Neoware Reports Fiscal 2005 Second Quarter Revenue and Earnings;
Revenues Up 34%, Net Income Up 47% KING OF PRUSSIA, Pa., Feb. 1
/PRNewswire-FirstCall/ -- Neoware Systems, Inc. (NASDAQ:NWRE), the
leading supplier of software, services and appliances for thin
client computing, today reported record revenues for its fiscal
second quarter and six months ended December 31, 2004. FY05 Q2
Financial Highlights: -- Revenues increased 34% to $20,471,000 from
$15,322,000 in the prior year second quarter and were a record for
the Company. -- Gross profit was $8,745,000, or 43% of revenue,
compared to $7,638,000, or 50% of revenue, in the prior year second
quarter. Gross profit margin is consistent with the Company's
previously announced plan to increase market share by introducing
new products that compete more effectively with PCs, focus on
larger enterprise customers, and expand the thin client segment of
the PC market. -- Operating expenses were $5,594,000, or 27% of
revenue, compared to $5,542,000, or 36% of revenue, in the prior
year second quarter. -- Net income increased 48% to $2,066,000, or
$.13 per diluted share, from $1,395,000, or $.09 per diluted share,
in the year ago quarter, reflecting the operating leverage of the
Company's software focused business model. -- Results include
$376,000 of amortization of intangibles as a result of
acquisitions, compared to $317,000 in the prior year quarter. FY05
Six Month Financial Highlights: -- Revenues increased 21% to
$36,774,000 from $30,336,000 in the prior year six-month period. --
Gross profit was $15,836,000, or 43% of revenue, compared to
$15,603,000, or 51% of revenue, in the prior year six-month period.
-- Operating expenses were $10,719,000, or 29% of revenue, compared
to $10,685,000, or 35% of revenue, in the prior year six-month
period. -- Net income was $3,453,000, or $.21 per diluted share,
compared to $3,259,000, or $.20 per diluted share, in the prior
year six-month period. -- Results include $647,000 of amortization
of intangibles as a result of acquisitions, compared to $503,000 in
the prior year six-month period. "This was a record quarter for
Neoware, and we believe that it reflects the fact that companies
around the globe are adopting thin client computing to improve
security and lower the cost of desktop computing," stated Michael
Kantrowitz, Neoware's Chairman and CEO. "We saw significant growth
in all geographies and most notably with enterprise customers both
directly and through our alliance with IBM. The strong demand for
Neoware thin client products and services in this quarter supports
our belief that a significant opportunity exists to grow our
business both internally and through acquisitions. "Our acquisition
program, which has been a key element of our successful growth
strategy over the past several years, is back on track. In
September, we acquired Visara's thin client business, which has now
been fully integrated into Neoware, providing us with innovative
new products and important new customers. After the end of the
quarter we entered into a definitive agreement to acquire
TeleVideo's thin client business, and we are now the exclusive
reseller for TeleVideo thin clients worldwide. We believe that this
acquisition will broaden our product offerings and allow us to
pursue the upgrade of millions of TeleVideo green-screen terminals
installed worldwide. After the quarter ended, we acquired Mangrove
Systems, an innovative provider of Linux software for thin clients,
which provides us with unique Linux-based technology and local
software development and support expertise in our important
European market. "While we do not give quarterly guidance, we
believe that the combination of the significant organic growth we
delivered this quarter and our recent acquisitions will lead to
continued growth in revenues in calendar 2005 and beyond,"
Kantrowitz continued. "While our results in any particular period
will vary due to the timing of individual orders, given the trends
we see in our markets, we now believe that we can achieve revenue
growth of 20% to 30% - or higher - in calendar 2005 compared to
calendar 2004. Our gross profit margin targets during this period
will continue to be in the 40% to 45% range and increases in
operating expenses will be consistent with our revenue increases as
we continue to target operating expenses of 30% percent of revenues
or less. "We firmly believe that the cost and security benefits of
thin client computing are becoming increasingly appreciated by
technology purchasers and that Neoware's products and services are
gaining market share. This quarter's financial results demonstrate
the strength of our core markets and of Neoware's profitable
business model. Neoware thin client computing is attracting
increasing attention by corporate customers as well as industry and
mainstream press. Our ownership of core software technologies, our
software- focused operating model, and our financial strength make
us the clear choice for thin client customers around the globe,"
Mr. Kantrowitz concluded. UPCOMING INVESTOR EVENTS Neoware plans to
participate in the following investor events. Note that dates are
subject to change - please confirm via the Company's website closer
to the event date. Thomas Weisel Partners Tech 2005 Conference -
Feb. 8, 2005 Roth Capital Partners Growth Stock Conference - Feb.
23, 2005 CONFERENCE CALL INFORMATION In connection with this
release, management of Neoware will host a conference call at 5:00
PM Eastern Time on February 1, 2005. The conference call will be
available live at http://www.vcall.com/ and on the Neoware website
at http://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. A copy of this press release
announcing the Company's earnings and other financial and
statistical information about the periods to be presented in the
conference call will be available on the Company's website at
http://www.neoware.com/. 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 February 8, 2005 by dialing
1-800-695-2185 domestically and +1-402-530-9028 internationally.
About Neoware Recently ranked America's eighth fastest-growing
company by Fortune Magazine, Neoware is a leading provider of
software, services, and thin client appliances that make computing
more open, secure, reliable, affordable and manageable. By
leveraging open technologies and eliminating the obsolescence that
is built into standard PC architectures, Neoware enables
enterprises to leverage server-based computing to provide increased
flexibility and choice, as well as lower up-front and total costs.
Neoware's software products enable enterprises to gain control of
their desktops, and to integrate mainframe, midrange, UNIX and
Linux applications with Windows(R) and the web. Neoware's 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 PC.
