Exhibit 99.1
Thursday May 30, 4:02 pm Eastern Time
Press Release
SOURCE: Peerless Systems Corporation
PEERLESS SYSTEMS REPORTS PROFIT IN FIRST QUARTER
Selected Quarterly Highlights:
... First quarter revenues grew 28 percent year-over-year and 7 percent
sequentially over the fourth quarter
... Strong year-over-year first quarter gross margin improvement to 58.9 percent
from 50.4 percent
... One $2 million license agreement reported for the first quarter
... Cash and investments balance of $16.9 million at April 30, 2002
El Segundo, Calif., May 30, 2002 - Peerless Systems Corporation (Nasdaq: PRLS),
a provider of software-based embedded imaging and networking systems to the
digital document markets, today reported earnings for its first quarter of
fiscal year 2003.
First Quarter of Fiscal 2003 Results
For the first quarter ended April 30, 2002, consolidated revenues were $8.6
million, a 28 percent increase from revenues of $6.7 million reported for the
same quarter of the prior fiscal year, and a sequential increase of 7 percent
over revenues of $8.0 million reported in the previous quarter. The increase
from the year-ago first fiscal quarter and from the prior sequential quarter was
due primarily to higher licensing fees.
A new license agreement totaling $2 million in revenue was signed in the first
quarter, all of which was required to be recognized as revenue in the first
quarter. Subsequent to April 30, 2002, there was an additional license agreement
entered into for $1.2 million. The Company believes that amounts similar to the
$1.2 million will be agreed to for the third and fourth quarters also. As of
April 30, 2002, not including the $1.2 million entered into subsequent to April
30, 2002, the Company has $4.3 million in signed license agreements that will be
recognized over the following six quarters. Additionally, the Company had a
design win and design change orders totaling $0.9 million and new maintenance
agreements totaling $0.1 million during the first quarter of fiscal year 2003.
The Company's engineering services contract backlog was $1.5 million as of April
30, 2002, compared to $0.5 million as of January 31, 2002, and $2.7 million as
of April 30, 2001.
Gross margin for the first quarter improved to 58.9 percent from 50.4 percent
for the same quarter of the previous fiscal year, and decreased from 68.4
percent in the fourth quarter of fiscal year 2002. The improvement in gross
margin year-over-year is attributable primarily to the improved margins on the
Company's engineering services efforts resulting from the high level of OEM
requested design changes for projects that were nearing completion. The
sequential decrease was due to first quarter licensing
revenues containing a lower level of Peerless technology, resulting in
proportionately higher product licensing costs.
The Company decreased first quarter research and development expenses 25 percent
to $2.5 million, or 29.1 percent of revenue, from the previous sequential
quarter's expenses of $3.3 million, or 41.4 percent of revenues. The decrease on
a dollar basis was primarily a result of the divestiture of the Company's
Netreon storage operation, and on a percentage basis, a result of leveraging
lower expense dollars over a larger revenue base. Sales and marketing expenses
in the first fiscal quarter were $1.1 million, or 12.7 percent of revenues,
lower than the previous fiscal quarter's $1.6 million, or 19.8 percent of
revenues. The decrease was due primarily to the absence of expenses of Netreon
in the first quarter. General and administrative expenses for the quarter were
$1.3 million, or 14.9 percent of revenues, which increased from $0.7 million, or
8.7 percent of revenues, reported for the previous quarter of fiscal year 2002.
The previous quarter was lower as a result of insurance policy reimbursement of
legal expenses incurred in prior periods and the reduction of compensation
expense associated with the accrual of management bonuses. During the first
quarter, the Company reduced headcount by ten to bring staffing in line with its
business plan going forward. Additionally, the annual salaries of seven
executive officers were each reduced by 10%. The Company granted additional
stock options to these executive officers, further tying management's
compensation to the success of the Company.
