NEOWARE PRESS RELEASE
[GRAPHIC OMITTED]
NEOWARE REPORTS RECORD FISCAL 2005 AND FOURTH QUARTER
REVENUE AND EARNINGS
Fiscal 2005 Revenues Grew by 25%, Fourth Quarter Revenues Grew by 35%
KING OF PRUSSIA, PA., SEPTEMBER 1, 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 fourth quarter and
year ended June 30, 2005.
"Neoware thin client computing is gaining traction with corporate
customers, enabling enterprises around the globe to improve security, enhance
manageability, increase reliability and lower costs," stated Michael Kantrowitz,
Neoware's Chairman and CEO. "Neoware is delivering record revenues and profits,
and we're seeing strong demand for our thin client solutions."
FY05 Q4 FINANCIAL HIGHLIGHTS:
o Revenues increased 35% to $23,009,000 from $17,080,000 in the prior
year fourth quarter.
o Gross profit was $10,125,000, or 44% of revenue, compared to
$7,354,000, or 43% of revenue, in the prior year fourth quarter. Cost
of sales in the June 2005 quarter includes $285,000 for amortization
of acquisition-related intangible assets, compared to $85,000 of
similar expenses in the prior year fourth quarter.
o Operating expenses were $7,398,000, or 32% of revenue, compared to
$6,638,000, or 39% of revenue, in the prior year fourth quarter.
Operating expenses in the June 2005 quarter include a $300,000
write-off of acquisition-related in-process research and development
and $394,000 for amortization of acquisition-related intangibles,
compared to operating expenses in the prior year quarter that included
$183,000 for amortization of acquisition-related intangible assets and
the write-off of $1,604,000 of deferred expenses for acquisitions that
were not consummated. Excluding these charges, non-GAAP operating
expenses were $6,704,000, or 29% of revenue, in the June 2005 quarter,
compared to $4,851,000, or 28% of revenue, in the prior year fourth
quarter.
o GAAP net income for the quarter was $2,218,000, or $.14 per diluted
share, compared to $478,000, or $.03 per diluted share, in the prior
year fourth quarter.
o Non-GAAP net income for the quarter increased 79% to $2,983,000, or
$.18 per fully diluted share in the current quarter, compared to
$1,664,000, or $.10 per fully diluted share, in the year ago quarter.
Non-GAAP net income excludes amortization of acquisition-related
intangible assets, in-process research and development expenses and
write off of deferred acquisition-related expenses, as well as their
related tax effect, if any.
FY05 FINANCIAL HIGHLIGHTS:
o Revenues increased 25% to $78,784,000 from $63,165,000 in the prior
year.
o Gross profit was $34,214,000, or 43% of revenue, compared to
$30,380,000, or 48% of revenue, in the prior year. Cost of sales in
fiscal 2005 includes $677,000 of amortization of acquisition-related
intangible assets, compared to $330,000 of similar expenses in the
prior year.
o Operating expenses were $23,926,000, or 30% of revenue, compared to
$23,003,000, or 36% of revenue, in the prior year. Operating expenses
in fiscal 2005 include $1,118,000 of acquisition-related amortization
of intangible assets, $300,000 of acquisition-related in-process
research and development expense, and $34,000 for the write-off of
deferred acquisition expenses, compared to operating expenses in the
prior year that included $719,000 of acquisition-related amortization
of intangible assets and $1,604,000 of deferred acquisition-related
expenses. Excluding these charges, non-GAAP operating expenses were
$22,474,000, or 29% of revenue, in fiscal 2005, compared to
$20,680,000, or 33% of revenue, in the prior year.
o GAAP net income increased 38% to $7,439,000, or $.46 per diluted
share, compared to $5,394,000, or $.34 per diluted share, in the prior
year. GAAP net income in the prior year includes an income tax benefit
of approximately $332,000 from recovery of prior year taxes.
o Non-GAAP net income increased 32% to $8,960,000, or $.55 per diluted
share, in fiscal 2005 compared to $6,768,000, or $.42 per fully
diluted share, in the prior year. Non-GAAP net income excludes
acquisition-related amortization of intangible assets, the write-off
of acquisition-related in-process research and development expenses,
the write-off of deferred acquisition costs, their related tax effect,
if any, and the effect in the prior year of a tax benefit related to
prior periods.
