Fiscal 2005 Revenues Grew by 25%, Fourth Quarter Revenues Grew by
35% KING OF PRUSSIA, Pa., Sept. 1 /PRNewswire-FirstCall/ -- 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 record revenues for its fiscal fourth quarter and
year ended June 30, 2005. "Neoware thin client computing is gaining
traction with corporate customers, enabling enterprises around the
globe to improve security, enhance manageability, increase
reliability and lower costs," stated Michael Kantrowitz, Neoware's
Chairman and CEO. "Neoware is delivering record revenues and
profits, and we're seeing strong demand for our thin client
solutions." FY05 Q4 Financial Highlights: - Revenues increased 35%
to $23,009,000 from $17,080,000 in the prior year fourth quarter. -
Gross profit was $10,125,000, or 44% of revenue, compared to
$7,354,000, or 43% of revenue, in the prior year fourth quarter.
Cost of sales in the June 2005 quarter includes $285,000 for
amortization of acquisition-related intangible assets, compared to
$85,000 of similar expenses in the prior year fourth quarter. -
Operating expenses were $7,398,000, or 32% of revenue, compared to
$6,638,000, or 39% of revenue, in the prior year fourth quarter.
Operating expenses in the June 2005 quarter include a $300,000
write- off of acquisition-related in-process research and
development and $394,000 for amortization of acquisition-related
intangibles, compared to operating expenses in the prior year
quarter that included $183,000 for amortization of
acquisition-related intangible assets and the write-off of
$1,604,000 of deferred expenses for acquisitions that were not
consummated. Excluding these charges, non-GAAP operating expenses
were $6,704,000, or 29% of revenue, in the June 2005 quarter,
compared to $4,851,000, or 28% of revenue, in the prior year fourth
quarter. - GAAP net income for the quarter was $2,218,000, or $.14
per diluted share, compared to $478,000, or $.03 per diluted share,
in the prior year fourth quarter. - Non-GAAP net income for the
quarter increased 79% to $2,983,000, or $.18 per fully diluted
share in the current quarter, compared to $1,664,000, or $.10 per
fully diluted share, in the year ago quarter. Non-GAAP net income
excludes amortization of acquisition-related intangible assets,
in-process research and development expenses and write-off of
deferred acquisition-related expenses, as well as their related tax
effect, if any. FY05 Financial Highlights: - Revenues increased 25%
to $78,784,000 from $63,165,000 in the prior year. - Gross profit
was $34,214,000, or 43% of revenue, compared to $30,380,000, or 48%
of revenue, in the prior year. Cost of sales in fiscal 2005
includes $677,000 of amortization of acquisition-related intangible
assets, compared to $330,000 of similar expenses in the prior year.
- Operating expenses were $23,926,000, or 30% of revenue, compared
to $23,003,000, or 36% of revenue, in the prior year. Operating
expenses in fiscal 2005 include $1,118,000 of acquisition-related
amortization of intangible assets, $300,000 of acquisition-related
in-process research and development expense, and $34,000 for the
write-off of deferred acquisition expenses, compared to operating
expenses in the prior year that included $719,000 of
acquisition-related amortization of intangible assets and
$1,604,000 of deferred acquisition-related expenses. Excluding
these charges, non-GAAP operating expenses were $22,474,000, or 29%
of revenue, in fiscal 2005, compared to $20,680,000, or 33% of
revenue, in the prior year. - GAAP net income increased 38% to
$7,439,000, or $.46 per diluted share, compared to $5,394,000, or
$.34 per diluted share, in the prior year. GAAP net income in the
prior year includes an income tax benefit of approximately $332,000
from recovery of prior year taxes. - Non-GAAP net income increased
32% to $8,961,000, or $.55 per diluted share, in fiscal 2005
compared to $6,768,000, or $.42 per fully diluted share, in the
prior year. Non-GAAP net income excludes acquisition- related
amortization of intangible assets, the write-off of
acquisition-related in-process research and development expenses,
the write-off of deferred acquisition costs, their related tax
effect, if any, and the effect in the prior year of a tax benefit
related to prior periods. "To continue our strong growth, we are
building Neoware organically, as well as through carefully targeted
acquisitions designed to enhance our portfolio of software
solutions and to increase our geographic reach," Mr. Kantrowitz
