Exhibit 99.1
[GRAPHIC OMITTED] NEOWARE PRESS RELEASE
NEOWARE REPORTS RECORD REVENUE AND EARNINGS FOR FIRST QUARTER OF FISCAL 2006
KING OF PRUSSIA, PA., NOVEMBER 2, 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 all-time record revenues for its
first fiscal quarter September 30, 2005.
"We are experiencing strong demand for Neoware's thin client solutions
and we are translating that into record financial results," stated Michael
Kantrowitz, Neoware's Chairman and CEO.
FY06 Q1 FINANCIAL HIGHLIGHTS:
o Revenues increased 63% to $26,543,000 from $16,303,000 in the prior
year first quarter.
o Gross profit was $10,701,000 or 40.4% of revenue, compared to
$7,090,000, or 43.5% of revenue, in the prior year first quarter.
Excluding $273,000 for amortization of acquisition-related intangible
assets and $19,000 of stock based compensation in the September 2005
quarter as compared to $101,000 of amortization expense in the prior
year first quarter, non-GAAP gross profit was 41.3% of revenue in the
September 2005 quarter, compared to 44.1% of revenue in the prior year
quarter. Cost of sales reflects very strong initial sales of the
Neoware e900 thin client which carries higher average selling prices
and lower percentage gross margins than other Neoware products.
Percentage gross margin on other sales was consistent with recent prior
periods.
o Operating expenses were $8,066,000, or 30.4% of revenue, compared to
$5,124,000, or 31.4% of revenue, in the prior year first quarter.
Operating expenses in the September 2005 quarter include $315,000 for
amortization of acquisition-related intangibles and $701,000 of stock
based compensation as a result of the adoption of SFAS No. 123R on July
1, 2005, compared to operating expenses in the prior year quarter that
included $170,000 for amortization of acquisition-related intangible
assets. Excluding these expenses, non-GAAP operating expenses were
$7,050,000, or 26.6% of revenue, in the September 2005 quarter,
compared to $4,954,000, or 30.4% of revenue, in the prior year first
quarter.
o GAAP net income for the quarter was $1,841,000, or $.11 per diluted
share, compared to $1,387,000, or $.09 per diluted share, in the prior
year first quarter.
o Non-GAAP net income for the quarter was $2,811,000, or $.17 per fully
diluted share, compared to $1,566,000, or $.10 per fully diluted share,
in the year ago quarter. Non-GAAP net income excludes amortization of
acquisition-related intangible assets and stock based compensation as
well as a pro forma tax rate of 33% and 34% in the first quarter of
fiscal 2006 and 2005, respectively.
"Neoware is delivering strong financial results as we grow our business
and our share of the global desktop market," continued Mr. Kantrowitz. "We
believe that after many years of promise, enterprises around the globe are now
turning to Neoware thin client and software solutions to solve significant
security, management and cost issues they face with their current IT
infrastructure. We're especially pleased with the initial revenue contribution
from our new Neoware e900 thin client to a major global retailer in the first
quarter."
"To further our growth plans we acquired five businesses over the last
year to expand our channels of distribution, enhance our ownership of key
intellectual property, and build the ability to customize our software products
for major local markets. We expect to close our acquisition of Maxspeed
Corporation before the end of the year, marking our entry into Asian markets, as
Maxspeed has development and sales offices in China. We now have a truly global
presence, and we believe that this will allow us to satisfy the needs of
multinational and global enterprises by acting globally and delivering locally,
including providing software support and customization in local markets, which
is essential in many large thin client deployments.
"Neoware has focused on building successful partnerships with other
industry leaders, and we believe that these partnerships will continue to
generate growth opportunities for us in the future. We have expanded our
partnership with IBM by supporting their Virtualized Hosted Client initiative,
and we now have a successful business relationship with Lenovo, the world's
third largest PC company, which was formed by Lenovo Group's purchase of IBM's
PC business this past year. We recently entered into a business relationship
with ClearCube, the leading supplier of Blade PC systems that opens
opportunities for us in new markets. We have entered into newly expanded
distribution relationships with knowledgeable thin client distributors in the UK
and South Africa that provide us with new opportunities to win and support
customers in these geographies. We believe that Neoware's new global
organization gives us even greater ability to capitalize on these partnerships,
as well as the opportunity to create new ones."
CONFERENCE CALL INFORMATION
Neoware will host a conference call at 5:00 PM on November 2, 2005. The
conference call will be available live at www.vcall.com and on the Neoware
website at www.neoware.com. To participate, please 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 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 January 1, 2006 by
dialing 1-888-566-0148 domestically and +1-402-220-9184 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 including its cash requirements for ongoing operating activities. 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 and stock based compensation. We
compute non-GAAP gross profit and operating expenses by adjusting the respective
GAAP amounts for amortization of acquired intangible assets and stock based
compensation. In addition, we used a pro-forma tax rate of 33% and 34% the first
quarter of fiscal 2006 and 2005, respectively. This compares to a GAAP effective
tax rate for the same periods of 36% and 34% for the 2006 and 2005 first quarter
periods, respectively.
