EXHIBIT 99.1
[GRAPHIC OMITTED]
PRESS RELEASE
NEOWARE REPORTS RECORD REVENUE AND EARNINGS FOR SECOND QUARTER OF FISCAL 2006
KING OF PRUSSIA, PA., FEBRUARY 1, 2006 -- Neoware, Inc. (NASDAQ: NWRE),
the leading supplier of enterprise thin client solutions and related software
and services that make computing more secure, reliable, affordable and
manageable, today reported all-time record revenues for its second fiscal
quarter ended December 31, 2005.
"Neoware is reporting another quarter of record financial results as a
result of robust demand for our thin client solutions," commented Michael
Kantrowitz, Neoware's Chairman and CEO.
FY06 Q2 FINANCIAL HIGHLIGHTS:
o Revenues increased 43% to $29,337,000 from $20,471,000 in the prior year
second quarter.
o Gross profit was $12,905,000, or 44% of revenue, compared to $8,745,000,
or 43% of revenue, in the prior year second quarter. Excluding
amortization of acquisition-related intangibles and stock-based
compensation, non-GAAP gross profit was 45% of revenue in the December
2005 quarter, compared to 44% of revenue in the prior year quarter.
o Operating expenses were $9,244,000, or 32% of revenue, compared to
$5,594,000, or 27% of revenue, in the prior year second quarter.
Excluding amortization of acquisition-related intangibles and stock
option expense, non-GAAP operating expenses were $7,991,000, or 27% of
revenue, compared to $5,375,000, or 26% of revenue, in the prior year
second quarter.
o GAAP net income per share for the quarter was $.15 per diluted share,
compared to $.13 per diluted share, in the prior year second quarter.
o Non-GAAP net income per share for the quarter increased 57% to $.22 per
fully diluted share, compared to $.14 per fully diluted share, in the
year ago quarter. Non-GAAP net income excludes amortization of
acquisition-related intangibles and stock based compensation and applies
pro forma tax rates of 33% and 34% in the second quarter of fiscal 2006
and 2005, respectively, for the purpose of showing a comparable view of
the Company's performance from period to period.
"Neoware's strong financial performance is driven by increasing demand
for our thin client solutions," commented Mr. Kantrowitz. "Neoware's products
address some of the most important challenges faced by CIOs today by enhancing
security, improving manageability and lowering total cost of ownership. These
benefits continue to accelerate Neoware thin client adoption by enterprises
around the globe."
"In November, we closed our acquisition of Maxspeed Corporation, and in
January we completed the integration of Maxspeed into our global business. For
the December quarter, Maxspeed contributed approximately $800,000 of revenue;
and consistent with our past practice, we will not be able to report this
separately in future periods, as the Maxspeed products, customers and
technologies have now been integrated into our business and can no longer be
separately measured."
"After completing this and the other global acquisitions we announced
in 2005, Neoware now has sales and integration centers in the U.S., Austria,
Australia, China, France, Germany, India, and the U.K., which gives us the
ability to engage with large enterprise customers and to integrate our thin
client software into their IT infrastructure."
"Neoware has built successful partnerships with other industry leaders,
and these partnerships continue to deliver excellent results. Our alliances with
IBM and Lenovo delivered significant enterprise business in the quarter, and
represented a new record. We believe that Neoware's new, global organization
gives us even greater ability to capitalize on these alliances, as well as the
opportunity to create new ones," Mr. Kantrowitz concluded.
FY06 GUIDANCE:
Based upon performance for the fiscal 2006 year-to-date period and
currently available information, the Company is updating its guidance for the
balance of fiscal 2006 as follows:
o Revenues for the fiscal year are expected to be approximately $114
million, up from the Company's prior guidance of $110 million,
reflecting growth of approximately 45% from fiscal 2005.
o Gross profit margins are expected to be in the range of 40% to 45% for
the year.
o Non-GAAP operating expenses, excluding stock option expense and
amortization of acquisition-related intangibles, are expected to remain
below 30%, and to be leveraged as revenues grow.
o Acquisition-related amortization is expected to be approximately
$350,000 per quarter in cost of sales and approximately $600,000 in
operating expenses.
o Stock option expense is expected to be approximately $25,000 per quarter
in cost of sales and approximately $725,000 per quarter in operating
expenses, subject to additions should we make additional grants in
fiscal 2006.
o The Company's GAAP effective tax rate is expected to be 36% and the
non-GAAP rate, which excludes the impact of non-deductible stock option
expense related to incentive stock options for fiscal 2006, to be 33%.
