| FOR IMMEDIATE RELEASE | ||
| For More Information, Contact: | ||
| Cheryl Slomann | Roger Pondel/Julie MacMedan | |
| QAD Investor Relations | PondelWilkinson MS&L | |
| 805 566 5139 | 323 866 6060 | |
| investor@qad.com | investor@pondel.com |
QAD Reports 2003 Fiscal Second Quarter Results
—Balance Sheet Remains Strong, with Eighth Consecutive Quarter of Positive Cash Flow—
Carpinteria, CA—August 22, 2002—QAD Inc. (Nasdaq: QADI) today reported operating results in line with expectations for the 2003 fiscal second quarter ended July 31, 2002.
For the 2003 fiscal second quarter, the company reported revenue of $45.3 million, compared with $50.2 million in the year-ago period. License revenue was $11.2 million for the 2003 fiscal second quarter, compared with $13.7 million in the prior-year second quarter.
Reported net loss was $4.0 million, or $0.12 per diluted share, for the second quarter of fiscal 2003, compared with a loss of $2.3 million, or $0.07 per diluted share, in fiscal 2002. Pro forma net loss for the second quarter of fiscal 2003 was $3.7 million, or $0.11 per diluted share, compared with pro forma net loss of $1.4 million, or $0.04 per diluted share, for the prior-year second quarter.
Pro forma amounts have been adjusted to exclude the amortization of intangibles from acquisitions and, on a year-to-date basis, the cumulative effect of an accounting change related to goodwill. The adjustments are detailed in the attached supplemental information to the Condensed Consolidated Statements of Operations.
Gross margin improved to 62% for the 2003 fiscal second quarter from 56% for the year-ago period. The improvement primarily reflects revenue mix. Maintenance revenue increased to 58% in the 2003 fiscal second quarter, compared with 53% in the comparable prior-year period, while the proportion of services revenue, which carries lower margins, declined from 20% in the second quarter of fiscal 2002 to 17% in the most recent quarter.
"Our second quarter was marked by a slight increase in total revenue and gross margin over the preceding quarter and was our eighth consecutive period of positive cash flow from operations," said Karl Lopker, chief executive officer. "Nevertheless, challenging market conditions continue to impact major software license and services contracts. Adjusting to these market realities, QAD is releasing several high-impact, low-cost products that are more in line with current customer spending patterns, such as eQ CS Edition, QAD Supply Visualization, QAD EDI ECommerce and several others planned for the near-term. We are also implementing stringent cost control measures to bring the company to profitability at current revenue levels. QAD has a strong balance sheet and cash position, with a large base of blue-chip customers and a solid pipeline of new products to support long-term future growth."
Lopker said, "During the quarter, more than 150 existing customers purchased additional software licenses to meet current performance improvement needs. While the current market environment is driving such smaller projects, they represent important indicators of future IT spending. Key customer license transactions during the quarter included ABB, Allen-Bradley, ArvinMeritor, Avery Dennison, Ball, Delco Remy, Eaton, General Electric, Glaxo SmithKline, Ingersoll-Rand, Johnson & Johnson, Johnson Controls, Kraft Foods, Lucent Technologies, Mars, Philips, Sara Lee, Unilever Bestfoods and USF WaterGroup, among others."
To better align expenses with current business levels, the company said it will implement a cost reduction program aimed at reducing annualized operating expenses. In connection with this program, QAD said it expects to report a special charge of approximately $2 to $3 million in the 2003 fiscal third
quarter. The company also said it will consolidate its corporate operations by the end of 2003 into a single facility, currently under construction near its existing headquarters in Carpinteria.
During the second quarter of fiscal 2003, QAD generated cash flow from operations of $6.1 million, due in large part to continued successful cash collection efforts. QAD's balance sheet at July 31, 2002 remained strong, with $53.3 million in cash and equivalents.
For the third quarter of fiscal 2003, the company expects revenues to range between $42 and $46 million. Gross margin should range from 58% to 62% and operating expenses, excluding the special charge, should be slightly lower than the most recent quarter due to initial savings derived from the cost reduction program. These factors should generate a $0.09 to $0.19 diluted loss per share, depending on the level and mix of revenue and excluding the special charge. Although we have recently generated consistent positive cash flow from operations, this trend will not extend to the third quarter based on the above guidance, including the anticipated special charge.