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 Lenovo and 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: the strong demand for our products; our plans to grow the business
and our share of the global desktop market; the expansion of our distribution
channels; the enhancement of our ownership of intellectual property; our ability
to customize our software products; our entry into the Asian market; the closing
of our acquisition of Maxspeed; our global presence; and our existing and future
partnerships generating growth opportunities in new markets. 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 Maxspeed acquisition; 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 ability to maintain
our partnerships; our dependence on our suppliers and distributors; increased
competition; our continued ability to sell our products through Lenovo to IBM's
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 report on Form 10-K for the year ended June 30, 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
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CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
ASSETS 2005 2005
-------------- --------------
Current assets:
Cash and cash equivalents $ 12,550 $ 8,285
Short-term investments 31,524 34,874
Accounts receivable, net 17,565 17,165
Inventories 3,638 3,051
Prepaid expenses and other 2,021 2,627
Deferred income taxes 1,015 1,015
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Total current assets 68,313 67,017
Property and equipment, net 497 416
Goodwill 33,087 31,223
Intangibles, net 8,767 9,386
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$ 110,664 $ 108,042
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,234 $ 8,408
Accrued compensation and benefits 1,065 2,018
Other accrued expenses 5,355 3,166
Income taxes payable 991 2,290
Deferred revenue 762 734
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Total current liabilities 16,407 16,616
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Deferred income taxes 1,151 1,151
Deferred revenue 280 306
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Total liabilities 17,838 18,073
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Stockholders' equity:
Preferred stock - -
Common stock 16 16
Additional paid-in capital 75,904 74,577
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income (loss) (193) 118
Retained earnings 17,199 15,358
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Total stockholders' equity 92,826 89,969
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$ 110,664 $ 108,042
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NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2005 2004
-------------- --------------
Net revenues $ 26,543 $ 16,303
Cost of revenues 15,842 9,213
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Gross profit 10,701 7,090
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Sales and marketing 4,473 3,102
Research and development 1,295 664
General and administrative 2,298 1,358
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Operating expenses 8,066 5,124
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Operating income 2,635 1,966
Foreign exchange gain (loss) 9 (23)
Interest income, net 244 159
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Income before income taxes 2,888 2,102
Income taxes 1,047 715
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Net income $ 1,841 $ 1,387
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Earnings per share:
Basic $ .11 $ .09
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Diluted $ .11 $ .09
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Weighted average number of common shares outstanding:
Basic 16,271 15,799
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Diluted 16,434 16,136
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NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2005 2004
---------- ----------
Cash flows from operating activities:
Net income $ 1,841 $ 1,387
Adjustments to reconcile net income to net cash provided by
operating activities-
Amortization of intangibles 588 271
Depreciation 89 64
Non-cash share-based compensation 720 --
Tax benefit related to stock options -- 20
Changes in operating assets and liabilities, net of effect
from acquisitions-
(Increase) decrease in:
Accounts receivable (410) (233)
Inventories (587) (913)
Prepaid expenses and other 605 107
Increase (decrease) in:
Accounts payable (130) (1,636)
Accrued compensation and benefits (953) (297)
Other accrued expenses 25 407
Income taxes payable (1,271) 439
Deferred revenue 5 (52)
---------- ----------
Net cash provided by (used in) operating activities 522 (436)
---------- ----------
Cash flows from investing activities:
Purchase of Visara thin client business, net of cash acquired -- (3,774)
Purchases of short-term investments (900) (17,900)
Sales of short-term investments 4,250 17,368
Purchases of property and equipment (174) (19)
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Net cash provided by (used in) investing activities 3,176 (4,325)
---------- ----------
Cash flows from financing activities:
Exercise of stock options and warrants 161 69
Repayments of capital leases (2) (3)
Excess tax benefit related to stock options 446 --
---------- ----------
Net cash provided by financing activities 605 66
---------- ----------
Effect of foreign exchange rate changes on cash (38) 49
---------- ----------
Increase (decrease) in cash and cash equivalents 4,265 (4,646)
Cash and cash equivalents, beginning of year 8,285 17,119
---------- ----------
Cash and cash equivalents, end of year $ 12,550 $ 12,473
========== ==========
Supplemental cash flow disclosures:
Cash paid for income taxes $ 2,647 $ 31
NEOWARE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2005 2004
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GAAP INCOME BEFORE INCOME TAXES $ 2,888 $ 2,102
Amortization of purchased intangible assets included within
cost of sales 273 101
Amortization of purchased intangible assets included within
operating expenses 315 170
Amortization of stock based compensation 720 -
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NON GAAP INCOME BEFORE INCOME TAXES 4,196 2,373
NON GAAP INCOME TAXES (33% AND 34%) (1,385) (807)
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NON GAAP NET INCOME $ 2,811 $ 1,566
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NON GAAP EARNINGS PER SHARE:
Basic $ 0.17 $ 0.10
============== ==============
Diluted $ 0.17 $ 0.10
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GAAP WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic 16,271 15,779
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Diluted 16,464 16,106
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GAAP GROSS PROFIT $ 10,701 $ 7,090
Amortization of purchased intangible assets 273 101
Amortization of stock based compensation 19 -
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NON GAAP GROSS PROFIT $ 10,993 $ 7,191
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NON GAAP GROSS PROFIT PERCENTAGE 41.4% 44.1%
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GAAP OPERATING EXPENSE $ 8,066 $ 5,124
Amortization of purchased intangible assets (315) (170)
Amortization of stock based compensation (701) -
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NON GAAP OPERATING EXPENSE $ 7,050 $ 4,954
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