"To continue our strong growth, we are building Neoware organically, as
well as through carefully targeted acquisitions designed to enhance our
portfolio of software solutions and to increase our geographic reach," Mr.
Kantrowitz noted. "During the 2005 fiscal year, we acquired businesses with new
software technologies that significantly enhance our offerings in both
Windows(R) and Linux environments. With these new products, we believe that we
can continue our significant market share lead in the fast-growing Linux thin
client segment, and can expand our business in the Windows market with our
innovative Neoware Image Manager software, which lowers the cost of Windows
XP-based thin clients and improves their security and manageability. We
significantly enhanced our global reach by acquiring businesses in Europe, and
we can now customize products and fully support customers in the Americas,
throughout Europe, and in India. Our strong balance sheet and our experience
integrating acquisitions position us well to continue this activity in the
coming fiscal year."
FY06 FINANCIAL GUIDANCE:
Based upon currently available information, the Company is updating its
financial guidance for the fiscal year ending June 30, 2006 and the fiscal
quarter ending September 30, 2005 as follows:
o Revenues for the year ending June 30, 2006 are projected to increase
by approximately 30% or higher, compared to the prior fiscal year.
o Revenues for the quarter ending September 30, 2005 are expected to be
in the range of $22 to $24 million, depending on the timing of the
shipment of individual orders, an increase of 35% to 47% compared to
$16.3 million in the prior year first quarter.
o Gross margins for the year ending June 30, 2006 are projected to be in
the 40% to 45% range, including approximately $300,000 per quarter of
amortization of intangibles related to acquisitions. Gross margins
will likely vary from this range by one or two percentage points in
any particular quarter due to product mix, including mix of revenue
from software products, which carry higher than average percentage
gross margins, and from higher priced thin clients, including the new
Neoware e900 product line, which carry lower than average percentage
gross margins.
o Operating expenses for the year ending June 30, 2006, excluding
expense for stock options, are projected to increase moderately during
the year, but are expected to be leveraged with revenue growth to
approximately 30% of revenue or less during the fiscal year, including
approximately $465,000 per quarter of amortization of intangibles
related to acquisitions.
o The Company expects its effective income tax rate to be approximately
33% for the 2006 fiscal year.
Starting in the September 2005 quarter, the Company will begin recording
stock-based compensation expense as calculated under FAS No. 123R. While the
Company has not yet completed its analysis, it expects the non-cash impact of
stock based compensation expense before income taxes during fiscal 2006 to be in
the range of $2.5 to $3.0 million. Such amounts may change as a result of
additional grants, forfeitures, modifications in assumptions and other factors.
"Neoware is increasing its revenue guidance for the September quarter due
in part to significant initial orders from a major retailer for our newly
released Neoware e900 thin client, which couples Neoware's innovative software
and management tools with a wireless, hardened thin client platform targeted at
retail distribution centers, as well as manufacturing, healthcare and
transportation environments. The Neoware e900, which has average prices of over
$3,000 per unit, generates more gross profit dollars per unit sold, but has
lower percentage gross margins, consistent with other Neoware thin clients that
are sold at higher price points. New products like the Neoware e900, as well as
increased sales of high-margin software products, including our newly introduced
Neoware Image Manager software, are expected to contribute positively to the
Company's revenue and profits in coming periods."
"Neoware is delivering record results, and we believe that these results
indicate that corporate PC users increasingly recognize the benefits of thin
client computing. We are a leader in delivering thin client solutions, and are
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, our ability to customize
solutions for our customers around the globe, 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 September 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.