noted. "During the 2005 fiscal year, we acquired businesses with
new software technologies that significantly enhance our offerings
in both Windows(R) and Linux environments. With these new products,
we believe that we can continue our significant market share lead
in the fast-growing Linux thin client segment, and can expand our
business in the Windows market with our innovative Neoware Image
Manager software, which lowers the cost of Windows XP-based thin
clients and improves their security and manageability. We
significantly enhanced our global reach by acquiring businesses in
Europe, and we can now customize products and fully support
customers in the Americas, throughout Europe, and in India. Our
strong balance sheet and our experience integrating acquisitions
position us well to continue this activity in the coming fiscal
year." FY06 Financial Guidance: Based upon currently available
information, the Company is updating its financial guidance for the
fiscal year ending June 30, 2006 and the fiscal quarter ending
September 30, 2005 as follows: - Revenues for the year ending June
30, 2006 are projected to increase by approximately 30% or higher,
compared to the prior fiscal year. - Revenues for the quarter
ending September 30, 2005 are expected to be in the range of $22 to
$24 million, depending on the timing of the shipment of individual
orders, an increase of 35% to 47% compared to $16.3 million in the
prior year first quarter. - Gross margins for the year ending June
30, 2006 are projected to be in the 40% to 45% range, including
approximately $300,000 per quarter of amortization of intangibles
related to acquisitions. Gross margins will likely vary from this
range by one or two percentage points in any particular quarter due
to product mix, including mix of revenue from software products,
which carry higher than average percentage gross margins, and from
higher priced thin clients, including the new Neoware e900 product
line, which carry lower than average percentage gross margins. -
Operating expenses for the year ending June 30, 2006, excluding
expense for stock options, are projected to increase moderately
during the year, but are expected to be leveraged with revenue
growth to approximately 30% of revenue or less during the fiscal
year, including approximately $465,000 per quarter of amortization
of intangibles related to acquisitions. - The Company expects its
effective income tax rate to be approximately 33% for the 2006
fiscal year. Starting in the September 2005 quarter, the Company
will begin recording stock-based compensation expense as calculated
under FAS No. 123R. While the Company has not yet completed its
analysis, it expects the non-cash impact of stock-based
compensation expense before income taxes during fiscal 2006 to be
in the range of $2.5 to $3.0 million. Such amounts may change as a
result of additional grants, forfeitures, modifications in
assumptions and other factors. "Neoware is increasing its revenue
guidance for the September quarter due in part to significant
initial orders from a major retailer for our newly released Neoware
e900 thin client, which couples Neoware's innovative software and
management tools with a wireless, hardened thin client platform
targeted at retail distribution centers, as well as manufacturing,
healthcare and transportation environments. The Neoware e900, which
has average prices of over $3,000 per unit, generates more gross
profit dollars per unit sold, but has lower percentage gross
margins, consistent with other Neoware thin clients that are sold
at higher price points. New products like the Neoware e900, as well
as increased sales of high-margin software products, including our
newly introduced Neoware Image Manager software, are expected to
contribute positively to the Company's revenue and profits in
coming periods. "Neoware is delivering record results, and we
believe that these results indicate that corporate PC users
increasingly recognize the benefits of thin client computing. We
are a leader in delivering thin client solutions, and are investing
to capitalize on the significant growth opportunities we see. Our
ownership of core software technologies, our software-focused
business model, our alliances with IBM and other industry leaders,
our ability to customize solutions for our customers around the
globe, and our financial strength make us the clear choice for
organizations looking to improve the security and manageability of
their computing infrastructure and to lower their costs," Mr.
