Exhibit 99.1
PRESS RELEASE
[LOGO OF NEOWARE]
NEOWARE REPORTS FISCAL 2005 THIRD QUARTER REVENUE AND EARNINGS
KING OF PRUSSIA, PA., MAY 3, 2005 -- 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:
o Revenues increased 21% to $19,001,000 from $15,750,000 in the prior year
third quarter.
o 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.
o 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.
o 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.
o 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.
o 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:
o Revenues increased 21% to $55,775,000 from $46,086,000 in the prior year
nine month period.
o 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.
o 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.
o 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.
o 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 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 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 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
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 info@neoware.com. 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.
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
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(UNAUDITED)
(UNAUDITED)
MARCH 31, JUNE 30,
2005 2004
------------ ------------
ASSETS
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
========== ========== ========== ==========