Exhibit 99.1
[Neoware Logo] PRESS RELEASE
FOR IMMEDIATE RELEASE
NEOWARE REPORTS FOURTH QUARTER AND FY06 RESULTS
KING OF PRUSSIA, Pa., August 14, 2006 -- Neoware, Inc. (Nasdaq: NWRE), the
leading supplier of thin client software and devices, today reported financial
results for its fiscal fourth quarter and year ended June 30, 2006.
Q4 FINANCIAL HIGHLIGHTS:
o Revenues were $23,553,000, compared to $23,009,000 in the prior year
fourth quarter.
o Gross profit was 37% of revenue, compared to 44% of revenue in the
prior year fourth quarter. Non-GAAP gross profit was 38% of revenue,
compared to 45% of revenue in the prior year fourth quarter.
o Operating expenses were $8,825,000, or 38% of revenue, compared to
$7,399,000, or 32% of revenue, in the prior year fourth quarter.
Non-GAAP operating expenses were $7,174,000, or 31% of revenue,
compared to $6,721,000, or 29% of revenue, in the prior year fourth
quarter.
o Net income for the quarter was $.02 per diluted share, compared to
$.14 per diluted share in the prior year fourth quarter.
o Non-GAAP net income for the quarter was $.09 per diluted share,
compared to $.18 per diluted share in the prior year fourth quarter.
o The Company ended the quarter with $114.0 million of cash and
marketable securities.
o Non-GAAP results exclude amortization of acquisition-related
intangibles, stock-based compensation and the write off of acquisition
related in-process research and development and apply a non-GAAP tax
rate of 33% and 24% in the fourth quarters of fiscal 2006 and 2005,
respectively, for the purpose of showing a comparable view of the
Company's performance from period to period.
o The Company's diluted shares outstanding were 20.4 million compared to
16.4 million in the year ago quarter as a result of the Company's
public offering of its common stock in February 2006.
FY06 FINANCIAL HIGHLIGHTS:
o Revenues for the year increased 36% to $107,219,000, from $78,784,000
in the prior year.
o Gross profit was 41% of revenue, compared to 43% of revenue in the
prior year. Non-GAAP gross profit was 43% of revenue, compared to 44%
of revenue in the prior year.
o Operating expenses were $35,126,000, or 33% of revenue, compared to
$23,926,000, or 30% of revenue, in the prior year. Non-GAAP operating
expenses were $29,861,000, or 28% of revenue, compared to $22,534,000,
or 29% of revenue, in the prior year.
o Net income for the year was $.39 per diluted share, compared to $.46
per diluted share in the prior year, which did not include the effect
of stock option expense.
o Non-GAAP net income for the year was $.66 per diluted share, compared
to $.55 per diluted share, in the prior year.
o The Company generated approximately $8.4 million in cash from
operations in the fiscal year.
o Non-GAAP results exclude amortization of acquisition-related
intangibles, stock-based compensation, the write off of acquisition
related in-process research and development and the write off of
deferred acquisition expenses and apply a non-GAAP tax rate of 33% and
31% in fiscal 2006 and 2005, respectively, for the purpose of showing
a comparable view of the Company's performance from period to period.
"As previously disclosed, the fourth quarter's results were impacted by the
insolvency of one of our German distributors and by the fact that several of our
large enterprise customers did not purchase in the quarter," commented Michael
Kantrowitz, Neoware's Chairman and CEO. "These facts, along with normal product
mix variation, resulted in lower than expected revenues and gross margins for
the quarter."
"What we experienced this quarter is not new for us, and doesn't change our
positive outlook for our business and our market. We have consistently
communicated that our revenues are subject to quarterly variation - both
positive and negative - based on the timing of individual orders. In fact, we
experienced similar quarterly variation to the positive in the first quarter of
fiscal 2006, when our revenues were significantly above the expectations we
communicated approximately three weeks before quarter end."
"The good news is that, even with lower revenues, we were profitable and
cash-flow positive, and for the year we grew our revenues by 36%, our non-GAAP
earnings by 33% and our non-GAAP EPS by 20%. We also ended the year with a
record $114 million of cash and marketable securities, providing us with the
resources to continue to invest in our business," Mr. Kantrowitz continued.
"We believe that our market
opportunity remains strong and is growing, and that our products solve real
problems for enterprise customers. Neoware thin client software and devices
significantly improve the security and manageability of corporate computing, and
help enterprises reduce their costs. We are seeing increased interest in our
solutions from our traditional vertical markets, including retail, healthcare,
and transportation, as well as from new ones like finance and the Federal
Government."