Kantrowitz concluded. CONFERENCE CALL INFORMATION In connection
with this release, management of Neoware will host a conference
call at 5:00 PM Eastern Time on September 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. 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 November 1,
2005 by dialing 1-800-688-4915 domestically and +1-402-220-1319
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 http://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
http://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. 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,
write-off of in-process research and development and write-off of
deferred acquisition costs. In addition, we used a pro-forma tax
rate of 24% the fourth quarter and 31% in fiscal 2005 and 36% in
the fourth quarter and 34% in fiscal 2004. This compares to a GAAP
effective tax rate for the same periods of 25% and 32% for the 2005
periods and 33% and 30% for the 2004 periods, respectively. Also
during fiscal 2004, the Company recorded an income tax benefit of
$332,000 from the recovery of prior years' Extraterritorial Income
Exclusion (EIE) benefits, which is excluded from that year's
non-GAAP net income. 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 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'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: our continued strong growth, organically and
through acquisitions, to enhance our portfolio of software
solutions and increase our geographic reach; our continued success
in the Linux segment and the expansion of our business in the
Windows market; our ability to customize products and fully support
customers in the Americas, throughout Europe, and in India;
projected growth in revenues in fiscal year 2006 and the first
fiscal quarter of fiscal year 2006; gross margins, operating
expense levels and effective income tax rates for the 2006 fiscal
year; the anticipated non-cash impact of stock-based compensation
during the 2006 fiscal year under SFAS No. 123R; orders from a
major retail customer; the anticipated performance of our Neoware
e900 thin client and our high margin software products; anticipated
increased customer recognition of the benefits of thin client
computing and our anticipated investments to capitalize on
significant growth opportunities. 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 2006 fiscal year and the first
quarter of the 2006 fiscal year; 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
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 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 reports on Form 10-K for the year ended June
30, 2004 and Forms 10-Q for the quarters ended September 30, 2004,
December 31, 2004 and March 31, 2005. Neoware is a trademark of
Neoware Systems, Inc. All other names products and services are
trademarks or registered trademarks of their respective holders.
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per
share data) (Unaudited) June 30, June 30, ASSETS 2005 2004 Current
assets: Cash and cash equivalents $8,285 $17,119 Short-term
investments 34,874 38,177 Accounts receivable, net 17,165 10,580
Inventories 3,051 795 Prepaid expenses and other 2,627 1,628
Deferred income taxes 1,015 643 Total current assets 67,017 68,942
Property and equipment, net 416 509 Goodwill 31,223 17,466
Intangibles, net 9,386 3,545 Deferred income taxes 792 145 $108,834
$90,607 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $8,408 $5,685 Accrued compensation and benefits
2,018 1,534 Other accrued expenses 3,868 1,071 Income taxes payable
1,588 854 Deferred revenue 734 739 Total current liabilities 16,616
9,883 Deferred income taxes 1,943 - Deferred revenue 306 235 Total
liabilities 18,865 10,118 Stockholders' equity: Preferred stock - -
Common stock 16 16 Additional paid-in capital 74,577 71,718
Treasury stock, 100,000 shares at cost (100) (100) Accumulated
other comprehensive income 118 936 Retained earnings 15,358 7,919
Total stockholders' equity 89,969 80,489 $108,834 $90,607 NEOWARE
SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands,
except per share data) (Unaudited) Three Months Ended Twelve Months
Ended June 30, June 30, 2005 2004 2005 2004 Net revenues $23,009
$17,080 $78,784 $63,165 Cost of revenues 12,884 9,726 44,570 32,785
Gross profit 10,125 7,354 34,214 30,380 Sales and marketing 3,795
3,340 13,176 13,125 Research and development 1,551 678 3,850 2,798
General and administrative 2,052 1,016 6,866 5,476 Abandoned