For the fiscal year ending January 31, 2003, QAD anticipates revenue to range from $175 to $185 million and a diluted loss per share of $0.35 to $0.55, depending on the level and mix of revenue and excluding the aforementioned special charge and a cumulative effect of an accounting change related to goodwill. QAD believes the impact of its cost reduction activities will be fully realized by early fiscal 2004. The company expects that cash flow from operations will be neutral for the year.
Investor Conference Call:
QAD management will host an investor conference call today, August 22, 2002 at 2:00 p.m. PDT (5:00 p.m. EDT) to review the company's financial results and operations for the fiscal 2003 second quarter. The conference call will be webcast by CCBN and can be accessed on QAD's Web site athttp://www.qad.com/company/ir/events.html. The audio webcast will be available through August 29, 2002.
About QAD
QAD delivers value through collaborative commerce for manufacturers, empowering enterprises to integrate diverse business processes and increase profitability. By enabling global manufacturers to efficiently manage resources within and beyond the enterprise, QAD solutions can improve customer delivery performance and reduce inventory costs. Manufacturers of automotive, consumer products, electronics, food and beverage, industrial and medical products use QAD applications at more than 5,400 licensed sites in more than 80 countries and in as many as 26 languages. For more information about QAD, telephone +1 805 684 6614, or visit the QAD Web site at: www.qad.com. To receive any of QAD's press releases via facsimile, contact +1 800 356 0747, or outside the U.S. contact +1 213 253 5647.
"QAD" and "MFG/PRO" are registered trademarks and "QAD eQ" is a trademark of QAD Inc. All other products or company names herein may be trademarks of their respective owners.
Note to Investors: This press release contains certain forward-looking statements made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. A number of risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements. These risks include, but are not limited to, evolving demand for the company's software products and products that operate with the company's products; the publication of opinions by industry analysts about the company, its products and technology; the entry of new competitors and their technological advances, delays in localizing the company's products for new markets; delays in sales as a result of lengthy sales cycles; changes in operating expenses, pricing, timing of new product releases, the method of product distribution or product mix; and general economic factors. In addition, revenue and earnings in the enterprise resource planning (ERP), e-business and collaborative commerce software industries are subject to fluctuations. Investors should not use any one quarter's results as a benchmark for future growth. For a more detailed description of the risk factors associated with the company and the industries in which it operates, please refer to the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2002.
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(Tables Follow)
2
QAD Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
| | Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | |||||||||||
| Revenue: | |||||||||||||||
| License fees | $ | 11,204 | $ | 13,729 | $ | 23,153 | $ | 28,837 | |||||||
| Maintenance and other | 26,372 | 26,357 | 51,690 | 52,107 | |||||||||||
| Services | 7,702 | 10,090 | 14,755 | 21,026 | |||||||||||
| Total revenue | 45,278 | 50,176 | 89,598 | 101,970 | |||||||||||
| Cost of revenue | 17,342 | 22,294 | 35,350 | 45,191 | |||||||||||
| Gross profit | 27,936 | 27,882 | 54,248 | 56,779 | |||||||||||
| Operating expenses: | |||||||||||||||
| Sales and marketing | 16,433 | 14,904 | 32,337 | 29,774 | |||||||||||
| Research and development | 8,877 | 8,248 | 17,213 | 15,737 | |||||||||||
| General and administrative | 5,503 | 5,681 | 11,106 | 11,497 | |||||||||||
