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PRESS RELEASE
NEOWARE REPORTS FISCAL 2005 SECOND QUARTER REVENUE AND EARNINGS
REVENUES UP 34%, NET INCOME UP 47%
KING OF PRUSSIA, PA., FEBRUARY 1, 2005 -- Neoware Systems, Inc.
(Nasdaq: NWRE), the leading supplier of software, services and appliances for
thin client computing, today reported record revenues for its fiscal second
quarter and six months ended December 31, 2004.
FY05 Q2 FINANCIAL HIGHLIGHTS:
o Revenues increased 34% to $20,471,000 from $15,322,000 in the prior
year second quarter and were a record for the Company.
o Gross profit was $8,745,000, or 43% of revenue, compared to
$7,638,000, or 50% of revenue, in the prior year second quarter. Gross
profit margin is consistent with the Company's previously announced
plan to increase market share by introducing new products that compete
more effectively with PC's, focus on larger enterprise customers and
expand the thin client segment of the PC market.
o Operating expenses were $5,594,000, or 27% of revenue, compared to
$5,542,000, or 36% of revenue in the prior year second quarter.
o Net income increased 48% to $2,066,000, or $.13 per diluted share from
$1,395,000, or $.09 per diluted share, in the year ago quarter,
reflecting the operating leverage of the Company's software focused
business model.
o Results include $376,000 of amortization of intangibles as a result of
acquisitions, compared to $317,000 in the prior year quarter.
FY05 SIX MONTH FINANCIAL HIGHLIGHTS:
o Revenues increased 21% to $36,774,000 from $30,336,000 in the prior
year six month period.
o Gross profit was $15,836,000, or 43% of revenue, compared to
$15,603,000, or 51% of revenue, in the prior year six month period.
o Operating expenses were $10,719,000, or 29% of revenue, compared to
$10,685,000 or 35% of revenue in the prior year six month period.
o Net income was $3,453,000, or $.21 per diluted share, compared to
$3,259,000, or $.20 per diluted share in the prior year six month
period.
o Results include $647,000 of amortization of intangibles as a result of
acquisitions, compared to $503,000 in the prior year six month period.
"This was a record quarter for Neoware, and we believe that it reflects
the fact that companies around the globe are adopting thin client computing to
improve security and lower the cost of desktop computing," stated Michael
Kantrowitz, Neoware's Chairman and CEO. "We saw significant growth in all
geographies and most notably with enterprise customers both directly and through
our alliance with IBM. The strong demand for Neoware thin client products and
services in this quarter supports our belief that a significant opportunity
exists to grow our business both internally and through acquisitions."
"Our acquisition program, which has been a key element of our
successful growth strategy over the past several years, is back on track. In
September, we acquired Visara's thin client business, which has now been fully
integrated into Neoware, providing us with innovative new products and important
new customers. After the end of the quarter we entered into a definitive
agreement to acquire TeleVideo's thin client business, and we are now the
exclusive reseller for TeleVideo thin clients worldwide. We believe that this
acquisition will broaden our product offerings and allow us to pursue the
upgrade of millions of TeleVideo green-screen terminals installed worldwide.
After the quarter ended we acquired Mangrove Systems, an innovative provider of
Linux software for thin clients, which provides us with unique Linux-based
technology and local software development and support expertise in our important
European market."
"While we do not give quarterly guidance, we believe that the
combination of the significant organic growth we delivered this quarter and our
recent acquisitions will lead to continued growth in revenues in calendar 2005
and beyond. While our results in any particular period will vary due to the
timing of individual orders, given the trends we see in our markets, we now
believe that we can achieve revenue growth of 20% to 30% - or higher - in
calendar 2005 compared to calendar 2004. Our gross profit margin targets during
this period will continue to be in the 40% to 45% range and increases in
operating expenses will be consistent with our revenue increases as we continue
to target operating expenses of 30% percent of revenues or less."
"We firmly believe that the cost and security benefits of thin client
computing are becoming increasingly appreciated by technology purchasers and
that Neoware's products and services are gaining market share. This quarter's
financial results demonstrate the strength of our core markets and of Neoware's
profitable business model. Neoware thin client computing is attracting
increasing attention by corporate customers as well as industry and mainstream
press. Our ownership of core software technologies, our software-focused
operating model, and our financial strength make us the clear choice for thin
client customers around the globe," 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.
Thomas Weisel Partners Tech 2005 Conference - Feb 8, 2005
Roth Capital Partners Growth Stock Conference - Feb 23, 2005
CONFERENCE CALL INFORMATION
In connection with this release, management of Neoware will host a
conference call at 5:00 PM Eastern Time on February 1, 2005. The conference call
will be available live at www.vcall.com and on the Neoware website at
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 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 February 8, 2005 by
dialing 1-800-695-2185 domestically and +1-402-530-9028 internationally.
ABOUT NEOWARE
Recently ranked America's eighth fastest-growing company by Fortune
Magazine, Neoware is a leading provider of software, services, and thin client
appliances that make computing more open, secure, reliable, affordable and
manageable. By leveraging open technologies and eliminating the obsolescence
that is built into standard PC architectures, Neoware enables enterprises to
leverage server-based computing to provide 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 and software 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 info@neoware.com. 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 product and marketing initiatives; anticipated increased
adoption of thin client computing by our customers; growth opportunities
generated internally and through acquisitions in coming periods; the
consummation of our acquisition of TeleVideo's thin client business and our
belief that the technology to be acquired will broaden our product offerings and
help us build sales; continued growth in revenues in calendar year 2005 and
thereafter; revenue growth and gross profit margin targets and operating expense
increases for the 2005 calendar year; 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 coming year; the timing and receipt of future orders; our timely
development and customers' acceptance of our products, including our new
products, Mangrove products and TeleVideo 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 Mangrove employees; 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 Form 10-Q for the
quarter ended September 30, 2004.