"Because of our confidence in the growth opportunities in our core markets, we
are expanding our marketing and sales initiatives in 2007, including increasing
our focus on systems integrators, distributors and VARs by increasing our sales
headcount and marketing programs aimed at these channels. At the same time, we
will also increase our investments in selling and marketing programs aimed at
large enterprise customers through partnerships, including those with IBM and
Lenovo."
"We believe we are better positioned than ever to grow our market, and to build
upon our leadership position within it," Mr. Kantrowitz concluded.
FISCAL YEAR 2007 GUIDANCE
Based upon currently available information, the Company is updating its guidance
as follows:
o Revenues for the year are expected to increase by 18% to 20% compared
to fiscal 2006.
o Gross profit is expected to be in the 40% range, plus or minus a point
or two in individual quarters based upon product mix.
o Non-GAAP operating expenses, excluding amortization of stock-based
compensation and amortization of acquisition related intangibles, are
projected to increase by approximately $7.0 million for the year,
similar to the increase from fiscal 2005 to 2006.
o Amortization of stock-based compensation is expected to be
approximately $900,000 per quarter.
o Amortization of acquisition related intangibles is expected to be
approximately $340,000 charged to cost of sales and $600,000 charged
to sales and marketing expense per quarter.
o The Company's effective tax rate is expected to decline approximately
one to two percent as a result of the positive impact of tax free
investment income.
o Fully diluted share count is expected to be approximately 20.7 million
shares.
CONFERENCE CALL INFORMATION
Neoware will host a conference call at 5:00 PM on August 14, 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 through October
20, 2006.
The call will also be accessible by dialing 1-800-974-9436 from the U.S. and
+1-641-297-7617 for international calls. The conference ID will be NEOWARE. A
replay of the call will be available through November 14, 2006, by dialing
1-800-645-7959 in the U.S. and +1- 973-854-1361 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
Neoware presents the following non-GAAP financial measures: non-GAAP gross
profit and margin; non-GAAP operating expenses; non-GAAP operating income and
margin; non-GAAP effective income tax rate; non-GAAP income taxes; non-GAAP net
income; and non-GAAP earnings per share. We exclude the following items in the
development of the non-GAAP financial measures presented:
Stock-based compensation expenses. Our non-GAAP financial measures
exclude stock-based compensation expenses, which consist of expenses for
stock-based compensation that we began recording under SFAS 123(R) in the first
quarter of fiscal 2006. We exclude these expenses from our non-GAAP financial
measures primarily because (i) they are non-cash expenses that we do not
consider part of ongoing operating results when assessing the performance of our
business, (ii) the exclusion of these expenses facilitates the comparison of
results for fiscal 2006 with results for prior periods, which did not include
stock-based compensation expenses and (iii) exclusion of these expenses allows
more meaningful comparisons against financial models prepared by our investors
and securities analysts that also present information on a GAAP and non-GAAP
basis. In addition, stock-based compensation amounts are difficult to forecast,
because the magnitude of the charges depends upon the volume and timing of stock
option and other equity-based compensation grants, which can vary dramatically
from period to period, and external factors such as interest rates and the
trading price and volatility of our common stock. We believe that excluding
these stock-based compensation amounts improves comparability of the operating
performance of the business.
Amortization of acquired intangible assets. In accordance with GAAP,
cost of sales and operating expenses include amortization of acquired intangible
assets such as intellectual property, customer lists and covenants not to
compete. We exclude these items from our non-GAAP financial measures because (i)
they are non-cash expenses that we do not consider part of ongoing cash
operating results when assessing the performance of our business, as the timing
and amount of the expenses vary from period to period, (ii) we believe that
doing so facilitates comparisons to our historical operating results and to the
results of other companies in our industry, which have their own unique
acquisition histories, and (iii) exclusion of these expenses better allows
comparison against financial models prepared by our investors and securities
analysts that also present information on a GAAP and non-GAAP basis.
Income taxes. We use a non-GAAP effective income tax rate based on a
derived amount which excludes the impact of the non-deductible portion of
stock-based compensation expense as we believe this reflects income tax expense
without the impact of stock-based compensation and provides a more meaningful
comparison against our historical effective income tax rate for fiscal 2005,
which did not include any impact of stock-based compensation expense.