Net income for the first quarter of fiscal year 2003 was $0.6 million, or $0.04
per share, which includes a $0.3 million credit provision for income taxes. The
credit was a result of recent changes in the tax code that allowed the Company
to carry-back losses to obtain a tax refund of $0.6 million. The net profit
compares to a net loss of $3.3 million, or $0.22 per share, for the first
quarter of fiscal year 2002. Sequentially, the Company's net income compared
with a net loss of $2.5 million, or $0.16 per share, in the fourth quarter of
fiscal year 2002. The fourth quarter loss includes $2.3 million in loss and
expenses incurred in connection with the January 29, 2002, divestiture of
Netreon. On a pro forma basis, excluding the storage operating results and the
loss from the divestiture of the storage operations, the Company generated a
$1.6 million after-tax profit for the fourth quarter of fiscal year 2002.
Commenting on first quarter achievements, Howard Nellor, President and Chief
Executive Officer of Peerless Systems Corporation, said, "We are very pleased
with our ability to earn an operating profit for two consecutive quarters from
our imaging business while executing the turnaround. Our revenues grew
sequentially, mostly as a result of agreements from previous periods and from
the constant push to close new product licensing opportunities. We also
recognize that based on the timing of licensing revenues, we anticipate that
there will be a sequential decrease in revenues in the second and third quarters
that will make it more difficult to earn a profit in those quarters. We are
continuing to develop our high performance color architecture on schedule, and
we plan to demonstrate significant progress to our customers in June. In the
fall, Peerless expects to demonstrate these capabilities on actual print
engines. We continue to be focused on improving and leveraging our core imaging
business, and on returning to sustained profitability."
On April 30, 2002, days sales outstanding (DSO) for receivables and unbilled
were 29, compared to DSOs of 61 at January 31, 2002. The improvement was a
result of a timing of license payments and collection efforts. As of April 30,
2002, the Company had total assets of $25.3 million, including cash
and investments of $16.9 million compared to $14.7 million as of
January 31, 2002. Stockholders' equity totaled $16.6 million as of April 30,
2002.
Performance Highlights of First Quarter of Fiscal Year 2003
... The Company determined during the first quarter that it can demonstrate high
speed rendering of complex color images in a virtual print engine environment.
In that vein, Peerless Systems will be demonstrating its high performance color
architecture to a number of its customers next month, each of which has
expressed a high level of interest in this technology.
... Seven evaluation agreements to test MagicPrint(TM) hospitality software were
signed during the first quarter. The MagicPrint technology is also under
evaluation for use in the "wireless" marketplace to provide users of mobile
handheld devices, cell phones, PDAs, and computers the ability to easily print
documents and attachments.
... Since the signing last quarter of a "Co-Development Agreement" with
WeSoftware, Ltd. (WeSoft), an embedded software engineering company located in
Hong Kong, progress has been made on WeSoft's initial sale of imaging software,
expected to occur in the second quarter of fiscal year 2003. WeSoft and the
Company are currently working with OEMs in the People's Republic of China to
apply Peerless technology in their product offerings.
Guidance
Due to the divestiture of Netreon, the Company expects to experience a decrease
in operating expenses of about 30 percent in fiscal 2003 from the levels
experienced during fiscal 2002. This expense reduction is an important goal in
the Company's strategy to return to sustained profitability. However, the
Company anticipates that its gross margins will decline as a result of a
decreasing level of higher-margin engineering services revenue. As noted above,
the Company expects it will experience sequential revenue declines in the second
and third quarters of fiscal year 2003, due to the timing of licensing revenues
and the decrease in the level of engineering services with the completion of
several turnkey efforts. Peerless Systems projects that it will not return to
profitability again until at least the fourth quarter of fiscal year 2003.
Peerless Systems Conference Call
Company management will hold a conference call to discuss its first quarter of
fiscal 2003 results today at 5:00 p.m. Eastern and 2:00 p.m. Pacific. Investors
are invited to listen to the call live via the Internet at www.peerless.com.