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 . Neoware is based 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 new product and marketing initiatives;
anticipated increased adoption of thin client computing by our
customers; growth opportunities generated internally and through
acquisitions in coming periods; the consummation of our acquisition
of TeleVideo's thin client business and our belief that the
technology to be acquired will broaden our product offerings and
help us build sales; continued growth in revenues in calendar year
2005 and thereafter; revenue growth and gross profit margin targets
and operating expense increases for the 2005 calendar year; and
increased acceptance of thin client products in the market
resulting in a gain in market share. 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 coming year; the
timing and receipt of future orders; our timely development and
customers' acceptance of our products, including our new products,
Mangrove products and TeleVideo 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 Mangrove employees; 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, its reports on Form 10-K for the year ended June 30, 2004 and
Form 10-Q for the quarter ended September 30, 2004. Neoware is a
trademark of Neoware Systems, Inc. All other names products and
services are trademarks or registered trademarks of their
respective holders. NEOWARE SYSTEMS, INC. CONSOLIDATED BALANCE
SHEETS (in thousands, except per share data) (Unaudited) ASSETS
December 31, June 30, 2004 2004 Current assets: Cash and cash
equivalents $36,286 $17,119 Short-term investments 16,226 38,177
Accounts receivable, net 13,322 10,580 Inventories 3,847 795
Prepaid expenses and other 1,578 1,628 Deferred income taxes 643
643 Total current assets 71,902 68,942 Property and equipment, net
445 509 Goodwill 20,177 17,466 Intangibles, net 4,656 3,545
Deferred income taxes 145 145 $97,325 $90,607 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $4,326
$5,685 Accrued compensation and benefits 1,792 1,534 Other accrued
expenses 1,778 1,071 Income taxes payable 2,516 854 Deferred
revenue 982 739 Total current liabilities 11,394 9,883 Deferred
revenue 278 235 Total liabilities 11,672 10,118 Stockholders'
equity: Preferred stock - - Common stock 16 16 Additional paid-in
capital 72,574 71,718 Treasury stock, 100,000 shares at cost (100)
(100) Accumulated other comprehensive income 1,791 936 Retained
earnings 11,372 7,919 Total stockholders' equity 85,653 80,489
$97,325 $90,607 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share data) (Unaudited) Three
Months Ended Six Months Ended December 31, December 31, 2004 2003
2004 2003 Net revenues $20,471 $15,322 $36,774 $30,336 Cost of
revenues 11,726 7,684 20,938 14,733 Gross profit 8,745 7,638 15,836
15,603 Sales and marketing 3,178 3,377 6,281 6,342 Research and
development 769 687 1,433 1,408 General and administrative 1,647
1,478 3,005 2,935 Operating expenses 5,594 5,542 10,719 10,685
Operating income 3,151 2,096 5,117 4,918 Foreign exchange loss
(214) - (237) - Interest income, net 193 94 352 177 Income before
income taxes 3,130 2,190 5,232 5,095 Income taxes 1,064 795 1,779
1,836 Net income $2,066 $1,395 $3,453 $3,259 Earnings per share:
Basic $.13 $.09 $.22 $.21 Diluted $.13 $.09 $.21 $.20 Weighted
average number of common shares outstanding: Basic 15,754 15,743
15,726 15,594 Diluted 16,188 16,285 16,111 16,282 NEOWARE SYSTEMS,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except
per share data) (Unaudited) Three Months Ended Six Months Ended
December 31, December 31, 2004 2003 2004 2003 Cash flows from
operating activities: Net income $2,066 $1,395 $3,453 $3,259
Adjustments to reconcile net income to net cash provided by
operating activities Income tax benefit, primarily from stock
option exercises 101 - 121 1,618 Depreciation 66 64 130 136
Amortization of intangibles 376 317 647 503 Changes in operating
assets and liabilities - net of effect from acquisition Accounts
receivable (2,508) 422 (2,742) 1,819 Inventories (2,139) 823
(3,052) 33 Prepaid expenses and other (56) (152) 51 (107) Accounts
payable 277 1,921 (1,359) (573) Accrued expenses 2,082 308 2,631
(421) Deferred revenue 338 48 285 186 Net cash provided by
operating activities 603 5,146 165 6,453 Cash flows from investing
activities: Purchase of Visara thin client business (24) - (3,799)
- Purchase of the TeemTalk software business - (32) - (9,995)
Purchase of short-term investments (2,333) (5,847) (20,233)
(22,056) Sales of short-term investments 24,815 13,431 42,184
14,414 Purchase of intangible assets - - - (125) Purchases of
property and equipment (47) (26) (66) (106) Net cash provided by
(used in) investing activities 22,411 7,526 18,086 (17,868) Cash
flows from financing activities: Repayments of capital leases (2)
(1) (5) (3) Sale of common stock, net of expenses - - - 24,609
Expenses for prior issuance of common stock - (3) - (3) Exercise of
stock options and warrants 666 92 735 830 Net cash provided by
financing activities 664 88 730 25,433 Effect of foreign exchange
rate changes on cash 135 (41) 186 (28) Increase in cash and cash
equivalents 23,813 12,719 19,167 13,990 Cash and cash equivalents,
beginning of period 12,473 27,285 17,119 26,014 Cash and cash
equivalents, end of period $36,286 $40,004 $36,286 $40,004
Supplemental disclosures: Cash paid for income taxes $15 $- $46
$264 DATASOURCE: Neoware Systems, Inc. CONTACT: Investor Relations:
Cameron Associates: Kevin McGrath, +1-212-245-8000 x 203, , for
Neoware Systems; or Neoware Systems, Inc.: Keith Schneck, CFO,
+1-610-277-8300, Web site: http://www.neoware.com/
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