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 November 1, 2005 by
dialing 1-800-688-4915 domestically and +1-402-220-1319 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 at the section of the Company's website entitled "News" 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 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, 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 before
taxes for amortization of acquired intangible assets such as intellectual
property, customer lists and non-compete agreements, write off of in-process
research and development and write off of deferred acquisition costs. In
addition, we used a pro-forma tax rate of 24% the fourth quarter and 31% in
fiscal 2005 and 36% in the fourth quarter and 34% in fiscal 2004. This compares
to a GAAP effective tax rate for the same periods of 25% and 32% for the 2005
periods and 37% and 34% for the 2004 periods, respectively. Also during fiscal
2004, the Company recorded an income tax benefit of $332,000 from the recovery
of prior years' Extraterritorial Income Exclusion (EIE) benefits, which is
excluded from that year's non-GAAP net income.
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: our continued strong growth, organically and through acquisitions, to
enhance our portfolio of software solutions and increase our geographic reach;
our continued success in the Linux segment and the expansion of our business in
the Windows market; our ability to customize products and fully support
customers in the Americas, throughout Europe, and in India; projected growth in
revenues in fiscal year 2006 and the first fiscal quarter of fiscal year 2006;
gross margins, operating expense levels and effective income tax rates for the
2006 fiscal year; the anticipated non-cash impact of stock-based compensation
during the 2006 fiscal year under SFAS No. 123R; orders from a major retail
customer; the anticipated performance of our Neoware e900 thin client and our
high margin software products; anticipated increased customer recognition of the
benefits of thin client computing and our anticipated investments to capitalize
on significant growth opportunities. 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 and the first
quarter of 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, our reports on Form 10-K for the year ended June
30, 2004 and Forms 10-Q for the quarters ended September 30, 2004, December 31,
2004 and March 31, 2005.
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
- ------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(UNAUDITED)
JUNE 30, JUNE 30,
ASSETS 2005 2004
--------- ---------
Current assets:
Cash and cash equivalents $ 8,285 $ 17,119
Short-term investments 34,874 38,177
Accounts receivable, net 17,165 10,580
Inventories 3,051 795
Prepaid expenses and other 2,627 1,628
Deferred income taxes 1,015 643
--------- ---------
Total current assets 67,017 68,942
Property and equipment, net 416 509
Goodwill 31,404 17,466
Intangibles, net 9,386 3,545
Deferred income taxes 792 145
--------- ---------
$ 109,015 $ 90,607
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,408 $ 5,685
Accrued compensation and benefits 2,018 1,534
Other accrued expenses 3,868 1,071
Income taxes payable 1,588 854
Deferred revenue 734 739
--------- ---------
Total current liabilities 16,616 9,883
---------
Deferred income taxes 1,943 --
Deferred revenue 306 235
--------- ---------
Total liabilities 18,865 10,118
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 16 16
Additional paid-in capital 74,577 71,718
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income 299 936
Retained earnings 15,358 7,919
--------- ---------
Total stockholders' equity 90,150 80,489
--------- ---------
$ 109,015 $ 90,607
========= =========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net revenues $ 23,009 $ 17,080 $ 78,784 $ 63,165
Cost of revenues 12,884 9,726 44,570 32,785
-------- -------- -------- --------
Gross profit 10,125 7,354 34,214 30,380
-------- -------- -------- --------
Sales and marketing 3,795 3,340 13,176 13,125
Research and development 1,551 678 3,850 2,798
General and administrative 2,052 1,016 6,866 5,476
Abandoned acquisition costs -- 1,604 34 1,604
-------- -------- -------- --------
Operating expenses 7,398 6,638 23,926 23,003
-------- -------- -------- --------
Operating income 2,727 716 10,288 7,377
Foreign exchange loss (40) (106) (283) (106)
Interest income, net 265 107 859 392
-------- -------- -------- --------
Income before income taxes 2,952 717 10,864 7,663