The Company believes that its non-GAAP financial measures provide meaningful
supplemental information regarding the Company's operating results because they
exclude amounts that the Company excludes as part of its monitoring of operating
results and assessing the performance of the business. For example, the Company
uses non-GAAP measures, including gross profit, operating expense and operating
income excluding amortization and stock-based compensation expense, in its
financial and operational decision making, including decisions regarding
staffing, future management priorities and how the Company will direct future
operating expenses on the basis of non-GAAP financial measures. In addition, the
Company has established incentive compensation programs utilizing, in part, such
non-GAAP financial measures, including non-GAAP operating income. For the same
reasons, management also uses this information in its budgeting and forecasting
activities and in quarterly reports to its Board of Directors.
Non-GAAP financial measures should not be considered as a substitute for, or as
superior to, measures of financial performance prepared in accordance with GAAP.
Neoware's non-GAAP financial measures do not reflect a comprehensive system of
accounting, and they differ from GAAP measures with similar names and from
non-GAAP financial measures with the same or similar names that are used by
other companies. We strongly urge investors and potential investors in our
securities to review the reconciliation of our non-GAAP financial measures to
the comparable GAAP financial measures that are included in this release, and
our consolidated financial statements, including the notes thereto, and the
other financial information contained in our periodic filings with the SEC and
not to rely on any single financial measure to evaluate our business. The
principal limitation of Neoware's non-GAAP financial measures is that they
exclude significant expenses that are required by GAAP to be recorded. In
addition, non-GAAP financial measures are subject to inherent limitations
because they reflect the exercise of judgments by management about which charges
are excluded from the non-GAAP financial measures. To mitigate this limitation,
Neoware presents its non-GAAP financial measures in connection with its GAAP
results, and recommends that investors do not give undue weight to its non-GAAP
financial measures.
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.
About Neoware
Neoware, Inc. (Nasdaq:NWRE), provides enterprises throughout the world with thin
client computing devices, software that turns PCs into thin clients, and
services that adapt thin client technology to virtually any enterprise computing
environment. Neoware's software powers, manages and secures thin client devices
and traditional personal computers, enabling them to run Windows(r) and Web
applications across a network, stream operating systems on demand, and connect
to mainframes, mid-range, UNIX and Linux systems. Headquartered in King of
Prussia, PA, USA, Neoware has offices in Australia, Austria, China, France,
Germany, and the United Kingdom. Neoware's products are available worldwide from
select, knowledgeable resellers, as well as via its partnerships with IBM,
Lenovo and ClearCube. Neoware can be reached by email at info@neoware.com.
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: our belief that our market opportunity remains strong and is growing;
increased interest in our solutions from our traditional vertical markets; our
intent to expand our marketing and sales initiatives in fiscal year 2007;
increasing our focus on systems integrators, distributors and VARs by increasing
our headcount and marketing programs; our increased investments in marketing
programs aimed at large enterprise customers through IBM and Lenovo; and our
ability to grow our market and our leadership position. Factors that could cause
actual results to differ materially from those predicted in such forward-looking
statements include: our success in implementing our expanded marketing and sales
initiatives and increasing sales to the targeted customers; 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; pricing pressures; rapid
technological changes in the industry; growth of overall thin client sales; 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; 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, December 31, 2005 and March 31, 2006.
NEOWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30, JUNE 30,
ASSETS 2006 2005
---------------------------------
Current assets:
Cash and cash equivalents $ 86,223 $ 8,285
Short-term investments 27,903 34,874
Accounts receivable, net 16,877 17,165
Inventories 7,734 3,051
Prepaid expenses and other 3,231 2,627
Deferred income taxes 1,064 1,015
--------- ---------
Total current assets 143,032 67,017
Goodwill 41,268 31,223
Intangibles, net 12,175 9,386
Deferred income taxes 1,451 --
Property and equipment, net 1,586 416
Other 61 --
--------- ---------
$ 199,573 $ 108,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,989 $ 8,408
Accrued compensation and benefits 2,021 2,018
Restructuring Reserve 600 --
Income taxes payable 158 2,290
Other accrued expenses 4,159 3,166
Deferred revenue 973 734
--------- ---------
Total current liabilities 16,900 16,616
Deferred income taxes 755 1,151
Deferred revenue 316 306
--------- ---------
Total liabilities 17,971 18,073
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 20 16
Additional paid-in capital 158,672 74,577
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income (loss) 556 118
Retained earnings 22,454 15,358
--------- ---------
Total stockholders' equity 181,602 89,969
--------- ---------
$ 199,573 $ 108,042
========= =========
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
THREE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ----------------------------------
2006 2005 2006 2005
------------------------------------ ----------------------------------
Net revenues $ 23,553 $ 23,009 $ 107,219 $ 78,784
Cost of revenues
Cost of products (a) 14,556 12,612 61,607 43,862
Amortization of intangibles 347 271 1,260 708
--------------- --------------- -------------- --------------
Total cost of revenues 14,903 12,883 62,867 44,570
--------------- --------------- -------------- --------------
Gross profit 8,650 10,126 44,352 34,214
--------------- --------------- -------------- --------------
Operating expenses
Sales and marketing 4,056 3,433 16,920 12,134
Research and development 1,584 1,535 6,030 3,834
General and administrative 2,597 2,053 10,211 6,900
Amortization of intangibles 588 378 1,965 1,058
--------------- --------------- -------------- --------------
Total operating expenses (b) 8,825 7,399 35,126 23,926
--------------- --------------- -------------- --------------
Operating income (175) 2,727 9,226 10,288
Foreign exchange loss (123) (40) (59) (283)
Interest income, net 939 268 1,937 859
--------------- --------------- -------------- --------------
Income before income taxes 641 2,955 11,104 10,864
Income taxes 240 734 4,007 3,425
--------------- --------------- -------------- --------------
Net income $ 401 $ 2,221 $ 7,097 $ 7,439
=============== =============== ============== ==============
Earnings per share:
Basic $ 0.02 $ 0.14 $ 0.40 $ 0.47
=============== =============== ============== ==============
Diluted $ 0.02 $ 0.14 $ 0.39 $ 0.46
=============== =============== ============== ==============
Weighted average number of common
shares outstanding:
Basic 19,874 16,219 17,665 15,931
=============== =============== ============== ==============
Diluted 20,408 16,406 18,105 16,202
=============== =============== ============== ==============
(a) includes stock-based compensation expense of $26 and $86 for the three and
twelve months ended June 30, 2006.
(b) includes stock-based compensation expense of $1,063 and $3,300 for the three
and twelve months ended June 30, 2006.
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
2006 2005 2006 2005
---------------- ------------- ---------------- --------------
Cash flows from operating activities:
Net income $ 401 $ 2,221 $ 7,097 $ 7,439
Adjustments to reconcile net income to net cash
provided by operating activities-
Amortization of intangibles 935 678 3,225 1,795
Depreciation 118 91 421 290
In process research and development -- 300 -- 300
Non-cash share-based compensation 1,088 -- 3,386 --
Income tax benefit on stock option exercises -- (271) -- 114
Deferred income taxes (820) (3) (820) (3)
Changes in operating assets and liabilities- net of effect
from acquisition-
Accounts receivable 5,301 (3,143) 1,062 (6,156)
Inventories (1,610) 587 (1,144) (1,596)
Prepaid expenses and other 653 (1,351) 1,032 (753)
Accounts payable (3,555) 3,120 (451) 2,641
Accrued expenses (1,562) 482 (5,493) 3,143
Deferred revenue 7 (259) 115 33
------------ ----------- ------------ ------------
Net cash provided by operating activities 956 2,452 8,430 7,247
------------ ----------- ------------ ------------
Cash flows from investing activities:
Acquisition of Maxspeed, net of cash acquired 71 -- (11,982) --
Purchase of TeleVideo thin client business -- -- (3,520) --
Purchase of Visara thin client business -- -- (2,107) (3,804)
Purchase of ThinTune thin client business, net of cash acq. -- (704) -- (10,087)
Purchase of Mangrove Systems SAS, net of cash acquired -- 99 -- (2,744)
Purchase of Qualystem SAS, net of cash acquired -- (4,232) -- (4,232)
Purchase of short-term investments (2,050) (28,596) (28,338) (48,829)