CONFERENCE CALL INFORMATION
Neoware will host a conference call at 5:00 PM on February 1, 2006. 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 1-800-974-9436 in the US
and +1-641-297-7617 for international calls. The conference ID will be NEOWARE.
A replay of the call will be available through March 1, 2006 by dialing
1-800-645-7959 in the US and +1-641-297-7300 internationally and entering the
passcode: 9436, then press the pound key. 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 accurate 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 pro-forma tax rates of 33% and 34% the second quarter of
fiscal 2006 and 2005, respectively. This compares to GAAP effective tax rates
for the same periods of 36% and 34% for the 2006 and 2005 second quarter
periods, respectively.
ABOUT NEOWARE
Neoware, Inc. (Nasdaq: NWRE) is the leading supplier of enterprise thin client
solutions and related software and services that make computing more secure,
reliable, affordable and manageable. By employing open technologies and
eliminating the obsolescence built into standard personal computer
architectures, Neoware helps enterprises leverage server-based computing
architectures to increase security and reliability, enhance flexibility, as well
as lower their total cost of ownership.
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. Its 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 personal computer. The company's global development, services, and
support provide customers with personalized solutions that facilitate their
specialized computing needs.
Neoware's products are available worldwide from IBM and Lenovo, 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 are in King of Prussia, PA, USA.
Neoware is a registered trademark of Neoware, Inc. All other names products and
services are trademarks or registered trademarks of their respective holders.
# # #
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements
regarding: the increasing demand for our products; the continued acceleration of
adoption of our products by customers worldwide; the impact of our expanded
global organization on our ability to engage with large enterprises and on our
current and future alliances; our projected revenue, gross profit margins,
operating expenses, acquisition-related amortization, stock option expense and
effective tax rates for the balance of fiscal year. 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 manage our expanded organization; 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 annual report on Form
10-K for the year ended June 30, 2005 and our quarterly reports on Forms 10-Q
for the quarters ended September 30, 2005 and December 31, 2005.
Neoware is a trademark of Neoware, 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, Inc.
Keith Schneck, CFO
(610) 277-8300
invest@neoware.com
NEOWARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
DECEMBER 31, JUNE 30,
ASSETS 2005 2005
------------ ---------
Current assets:
Cash and cash equivalents $ 10,093 $ 8,285
Short-term investments 23,827 34,874
Accounts receivable, net 23,349 17,165
Inventories 5,546 3,051
Prepaid expenses and other 1,405 2,627
Deferred income taxes 1,015 1,015
--------- ---------
Total current assets 65,235 67,017
Goodwill 42,923 31,223
Intangibles, net 13,808 9,386
Other 539 --
Property and equipment, net 1,217 416
--------- ---------
$ 123,722 $ 108,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,631 $ 8,408
Accrued compensation and benefits 3,094 2,018
Restructuring reserve 1,076 --
Other accrued expenses 3,732 3,166
Income taxes payable -- 2,290
Deferred revenue 1,165 734
--------- ---------
Total current liabilities 18,698 16,616
Deferred income tax 2,824 1,151
Deferred revenue 287 306
--------- ---------
Total liabilities 21,809 18,073
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 17 16
Additional paid-in capital 82,910 74,577
Treasury stock, 100,000 shares at cost (100 (100)
Accumulated other comprehensive income (656) 118
Retained earnings 19,742 15,358
--------- ---------
Total stockholders' equity 101,913 89,969
--------- ---------
$ 123,722 $ 108,042
========= =========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------- -------- -------- --------
