equivalents $17,119 $26,014 Short-term
investments 38,177 3,151 Accounts receivable, net 10,580 11,089
Inventories 795 772 Prepaid expenses and other 1,628 798 Deferred
income taxes 643 946 Total current assets 68,942 42,770 Property
and equipment, net 509 572 Goodwill 17,466 8,943 Intangibles, net
3,545 2,091 Deferred income taxes 145 - $90,607 $54,376 LIABILITIES
AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable
$5,685 $4,206 Accrued expenses 3,448 2,818 Capital lease
obligations 7 7 Deferred revenue 739 464 Total current liabilities
9,879 7,495 Capital lease obligations 4 10 Deferred revenue 235 227
Deferred income taxes - 17 STOCKHOLDERS' EQUITY: Common stock 16 14
Additional paid-in capital 71,718 44,215 Treasury stock (100) (100)
Other comprehensive income (loss) 936 (27) Retained earnings 7,919
2,525 Total stockholders' equity 80,489 46,627 $90,607 $54,376
NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in
thousands, except per share data) Three Months Ended Twelve Months
Ended June 30, June 30, 2004 2003 2004 2003 Unaudited Net revenues
$17,080 $15,824 $63,165 $57,522 Cost of revenues 9,727 8,333 32,785
31,549 Gross profit 7,353 7,491 30,380 25,973 Sales and marketing
3,340 3,034 13,125 9,971 Research and development 678 536 2,798
1,837 General and administrative 1,014 1,323 5,476 4,326 Abandoned
acquisition costs 1,604 - 1,604 - Operating expenses 6,636 4,893
23,003 16,134 Operating income 717 2,598 7,377 9,839 Transaction
adjustment (106) - (106) - Loss on investment - - - (300) Interest
income, net 105 59 392 323 Income before income taxes 716 2,657
7,663 9,862 Income taxes 239 956 2,269 3,550 Net income $477 $1,701
$5,394 $6,312 Basic earnings per share $0.03 $0.12 $0.34 $0.46
Diluted earnings per share $0.03 $0.12 $0.34 $0.43 Weighted average
number of common shares outstanding in basic earnings per share
computation 15,778 13,950 15,683 13,601 Weighted average number of
common shares outstanding in diluted earnings per share computation
16,142 14,647 16,020 14,695 NEOWARE SYSTEMS, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended Twelve
Months Ended June 30, June 30, 2004 2003 2004 2003 CASH FLOWS FROM
OPERATING ACTIVITIES: Net income $477 $1,701 $5,394 $6,312
Adjustments to reconcile net income to net cash provided by
operating activities- Depreciation 53 84 261 296 Amortization of
intangibles 268 139 1,049 538 Loss on investment - - - 249 Stock
option benefit on deferred income taxes 297 1,805 2,005 1,805
Deferred income tax benefit 141 (1,939) 141 640 Changes in
operating assets and liabilities, net of effect from acquisition-
(Increase) decrease in: Accounts receivable 603 (1,773) 509 (1,568)
Inventories (47) 355 (22) 268 Prepaid expenses and other (589) 142
(820) (274) Increase (decrease) in: Accounts payable 581 775 1,478
1,095 Accrued expenses 467 668 629 685 Deferred revenue (2) 63 284
110 Net cash provided by operating activities 2,249 2,020 10,908
10,156 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of the
TeemTalk software business - - (9,995) - Purchases of short-term
investments (5,992) (3,151) (39,470) (3,151) Sales of short-term
investments - - 4,444 - Purchase of intangible assets - 47 (125) -
Purchases of property and equipment (69) (47) (198) (154) Net cash
used in investing activities (6,061) (3,151) (45,344) (3,305) CASH
FLOWS FROM FINANCING ACTIVITIES: Repayments of capital leases (1)
(202) (6) (250) Proceeds from issuance of common stock, net of
expenses - - 24,609 - Expenses for prior issuance of common stock -
- (3) (122) Exercise of stock options and warrants 50 263 884 2,241
Repayments of officer loans - 254 - 263 Net cash provided by
financing activities 49 315 25,484 2,132 EFFECT OF FOREIGN EXCHANGE
RATE CHANGES ON CASH 59 - 57 - INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,704) (816) (8,895) 8,983 CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 20,823 26,830 26,014 17,031 CASH AND CASH
EQUIVALENTS, END OF PERIOD $17,119 $26,014 $17,119 $26,014
SUPPLEMENTAL DISCLOSURES: Cash paid for income taxes $(3) $896 $261
$976 Cash paid for interest $2 $6 $9 $32 NEOWARE SYSTEMS, INC.
Reconciliation of Non-GAAP Financial Measures (in thousands, except
per share data) Three Months Ended Twelve Months Ended June 30,
2004 June 30, 2004 GAAP Adjustments Non-GAAP GAAP Adjustments
Non-GAAP Unaudited Net income $477 $1,059 A $1,536 $5,394 $1,059 A
$6,453 Basic earnings per share $0.03 $0.07 $0.10 $0.34 $0.07 $0.41
Diluted earnings per share $0.03 $0.07 $0.10 $0.34 $0.07 $0.40
Footnotes: A - Abandoned acquisition costs, net of income tax
benefit DATASOURCE: Neoware Systems, Inc. CONTACT: Investor
Relations: Kevin McGrath of Cameron Associates, +1-212-245-8000 x
203, , for Neoware Systems, Inc.; or Keith Schneck, CFO of Neoware
Systems, Inc., +1-610-277-8300, Web site: http://www.neoware.com/
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