Income taxes 734 239 3,425 2,269
-------- -------- -------- --------
Net income $ 2,218 $ 478 $ 7,439 $ 5,394
======== ======== ======== ========
Earnings per share:
Basic $ .14 $ .03 $ .47 $ .34
======== ======== ======== ========
Diluted $ .14 $ .03 $ .46 $ .34
======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic 16,219 15,778 15,931 15,683
======== ======== ======== ========
Diluted 16,406 16,142 16,202 16,020
======== ======== ======== ========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Cash flows from operating activities:
Net income $ 2,219 $ 477 $ 7,439 $ 5,394
Adjustments to reconcile net income to net cash
provided by operating activities-
Income tax benefit, primarily from stock option exercises (271) 297 114 2,005
Depreciation 91 52 290 262
In-process research and development 300 -- 300 --
Amortization of intangibles 678 268 1,795 1,049
Changes in operating assets and liabilities- net of effect
from acquisition-
Accounts receivable (3,143) 603 (6,156) 509
Inventories 587 (47) (1,596) (22)
Prepaid expenses and other (1,348) (589) (753) (820)
Accounts payable 3,120 581 2,641 1,478
Accrued expenses 481 467 3,143 629
Deferred income taxes (3) 141 (3) 141
Deferred revenue (259) (1) 33 283
-------- -------- -------- --------
Net cash provided by operating activities 2,452 2,249 7,247 10,908
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of Visara thin client business -- -- (3,804)
Purchase of Thintune thin client business (704) -- (10,087)
Purchase of Mangrove Systems, SAS 99 -- (2,744)
Purchase of the TeemTalk software business -- -- -- (9,995)
Purchase of Qualystem SAS (4,232) -- (4,232)
Purchase of short-term investments (28,596) 10,716 (48,829) (39,470)
Sales of short-term investments -- (16,708) 52,177 4,444
Purchase of intangible assets -- -- -- (125)
Purchases of property and equipment (66) (69) (157) (198)
-------- -------- -------- --------
Net cash used in investing activities (33,499) (6,061) (17,676) (45,344)
-------- -------- -------- --------
Cash flows from financing activities:
Repayments of capital leases (2) (1) (7) (5)
Sale of common stock, net of expenses -- -- 24,609
Expenses for prior issuance of common stock -- -- (3)
Exercise of stock options and warrants 278 50 1,446 884
-------- -------- -------- --------
Net cash provided by financing activities 276 49 1,439 25,485
-------- -------- -------- --------
Effect of foreign exchange rate changes on cash (30) 60 156 56
-------- -------- -------- --------
Decrease) in cash and cash equivalents (30,801) (3,704) (8,834) (8,895)
Cash and cash equivalents, beginning of period 39,086 20,823 17,119 26,014
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 8,285 $ 17,119 $ 8,285 $ 17,119
======== ======== ======== ========
Supplemental disclosures:
Cash paid for income taxes $ 858 $ (3) $ 918 $ 261
Issuance of common stock for purchase of Mangrove Systems, SAS -- -- $ 1,300 --
NEOWARE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2005 2004 2005 2004
-------- -------- -------- --------
GAAP NET INCOME $ 2,218 $ 478 $ 7,439 $ 5,394
Amortization of purchased intangible assets included
within cost of sales 285 85 677 330
Amortization of purchased intangible assets included
within operating expenses 394 183 1,118 719
Write-off of acquisition related in-process research and
development 300 -- 300 --
Write-off of deferred acquisition expenses -- 1,604 34 1,604
Income tax effect of amortization of purchased intangible
assets and write-off of acquisition related costs (214) (686) (607) (947)
Prior year income tax benefit -- -- -- (332)
-------- -------- -------- --------
Total net income impact 765 1,186 1,522 1,374
-------- -------- -------- --------
NON GAAP NET INCOME $ 2,983 $ 1,664 $ 8,960 $ 6,768
======== ======== ======== ========
Earnings per share:
Basic $ 0.18 $ 0.11 $ .56 $ .43
======== ======== ======== ========
Diluted $ 0.18 $ 0.10 $ .55 $ .42
======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic 16,219 15,778 15,931 15,683
======== ======== ======== ========
Diluted 16,406 16,142 16,202 16,020
======== ======== ======== ========
GAAP OPERATING EXPENSE $ 7,398 $ 6,638 $ 23,926 $ 23,003
Amortization of purchased intangible assets included
within operating expenses (394) (183) (1,118) (719)
Write-off of acquisition related in-process research and
development (300) -- (300) --
Write-off of deferred acquisition expenses -- (1,604) (34) (1,604)
-------- -------- -------- --------
NON GAAP OPERATING EXPENSE $ 6,704 $ 4,851 $ 22,474 $ 20,680
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