Sales of short-term investments 2,962 - 36,188 52,177
Purchases of property and equipment (86) (66) (1,498) (157)
------------ ----------- ------------ ------------
Net cash provided by (used in) investing activities 897 (33,499) (11,257) (17,676)
------------ ----------- ------------ ------------
Cash flows from financing activities:
Repayments of capital leases -- (2) -- (6)
Proceeds from issuance of common stock, net of expenses (80) -- 71,156 --
Exercise of stock options 1,882 278 7,896 1,445
Tax benefit from share-based payment arrangements (73) -- 1,661 --
------------ ----------- ------------ ------------
Net cash provided by financing activities 1,729 276 80,713 1,439
------------ ----------- ------------ ------------
Effect of foreign exchange rate changes on cash 213 (30) 52 156
------------ ----------- ------------ ------------
Increase (decrease) in cash equivalents 3,795 (30,801) 77,938 (8,834)
Cash and cash equivalents, beginning of period 82,428 39,086 8,285 17,119
------------ ----------- ------------ ------------
Cash and cash equivalents, end of period $ 86,223 $ 8,285 $ 86,223 $ 8,285
============ =========== ============ ============
Supplemental disclosures:
Cash paid for income taxes $ 963 $ 858 $ 6,189 $ 918
Issuance of common stock for purchase of
Mangrove Systems, SAS -- -- -- 1,300
NEOWARE, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
TWELVE MONTH ENDED TWELVE MONTH ENDED
JUNE 30, 2006 JUNE 30, 2005
------------------------------------------- ------------------------------------------
GAAP ADJUSTMENTS NON-GAAP GAAP ADJUSTMENTS NON-GAAP
------------------------------------------- ------------------------------------------
Gross profit 44,352 1,346 A, B 45,698 34,214 708 B 34,922
======================== ============== ======================= ==============
Gross profit percentage 41% 43% 43% 44%
Operating expenses
Sales and marketing 16,920 (1,238) A 15,682 12,134 -- 12,134
Research and development 6,030 (394) A 5,636 3,834 (300) D 3,534
General and administrative 10,211 (1,668) A 8,543 6,900 (34) E 6,866
Amortization of intangibles 1,965 (1,965) B -- 1,058 (1,058) B --
------------------------ -------------- ----------------------- --------------
Operating expenses 35,126 (5,265) 29,861 23,926 (1,392) 22,534
======================== ============== ======================= ==============
Operating income 9,226 6,611 A, B 15,837 10,288 2,100 B 12,388
======================== ============== ======================= ==============
Income taxes 4,007 1,839 C 5,846 3,425 593 C 4,018
======================== ============== ======================= ==============
Net income $ 7,097 $ 11,869 $ 7,439 $ 8,946
============ ============== =========== ==============
Earnings per share - diluted $ 0.39 $ 0.66 $ 0.46 $ 0.55
============ ============== =========== ==============
Weighted average shares
outstanding - diluted 18,105 18,105 16,202 16,202
============ ============== =========== ==============
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 adjust to an effective tax rate of 33% and 31% for the twelve months
ended June 30, 2006 and 2005 respectively.
D - To exclude the write off of acquisition related in-process research and
development.
E - To exclude the write off of deferred acquisition expenses.
NEOWARE, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2005
------------------------------------------- -------------------------------------------
GAAP ADJUSTMENTS NON-GAAP GAAP ADJUSTMENTS NON-GAAP
------------------------------------------- -------------------------------------------
Gross profit 8,650 373 A, B 9,023 10,126 271 B 10,397
========================= ============ ========================= ============
Gross profit percentage 37% 38% 44% 45%
Operating expenses
Sales and marketing 4,056 (409) A 3,647 3,433 -- 3,433
Research and development 1,584 (89) A 1,495 1,535 (300) D 1,235
General and administrative 2,597 (565) A 2,032 2,053 -- 2,053
Amortization of intangibles 588 (588) B -- 378 (378) B --
------------------------- ------------ ------------------------- ------------
Operating expenses 8,825 (1,651) 7,174 7,399 (678) 6,721
========================= ============ ========================= ============
Operating income (175) 2,024 A, B 1,849 2,727 949 B 3,676
========================= ============ ========================= ============
Income taxes 240 639 C 879 734 203 C 937
========================= ============ ========================= ============
Net income $ 401 $ 1,786 $ 2,221 $ 2,967
============== ============ ============= ============
Earnings per share - diluted $ 0.02 $ 0.09 $ 0.14 $ 0.18
============== ============ ============= ============
Weighted average shares
outstanding - diluted 20,408 20,408 16,406 16,406
============== ============ ============= ============
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 adjust to an effective tax rate of 33% and 24% for the three months ended
June 30, 2006 and 2005 respectively.
D - To exclude the write off of acquisition related in-process research and
development.