Neoware is a trademark of Neoware Systems, Inc. All other names products and
services are trademarks or registered trademarks of their respective holders.
CONTACT:
Investor Relations:
Cameron Associates
Kevin McGrath
(212) 245-8000 x 203
kevin@cameronassoc.com
Neoware Systems, Inc.
Keith Schneck, CFO
(610) 277-8300
invest@neoware.com
NEOWARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(UNAUDITED)
DECEMBER 31, JUNE 30,
ASSETS 2004 2004
-------- --------
Current assets:
Cash and cash equivalents $ 36,286 $ 17,119
Short-term investments 16,226 38,177
Accounts receivable, net 13,322 10,580
Inventories 3,847 795
Prepaid expenses and other 1,578 1,628
Deferred income taxes 643 643
-------- --------
Total current assets 71,902 68,942
Property and equipment, net 445 509
Goodwill 20,177 17,466
Intangibles, net 4,656 3,545
Deferred income taxes 145 145
-------- --------
$ 97,325 $ 90,607
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,326 $ 5,685
Accrued compensation and benefits 1,792 1,534
Other accrued expenses 1,778 1,071
Income taxes payable 2,516 854
Deferred revenue 982 739
-------- --------
Total current liabilities 11,394 9,883
-------- --------
Deferred revenue 278 235
-------- --------
Total liabilities 11,672 10,118
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 16 16
Additional paid-in capital 72,574 71,718
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income 1,791 936
Retained earnings 11,372 7,919
-------- --------
Total stockholders' equity 85,653 80,489
-------- --------
$ 97,325 $ 90,607
======== ========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
December 31, December 31,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net revenues $ 20,471 $ 15,322 $ 36,774 $ 30,336
Cost of revenues 11,726 7,684 20,938 14,733
-------- -------- -------- --------
Gross profit 8,745 7,638 15,836 15,603
-------- -------- -------- --------
Sales and marketing 3,178 3,377 6,281 6,342
Research and development 769 687 1,433 1,408
General and administrative 1,647 1,478 3,005 2,935
-------- -------- -------- --------
Operating expenses 5,594 5,542 10,719 10,685
-------- -------- -------- --------
Operating income 3,151 2,096 5,117 4,918
Foreign exchange loss (214) -- (237) --
Interest income, net 193 94 352 177
-------- -------- -------- --------
Income before income taxes 3,130 2,190 5,232 5,095
Income taxes 1,064 795 1,779 1,836
-------- -------- -------- --------
Net income $ 2,066 $ 1,395 $ 3,453 $ 3,259
======== ======== ======== ========
Earnings per share:
Basic $ .13 $ .09 $ .22 $ .21
======== ======== ======== ========
Diluted $ .13 $ .09 $ .21 $ .20
======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic 15,754 15,743 15,726 15,594
======== ======== ======== ========
Diluted 16,188 16,285 16,111 16,282
======== ======== ======== ========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Cash flows from operating activities:
Net income $ 2,066 $ 1,395 $ 3,453 $ 3,259
Adjustments to reconcile net income to net cash
provided by operating activities-
Income tax benefit, primarily from stock option exercises 101 -- 121 1,618
Depreciation 66 64 130 136
Amortization of intangibles 376 317 647 503
Changes in operating assets and liabilities- net of effect
from acquisition-
Accounts receivable (2,508) 422 (2,742) 1,819
Inventories (2,139) 823 (3,052) 33
Prepaid expenses and other (56) (152) 51 (107)
Accounts payable 277 1,921 (1,359) (573)
Accrued expenses 2,082 308 2,631 (421)
Deferred revenue 338 48 285 186
-------- -------- -------- --------
Net cash provided by operating activities 603 5,146 165 6,453
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of Visara thin client business (24) -- (3,799) --
Purchase of the TeemTalk software business -- (32) -- (9,995)
Purchase of short-term investments (2,333) (5,847) (20,233) (22,056)
Sales of short-term investments 24,815 13,431 42,184 14,414
Purchase of intangible assets -- -- -- (125)
Purchases of property and equipment (47) (26) (66) (106)
-------- -------- -------- --------
Net cash provided by (used in) investing activities 22,411 7,526 18,086 (17,868)
-------- -------- -------- --------
Cash flows from financing activities:
Repayments of capital leases (2) (1) (5) (3)
Sale of common stock, net of expenses -- -- -- 24,609
Expenses for prior issuance of common stock -- (3) -- (3)
Exercise of stock options and warrants 666 92 735 830
-------- -------- -------- --------
Net cash provided by financing activities 664 88 730 25,433
-------- -------- -------- --------
Effect of foreign exchange rate changes on cash 135 (41) 186 (28)
-------- -------- -------- --------
Increase in cash and cash equivalents 23,813 12,719 19,167 13,990
Cash and cash equivalents, beginning of period 12,473 27,285 17,119 26,014
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 36,286 $ 40,004 $ 36,286 $ 40,004
======== ======== ======== ========
Supplemental disclosures:
Cash paid for income taxes $ 15 $ -- $ 46 $ 264