acquisition costs - 1,604 34 1,604 Operating expenses 7,398 6,638
23,926 23,003 Operating income 2,727 716 10,288 7,377 Foreign
exchange loss (40) (106) (283) (106) Interest income, net 265 107
859 392 Income before income taxes 2,952 717 10,864 7,663 Income
taxes 734 239 3,425 2,269 Net income $2,218 $478 $7,439 $5,394
Earnings per share: Basic $.14 $.03 $.47 $.34 Diluted $.14 $.03
$.46 $.34 Weighted average number of common shares outstanding:
Basic 16,219 15,778 15,931 15,683 Diluted 16,406 16,142 16,202
16,020 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data) (Unaudited) Three Months
Ended Twelve Months Ended June 30, June 30, 2005 2004 2005 2004
Cash flows from operating activities: Net income $2,218 $478 $7,439
$5,394 Adjustments to reconcile net income to net cash provided by
operating activities- Income tax benefit, primarily from stock
option exercises (271) 297 114 2,005 Depreciation 91 52 290 262
In-process research and development 300 - 300 - Amortization of
intangibles 678 268 1,795 1,049 Changes in operating assets and
liabilities - net of effect from acquisition- Accounts receivable
(3,143) 603 (6,156) 509 Inventories 587 (47) (1,596) (22) Prepaid
expenses and other (1,348) (589) (753) (820) Accounts payable 3,120
581 2,641 1,478 Accrued expenses 482 466 3,143 629 Deferred income
taxes (3) 141 (3) 141 Deferred revenue (259) (1) 33 283 Net cash
provided by operating activities 2,452 2,249 7,247 10,908 Cash
flows from investing activities: Purchase of Visara thin client
business - - (3,804) - Purchase of Thintune thin client business
(704) - (10,087) - Purchase of Mangrove Systems, SAS 99 - (2,744) -
Purchase of the TeemTalk software business - - - (9,995) Purchase
of Qualystem SAS (4,232) - (4,232) - Purchase of short-term
investments (28,596) 10,716 (48,829) (39,470) Sales of short-term
investments - (16,708) 52,177 4,444 Purchase of intangible assets -
- - (125) Purchases of property and equipment (66) (69) (157) (198)
Net cash used in investing activities (33,499) (6,061) (17,676)
(45,344) Cash flows from financing activities: Repayments of
capital leases (2) (1) (7) (5) Sale of common stock, net of
expenses - - - 24,609 Expenses for prior issuance of common stock -
- - (3) Exercise of stock options and warrants 278 50 1,446 884 Net
cash provided by financing activities 276 49 1,439 25,485 Effect of
foreign exchange rate changes on cash (30) 59 156 56 (Decrease) in
cash and cash equivalents (30,801) (3,704) (8,834) (8,895) Cash and
cash equivalents, beginning of period 39,086 20,823 17,119 26,014
Cash and cash equivalents, end of period $8,285 $17,119 $8,285
$17,119 Supplemental disclosures: Cash paid for income taxes $858
$(3) $918 $261 Issuance of common stock for purchase of Mangrove
Systems, SAS - - $1,300 - NEOWARE SYSTEMS, INC. RECONCILIATION OF
GAAP TO NON GAAP AMOUNTS (in thousands, except per share data)
(Unaudited) Three Months Ended Year Ended June 30, June 30, 2005
2004 2005 2004 GAAP Net Income $2,218 $478 $7,439 $5,394
Amortization of purchased intangible assets included within cost of
sales 285 85 677 330 Amortization of purchased intangible assets
included within operating expenses 394 183 1,118 719 Write-off of
acquisition- related in-process research and development 300 - 300
- Write-off of deferred acquisition expenses - 1,604 34 1604 Income
tax effect of amortization of purchased intangible assets and
write-off of acquisition- related costs (214) (686) (607) (947)
Prior year income tax benefit - - - (332) Total net income impact
765 1,186 1,522 1,374 Non GAAP Net Income $2,983 $1,664 $8,960
$6,768 Earnings per share: Basic $0.18 $0.11 $.56 $.43 Diluted
$0.18 $0.10 $.55 $.42 Weighted average number of common shares
outstanding: Basic 16,219 15,778 15,931 15,683 Diluted 16,406
16,142 16,202 16,020 GAAP Operating Expense $7,398 $6,638 $23,926
$23,003 Amortization of purchased intangible assets included within
operating expenses (394) (183) (1,118) (719) Write-off of
acquisition- related in-process research and development (300) -
(300) - Write-off of deferred acquisition expenses - (1,604) (34)
(1,604) Non GAAP Operating Expense $6,704 $4,851 $22,474 $20,680
DATASOURCE: Neoware Systems, Inc. CONTACT: Investor Relations,
Kevin McGrath of Cameron Associates, +1-212-245-8000, ext. 203, or
; or Keith Schneck, CFO of Neoware Systems, Inc., +1-610-277-8300,
or Web site: http://www.neoware.com/
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