[neoware LOGO] PRESS RELEASEED
FOR IMMEDIATE RELEASE
NEOWARE REPORTS FIRST QUARTER FY07 RESULTS
KING OF PRUSSIA, Pa., October 30, 2006 -- Neoware, Inc. (Nasdaq: NWRE), the
leading supplier of thin client software and devices, today reported financial
results for its first quarter of fiscal year 2007.
Q1 FINANCIAL HIGHLIGHTS:
o Revenues were $21,560,000 in the September 2006 quarter, compared to
$26,543,000 in the prior year first quarter. The September 2005
quarter included revenue of $9.0 million from two large enterprise
customers who contributed $1.5 million of revenue in the September
2006 quarter.
o Gross profit was 34% of revenue, compared to 40% of revenue in the
prior year first quarter. Non-GAAP gross profit was 36% of revenue,
compared to 41% of revenue in the prior year first quarter. Cost of
sales in the September 2006 quarter include a $1.5 million write off
of unfinished goods inventory for certain acquired products and a
$350,000 charge related to purchase commitments for third party
software products. The gross profit margin in the Sept 2005 quarter
was impacted by $5.8 million of sales of the Neoware e900 product
which has lower gross margin as a percentage of revenue.
o Operating expenses were $9,425,000, or 44% of revenue, compared to
$8,066,000, or 30% of revenue, in the prior year first quarter.
Non-GAAP operating expenses were $7,929,000, or 37% of revenue,
compared to $7,050,000, or 27% of revenue, in the prior year first
quarter. Operating expenses in the September 2006 quarter included
$260,000 of severance charges due to staff changes.
o Non-GAAP net income for the quarter was $.03 per fully diluted share,
compared to $.17 per fully diluted share in the prior year first
quarter.
o GAAP net loss for the quarter was ($.05) per diluted share, compared
to a GAAP net income of $.11 per diluted share in the prior year first
quarter.
o The Company ended the quarter with $110 million of cash and short-term
investments..
o Non-GAAP results exclude amortization of acquisition-related
intangibles and stock-based compensation and apply an effective tax
rate of 16% and 33% in the first quarters of fiscal 2007 and 2006,
respectively, for the purpose of showing a comparable view of the
Company's performance from period to period. The effective tax rate
has declined due to the favorable impact of tax free investment income
generated in fiscal 2007.
"Since joining Neoware as President three months ago, I have developed an
appreciation of our strengths, and of what we need to do to move our business
forward aggressively," commented
Klaus Besier, Neoware's CEO. "And we have seen some positives this quarter in
the growth of our EMEA revenue base as well as growth in our SMB business.
"Our strategy for rebuilding growth will involve strong marketing, sales, and
product development efforts. Some of this will require a refocusing of
priorities and resources that will have a near term financial impact, as
experienced this quarter.
"Our focus on large enterprises has shown success for the Company, and we are
continuing with that strategy, but enterprise accounts require time to develop.
To improve our ability to achieve growth objectives, we also need to expand our
business partnerships to include additional channels, such as systems
integrators and independent software vendors.
"We firmly believe the thin client market is a very attractive area, and we are
continuing our investments in both people and programs to regain our growth. We
see more potential today, in more verticals than ever before in areas like
retail, healthcare, transportation, financial services and the Federal
Government. The good news is that we have talented people and financial
resources to help us fully exploit this potential.
"I'm excited to be here and to work with an outstanding group of dedicated
employees to take the company forward to its next level."
FISCAL YEAR 2007 GUIDANCE
Based upon currently available information, the Company believes its revenues to
be approximately $100 million for our fiscal 2007. Gross profit margin is
expected to be in the 40% range and fluctuate based on product mix and
competitive pricing strategies. The Company is revising its operating model for
the remainder of fiscal 2007 including hiring and spending plans and expects to
provide full guidance updates before the end of the December 2006 quarter.
CONFERENCE CALL INFORMATION
Neoware will host a conference call at 5:00 PM on October 30, 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
December 31, 2006.
The call will also be accessible by dialing 1-800-974-9436 for domestic U.S.
calls and +1-641-297-7617 for international calls. The conference ID will be
NEOWARE. A replay of the call will be available through December 31, 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 on the Company's website at www.neoware.com/events.
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 expenses that we exclude when assessing the
performance of our business, and (ii) 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. Excluding these stock-based
compensation amounts improves comparability of the performance of the business
across periods.
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
expenses that we exclude when assessing the performance of our business, as the
timing and amount of the expenses vary from period to period as we have a
history of acquiring businesses which result in continued additions to
amortization expense, and (ii) 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 the effective tax rate applied to income before taxes
adjusted to exclude the stock based compensation expense and amortization of
acquired intangible assets.
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:
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements
regarding: our strategy for rebuilding growth based on marketing, sales and
product development efforts; our refocusing of our priorities and resources
having a near-term financial impact; ; our belief in our market; continuing our
investments in people and programs to regain growth; our focus on large
enterprise accounts and our planned expansion of our business partnerships to
include additional channels; our talented people; increased interest in our
solutions from more vertical markets; our expectations as to revenues and gross
profit for fiscal 2007; and our revision of our operating model for the balance
of fiscal 2007. 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, sales and product development initiatives
within our planned timeframe; higher than expected severance payments;
additional write offs of inventory; our success in increasing sales to the
targeted customers and our continued dependence on enterprise 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, 2006.
Neoware is a trademark of Neoware, Inc. All other names products and services
are trademarks or registered trademarks of their respective holders.
NEOWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 30, JUNE 30,
ASSETS 2006 2006
------------- --------
Current assets:
Cash and cash equivalents $ 21,657 $ 19,328
Short-term investments 88,756 94,798
Accounts receivable, net 15,145 16,877
Inventories 9,405 7,734
Prepaid expenses and other 5,319 3,231
Deferred income taxes 1,866 1,866
-------- --------
Total current assets 142,148 143,834
Goodwill 38,093 37,761
Intangibles, net 11,312 12,175
Deferred income taxes 4,093 4,156
Property and equipment, net 1,559 1,586
Other 80 61
-------- --------
$197,285 $199,573
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,827 $ 8,989
Accrued compensation and benefits 1,768 2,021
Restructuring Reserve 545 600
Income taxes payable 150 158
Other accrued expenses 5,059 4,159
Deferred revenue 1,038 973
-------- --------
Total current liabilities 13,387 16,900
Deferred income taxes 773 755
Deferred revenue 316 316
-------- --------
Total liabilities 14,476 17,971
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 20 20
Additional paid-in capital 160,337 158,671
Treasury stock, 100,000 shares at cost (100) (100)
Accumulated other comprehensive income 1,053 556
Retained earnings 21,499 22,455
-------- --------
Total stockholders' equity 182,809 181,602
-------- --------
$197,285 $199,573
======== ========
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2006 2005
-------- -------
Net revenues $21,560 $26,543
------- -------
Cost of revenues
Cost of products (a) 13,923 15,569
Amortization of intangibles 336 273
------- -------
Total cost of revenues 14,259 15,842
------- -------
Gross profit 7,301 10,701
------- -------
Operating expenses
Sales and marketing 4,412 4,169
Research and development 1,774 1,284
General and administrative 2,650 2,298
Amortization of intangibles 589 315
------- -------
Total operating expenses (b) 9,425 8,066
------- -------
Operating income (loss) (2,124) 2,635
Foreign exchange gain (loss) (27) 9
Interest income, net 981 244
Other 33 --
------- -------
Income before income taxes (1,137) 2,888
Income tax expense (benefit) (182) 1,047
------- -------
Net income (loss) $ (955) $ 1,841
======= =======
Earnings (loss) per share:
Basic $ (.05) $ .11
======= =======
Diluted $ (.05) $ .11
======= =======
Weighted average number of common
shares outstanding:
Basic 19,943 16,271
======= =======
Diluted 19,943 16,434
======= =======
(a) includes stock-based compensation expense of $25 and $19 for the three
months ended September 30.
(b) includes stock-based compensation expense of $907 and $701 for the three
months ended September 30.
NEOWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income (loss) $ (955) $ 1,841
Adjustments to reconcile net income to net cash
provided by operating activities-
Amortization of intangibles 925 588
Depreciation 138 89
Non-cash share-based compensation 933 720
Deferred income taxes 65 --
Changes in operating assets and liabilities- net of
effect from acquisition-
Accounts receivable 1,813 (410)
Inventories (1,671) (587)
Prepaid expenses and other (2,104) 605
Accrued compensation and benefits (255) (953)
Accounts payable (4,164) (130)
Other accrued expenses 834 25
Income taxes payable (8) (1,271)
Deferred revenue 59 5
-------- --------
Net cash provided by (used in) operating activities (4,390) 522
-------- --------
Cash flows from investing activities:
Purchase of short-term investments (34,455) (900)
Sales of short-term investments 40,496 4,250
Purchases of property and equipment (110) (174)
-------- --------
Net cash provided by investing activities 5,931 3,176
-------- --------
Cash flows from financing activities:
Repayments of capital leases -- (2)
Proceeds from issuance of common stock, net of expenses (3) --
Exercise of stock options and warrants 36 161
Tax benefit from share-based payment arrangements 699 446
-------- --------
Net cash provided by financing activities 732 605
-------- --------
Effect of foreign exchange rate changes on cash 56 (38)
-------- --------
Increase in cash equivalents 2,329 4,265
Cash and cash equivalents, beginning of period 19,328 8,285
-------- --------
Cash and cash equivalents, end of period $ 21,657 $ 12,550
======== ========
Supplemental disclosures:
Cash paid for income taxes $ 309 $ 2,647
NEOWARE, INC.
RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
(in thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
-------------------------------- ---------------------------------
GAAP ADJUSTMENTS NON-GAAP GAAP ADJUSTMENTS NON-GAAP
------- ----------- -------- ------- -----------------------
Gross profit 7,301 361 A, B 7,662 10,701 292 A, B 10,993
======= ====== ======= ======= ====== =======
Gross profit percentage 34% 36% 40% 41%
Operating expenses
Sales and marketing 4,412 (355)A 4,057 4,169 (250)A 3,919
Research and development 1,774 (95)A 1,679 1,284 (105)A 1,179
General and administrative 2,650 (457)A 2,193 2,298 (346)A 1,952
Amortization of intangibles 589 (589)B -- 315 (315)B --
------- ------ ------- ------- ------ -------
Operating expenses 9,425 (1,496) 7,929 8,066 (1,016) 7,050
======= ====== ======= ======= ====== =======
Operating income (loss) (2,124) 1,857 A, B (267) 2,635 1,308 A, B 3,943
======= ====== ======= ======= ====== =======
Income tax expense (benefit) (182) 297 C 115 1,047 338 C 1,385
======= ====== ======= ======= ====== =======
Net income (loss) $ (955) $ 605 $ 1,841 $ 2,811
======= ======= ======= =======
Earnings (loss) per share - diluted $ (0.05) $ 0.03 $ 0.11 $ 0.17
======= ======= ======= =======
Weighted average shares outstanding - diluted 19,943 19,943 16,434 16,434
======= ======= ======= =======
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 16% and 33% for the three months ended
September 30, 2006 and 2005 respectively.