| Amortization of intangibles from acquisitions | 295 | 984 | 577 | 1,990 | |||||||||||
| Total operating expenses | 31,108 | 29,817 | 61,233 | 58,998 | |||||||||||
| Operating loss | (3,172 | ) | (1,935 | ) | (6,985 | ) | (2,219 | ) | |||||||
| Other (income) expense | 486 | 112 | 1,017 | 717 | |||||||||||
| Loss before income taxes and cumulative effect of accounting change | (3,658 | ) | (2,047 | ) | (8,002 | ) | (2,936 | ) | |||||||
| Income tax expense | 300 | 300 | 600 | 1,100 | |||||||||||
| Loss before cumulative effect of accounting change | (3,958 | ) | (2,347 | ) | (8,602 | ) | (4,036 | ) | |||||||
| Cumulative effect of accounting change | — | — | 1,051 | — | |||||||||||
| Net loss | $ | (3,958 | ) | $ | (2,347 | ) | $ | (9,653 | ) | $ | (4,036 | ) | |||
Basic and diluted net loss per share | $ | (0.12 | ) | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.12 | ) | |||
| Basic and diluted weighted shares | 34,400 | 34,024 | 34,353 | 33,947 | |||||||||||
| Pro forma supplemental information — Reconciliation of net loss to pro forma net loss: | |||||||||||||||
| Net loss | $ | (3,958 | ) | $ | (2,347 | ) | $ | (9,653 | ) | $ | (4,036 | ) | |||
| Adjustments to net loss: | |||||||||||||||
| Amortization of intangibles from acquisitions | 295 | 984 | 577 | 1,990 | |||||||||||
| Cumulative effect of accounting change | — | — | 1,051 | — | |||||||||||
| Pro forma net loss | $ | (3,663 | ) | $ | (1,363 | ) | $ | (8,025 | ) | $ | (2,046 | ) | |||
Pro forma basic and diluted net loss per share | $ | (0.11 | ) | $ | (0.04 | ) | $ | (0.23 | ) | $ | (0.06 | ) | |||
| Pro forma basic and diluted weighted shares | 34,400 | 34,024 | 34,353 | 33,947 | |||||||||||
3
QAD Inc.
Condensed Consolidated Balance Sheets
(In thousands)
| | July 31, 2002 | January 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Cash and equivalents | $ | 53,251 | $ | 50,782 | |||||
| Accounts receivable, net | 39,142 | 59,714 | |||||||
| Other current assets | 12,893 | 11,535 | |||||||
| Total current assets | 105,286 | 122,031 | |||||||
Property and equipment, net | 21,055 | 20,512 | |||||||
| Other assets, net | 14,375 | 15,466 | |||||||
| Total assets | $ | 140,716 | $ | 158,009 | |||||
Liabilities & stockholders' equity | |||||||||
| Current liabilities: | |||||||||
| Current portion of long-term debt | $ | 1,748 | $ | 2,157 | |||||
| Accounts payable and accrued expenses | 33,341 | 38,368 | |||||||
| Deferred revenue and other | 56,962 | 58,854 | |||||||
| Total current liabilities | 92,051 | 99,379 | |||||||
Long-term debt | 14,475 | 15,345 | |||||||
| Other long-term liabilities | 1,128 | 1,149 | |||||||
Stockholders' equity: | |||||||||
| Common stock | 34 | 34 | |||||||
| Additional paid-in capital | 115,395 | 114,911 | |||||||
| Accumulated deficit | (75,248 | ) | (65,595 | ) | |||||
| Accumulated other comprehensive loss | (7,119 | ) | (7,214 | ) | |||||
| Total stockholders' equity | 33,062 | 42,136 | |||||||
Total liabilities & stockholders' equity | $ | 140,716 | $ | 158,009 | |||||
4
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| | Six Months Ended July 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Net cash provided by operating activities | $ | 6,786 | $ | 16,206 | ||||
Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (3,766 | ) | (1,686 | ) | ||||
| Investment in software development | (885 | ) | (469 | ) | ||||
| Other, net | 21 | — | ||||||
| Net cash used in investing activities | (4,630 | ) | (2,155 | ) | ||||
Cash flows from financing activities: | ||||||||
| Reduction of notes payable | (1,279 | ) | (2,587 | ) | ||||
| Issuance of common stock for cash | 484 | 470 | ||||||
| Net cash used in financing activities | (795 | ) | (2,117 | ) | ||||
Effect of exchange rates on cash and equivalents | 1,108 | (202 | ) | |||||
| Net increase in cash and equivalents | 2,469 | 11,732 | ||||||
| Cash and equivalents at beginning of period | 50,782 | 36,500 | ||||||
Cash and equivalents at end of period | $ | 53,251 | $ | 48,232 | ||||
5