2005 2004 2005 2004
-------- -------- -------- --------
Net revenues $ 29,337 $ 20,471 $ 55,880 $ 36,774
Cost of revenues
Cost of products 16,130 11,569 31,699 20,680
Amortization of intangibles 302 157 575 258
-------- -------- -------- --------
Total cost of revenues 16,432 11,726 32,274 20,938
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit 12,905 8,745 23,606 15,836
-------- -------- -------- --------
Operating expenses
Sales and marketing 4,379 2,959 8,536 5,892
Research and development 1,591 769 2,886 1,433
General and administrative 2,797 1,647 5,095 3,005
Amortization of intangibles 477 219 793 389
-------- -------- -------- --------
Operating expenses 9,244 5,594 17,310 10,719
-------- -------- -------- --------
Operating income 3,661 3,151 6,296 5,117
Foreign exchange gain (loss) 52 (214) 63 (237)
Interest income, net 247 193 491 352
-------- -------- -------- --------
Income before income taxes 3,960 3,130 6,850 5,232
Income taxes 1,419 1,064 2,466 1,779
-------- -------- -------- --------
Net income $ 2,541 $ 2,066 $ 4,384 $ 3,453
======== ======== ======== ========
Earnings per share:
Basic $ .15 $ .13 $ .27 $ .22
======== ======== ======== ========
Diluted $ .15 $ .13 $ .26 $ .21
======== ======== ======== ========
Weighted average shares outstanding:
Basic 16,492 15,754 16,383 15,726
======== ======== ======== ========
Diluted 17,088 16,188 16,718 16,111
======== ======== ======== ========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2005 2004 2005 2004
-------- -------- -------- --------
Cash flows from operating activities:
Net income $ 2,541 $ 2,066 $ 4,384 $ 3,453
Adjustments to reconcile net income to net cash
provided by operating activities-
Income tax benefit, primarily from stock option exercises -- 101 -- 121
Depreciation 79 66 168 130
Amortization of intangibles 779 376 1,367 647
Non-cash share-based compensation 797 -- 1,517 --
Changes in operating assets and liabilities- net of effect
from acquisition-
Accounts receivable (5,048) (2,508) (5,458) (2,742)
Inventories 1,632 (2,139) 1,044 (3,052)
Prepaid expenses and other 1,289 689 1,892 796
Accounts payable 335 275 205 (1,364)
Accrued expenses (1,931) 1,336 (4,141) 1,886
Deferred revenue 415 338 421 285
-------- -------- -------- --------
Net cash provided by operating activities 888 600 1,399 160
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of Visara thin client business (2,107) (24) (2,107) (3,799)
Purchase of TeleVideo thin client business (3,520) -- (3,520) --
Acquistion of Maxspeed (11,794) -- (11,794) --
Purchase of short-term investments (12,538) (2,333) (13,438) (20,233)
Sales of short-term investments 21,112 24,815 25,362 42,184
Purchases of property and equipment (644) (47) (818) (66)
-------- -------- -------- --------
Net cash provided by (used in) investing activities (9,491) 22,411 (6,315) 18,086
-------- -------- -------- --------
Cash flows from financing activities:
Exercise of stock options and warrants 5,215 666 5,376 735
Excess tax benefit related to stock options 994 -- 1,440 --
-------- -------- -------- --------
Net cash provided by financing activities 6,209 666 6,816 735
-------- -------- -------- --------
Effect of foreign exchange rate changes on cash (62) 135 (92) 186
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (2,456) 23,813 1,808 19,167
Cash and cash equivalents, beginning of period 12,549 12,473 8,285 17,119
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 10,093 $ 36,286 $ 10,093 $ 36,286
======== ======== ======== ========
Supplemental disclosures:
Cash paid for income taxes $ 1,545 $ 15 $ 4,192 $ 46
NEOWARE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTH ENDED THREE MONTH ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
-------------------------------------- ------------------------------------
GAAP ADJUSTMENTS NON-GAAP GAAP ADJUSTMENTS NON-GAAP
-------------------------------------- ------------------------------------
Net revenues $ 29,337 - $ 29,337 $ 20,471 - $ 20,471
Cost of revenues
Cost of products 16,130 (21) A 16,109 11,569 - A 11,569
Amortization of intangibles 302 (302) B - 157 (157) B -
---------------------- -------- -------------------- --------
Total cost of revenue 16,432 (323) 16,109 11,726 (157) 11,569