Please go to the Web site at least fifteen minutes early to register, download,
and install any necessary audio software. A replay of the Webcast will be
available for 30 days.
About Peerless Systems Corporation
Peerless Systems Corporation, headquartered in El Segundo, California, is a
provider of software-based embedded imaging and networking systems to original
equipment manufacturers of digital document products. Digital document products
include printers, copiers, fax machines, scanners and color products, as well as
multifunction products that perform a combination of these imaging functions. In
order to process digital text and graphics, digital document products rely on a
core set of
imaging software and supporting electronics, collectively known as an embedded
imaging system. Embedded networking systems supply the core software
technologies to digital document products that enable them to communicate over
local area networks and the Internet.
For more information, visit the Company's Web site at www.peerless.com.
Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of
1995
This Release contains forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Statements prompted by,
qualified by or made in connection with such words as "anticipates," "are
expected," "be able to demonstrate," "expects to," "has expressed a high level
of interest," "expected to continue," "expected to decline," "expected to
occur," "it is expected that," "looking forward to moving along our high
performance color architecture," "new," "on returning to sustained
profitability," "projects," "will not return to profitability," "until at least
the fourth quarter of the fiscal year ending January 31, 2003," "will be
agreed," "will be demonstrating," "will be demonstrated," "will be a sequential
decrease," "will be recognized," "will detract," "will experience," "will not
return," and words of similar substance signal forward-looking statements.
Likewise, the use of such words in connection with or related to any discussion
of or reference to the Company's future business operations, opportunities or
financial performance sets apart forward-looking statements.
In particular, statements regarding the Company's outlook for future business,
financial performance and growth, including revenue and cash balances, both
quarterly, annually and from specific sources, profit, spending, including
spending on research and development efforts, costs, margins and the Company's
cash position, as well as statements regarding expectations for the embedded
imaging market, new product development and offerings, customer demand for the
Company's products and services, market demand for products incorporating the
Company's technology, future prospects of the Company, and the impact on future
performance of organizational and operational changes; all constitute
forward-looking statements.
These forward-looking statements are just estimations based upon the information
available to the Company at this time. Thus they involve known and unknown risks
and uncertainties such that actual results could differ materially from those
set forth in the forward-looking statements made in this Release. Risks and
uncertainties include, but are not limited to: a) changes in the marketplaces in
which the Company offers its products; b) the failure of Peerless' business
strategy for the rendering complex color images on a high speed virtual engine
(high performance color architecture) to produce the desired financial results;
c) the failure of Peerless to maintain its margins due to changes in its
business model in reaction to competitive pressures; d) the delay in or the
non-acceptance by the market of new product and technology offerings; e) the
inability of the Company to retain and attract the technical talent to compete
effectively in the marketplace for imaging; f) the failure of Peerless' markets
to achieve anticipated growth rates; g) unfavorable economic conditions
resulting in decreased demand for original equipment manufacturers' ("OEMs")
products using Peerless' technology, making it difficult for the Company to
obtain new licensing agreements; h) OEM's determinations not to proceed with
development of products using Peerless' current and new technology and product
offerings due to, among other things, changes in the demand for anticipated OEM
products, age of Peerless' technology, concerns about Peerless' financial
position and Peerless' competitors offering alternative solutions; i) the lack
of acceptance of Peerless' Internet printing technology by users in the
hospitality markets; j) Peerless' competitors coming to market with new
products or alternative solutions that are superior or available at a lower cost
or earlier than anticipated or believed to be possible; k) the markets in
imaging and networking may not grow to anticipated levels; l) the costs
associated with the development and marketing of products for imaging and
networking may be higher than currently forecasted; m) an unfavorable outcome to
the class action lawsuit presently being litigated; n) changes in demand for the
Company's products and services based on market conditions and the
competitiveness of Peerless' products from both technological and pricing
perspectives; o) the Company's inability to maintain or further improve
operating efficiencies or to further streamline operations; p) the impact on the
Company's financials of any future need to expand the organization to meet
customer or market demands; q) continuing unfavorable world-wide economic
conditions exacerbated by the terrorist attacks on the worldwide business and
the financial infrastructure; and r) other factors affecting Peerless' business
and the forward-looking statements set forth herein, which risks and
uncertainties as described more fully from time to time in Peerless' public
filings with the Securities and Exchange Commission, including but not limited
to the Company's most recent Annual Report on Form 10-K dated January 31, 2002
and filed on or about May 1, 2002, in the Section called Risks and Uncertainties
at pages 28 through 38, inclusive.
