Neoware (NASDAQ:NWRE)
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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/