---------------------- -------- -------------------- --------
Gross profit 12,905 323 13,228 8,745 157 8,902
Gross profit percentage 44.0% 45.1% 42.7% 43.5%
Operating expenses
Sales and marketing 4,379 (295) A 4,084 2,959 - A 2,959
Research and development 1,591 (102) A 1,489 769 - A 770
General and administrative 2,797 (379) A 2,418 1,647 - A 1,646
Amortization of intangibles 477 (477) B - 219 (219) B -
---------------------- -------- -------------------- --------
Operating expenses 9,244 (1,253) 7,991 5,594 (219) 5,375
---------------------- -------- -------------------- --------
Operating income 3,661 1,576 5,237 3,151 376 3,527
Percentage of revenue 12% 18% 15% 17%
Foreign exchange gain (loss) 52 - 52 (214) - (214)
Interest income, net 247 - 247 193 - 193
---------------------- -------- -------------------- --------
Income before income taxes 3,960 1,576 5,536 3,130 376 3,506
Income taxes 1,419 409 C 1,828 1,064 128 C 1,192
---------------------- -------- -------------------- --------
Net income $2,541 $1,167 $3,708 $2,066 $248 $2,314
====================== ======== ==================== ========
Earnings per share - diluted $0.15 $0.07 $0.22 $0.13 $0.02 $0.14
====================== ======== ==================== ========
Weighted average shares outstanding - diluted 17,088 17,088 17,088 16,188 16,188 16,188
====================== ======== ==================== ========
A - To exclude the effect of stock-based compensation expense.
B - To exclude the effects of the amortization of intangible assets related to
business combinations.
C - To exclude the tax effect of stock-based compensation expense and
amortization of intangible assets based on effective tax rates of 33% and
34% for the three month ended December 31, 2005 and 2004, respectively.
NEOWARE SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
SIX MONTH ENDED SIX MONTH ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------------------- ----------------------------------------
GAAP ADJUSTMENTS NON-GAAP GAAP ADJUSTMENTS NON-GAAP
---------------------------------------- ----------------------------------------
Net revenues $ 55,880 - $ 55,880 $ 36,774 - $ 36,774
Cost of revenues
Cost of products 31,699 (40) A 31,659 20,680 - A 20,680
Amortization of intangibles 575 (575) B - 258 (258) B -
------------------- -------- --------------------- ----------
Total cost of revenue 32,274 (615) 31,659 20,938 (258) 20,680
------------------- -------- --------------------- ----------
Gross profit
23,606 615 24,221 15,836 258 16,094
Gross profit percentage 42.2% 43.3% 43.1% 43.8%
Operating expenses
Sales and marketing 8,536 (545) A 7,991 5,892 - A 5,892
Research and development 2,886 (207) A 2,679 1,433 - A 1,433
General and administrative 5,095 (725) A 4,370 3,005 - A 3,005
Amortization of intangibles 793 (793) B - 389 (389) B -
------------------- -------- --------------------- ----------
Operating expenses 17,310 (2,270) 15,040 10,719 (389) 10,330
------------------- -------- --------------------- ----------
Operating income 6,296 2,885 9,181 5,117 647 5,764
Percentage of revenue 11% 16% 14% 16%
Foreign exchange gain (loss) 63 - 63 (237) - (237)
Interest income, net 491 - 491 352 - 352
------------------- -------- --------------------- ----------
Income before income taxes 6,850 2,885 9,735 5,232 647 5,879
Income taxes 2,466 747 C 3,213 1,779 221 C 2,000
------------------- -------- --------------------- ----------
Net income $ 4,384 $ 2,138 $ 6,522 $ 3,453 $ 426 $ 3,879
=================== ========= ===================== ==========
Earnings per share - diluted $ 0.26 $ 0.13 $ 0.39 $ 0.21 $ 0.03 $ 0.24
=================== ========= ===================== ==========
Weighted average shares outstanding - diluted 16,718 16,718 16,718 16,111 16,111 16,111
=================== ========= ===================== ==========
A - To exclude the effect of stock-based compensation expense.
B - To exclude the effects of the amortization of intangible assets related to
business combinations.
C - To exclude the tax effect of stock-based compensation expense and
amortization of intangible assets based on effective tax rates of 33% and
34% for the six month ended December 31, 2005 and 2004, respectively.