Current and prospective stockholders are urged not to place undue reliance on
forward-looking statements, which speak only as of the date hereof. The Company
is under no obligation, and expressly disclaims any obligation, to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise. All forward-looking statements contained herein are
qualified in their entirety by the foregoing cautionary statements.
PEERLESS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
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Three Months Ended
April 30,
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2002 2001
-------------------- ---------------------
Revenues:
Product licensing $ 6,874 79.9% $ 4,378 65.3%
Engineering services and maintenance 1,692 19.7% 1,806 26.9%
Other 33 0.4% 520 7.8%
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Total revenues 8,599 100.0% 6,704 100.0%
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Cost of revenues:
Product licensing 2,542 29.6% 1,563 23.3%
Engineering services and maintenance 971 11.3% 1,448 21.6%
Other 20 0.2% 315 4.7%
-------- --------
Total cost of revenues 3,533 41.1% 3,326 49.6%
-------- --------
Gross margin 5,066 58.9% 3,378 50.4%
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Operating expenses:
Research and development 2,502 29.1% 3,294 49.1%
Sales and marketing 1,091 12.7% 1,195 17.8%
General and administrative 1,281 14.9% 2,008 30.0%
-------- --------
Total operating expenses 4,874 56.7% 6,497 96.9%
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Income (loss) from operations 192 2.2% (3,119) -46.5%
Interest income, net 110 1.3% 253 3.8%
-------- --------
Income (loss) before income taxes 302 3.5% (2,866) -42.8%
Provision (benefit) for income taxes (276) -3.2% 393 5.9%
-------- --------
Net income (loss) $ 578 6.7% $ (3,259) -48.6%
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Income (loss) per share - basic $ 0.04 $ (0.22)
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Income (loss) per share - diluted $ 0.04 $ (0.22)
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Weighted average common shares outstanding - basic 15,395 15,007
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Weighted average common shares outstanding - diluted 15,825 15,007
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PEERLESS SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
April 30, January 31,
2002 2002
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,272 $ 11,030
Short-term investments 304 508
Trade accounts receivable, net 2,233 5,158
Unbilled receivables 552 160
Prepaid expenses and other current assets 890 537
---------- ------------
Total current assets 17,251 17,393
Investments 3,362 3,116
Property and equipment, net 3,712 4,038
Income taxes receivable 587 -
Other assets 430 387
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Total assets $ 25,342 $ 24,934
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 602 742
Accrued wages 450 1,033
Accrued compensated absences 635 675
Other current liabilities 3,555 2,482
Deferred revenue 1,578 1,827
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Total current liabilities 6,820 6,759
Other tax liabilities 1,790 2,060
Deferred rent 121 121
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Total liabilities 8,731 8,940
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Stockholders' equity:
Common stock 15 15
Additional paid-in capital 48,828 48,789
Accumulated deficit (32,119) (32,697)
Treasury stock (113) (113)
---------- ------------
Total stockholders' equity 16,611 15,994
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Total liabilities and stockholders' equity $ 25,342 $ 24,934
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Contact:
Peerless Systems Corporation
William Neil, 310/297-3146
or
FRB/Weber Shandwick
James Hoyne, 310/407-6546 (General Information)
Tricia Ross, 310/407-6540 (Investor/Analyst Information)