KING OF PRUSSIA, Pa., Nov. 2 /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 all-time record revenues for its first fiscal
quarter September 30, 2005. "We are experiencing strong demand for
Neoware's thin client solutions and we are translating that into
record financial results," stated Michael Kantrowitz, Neoware's
Chairman and CEO. FY06 Q1 Financial Highlights: * Revenues
increased 63% to $26,543,000 from $16,303,000 in the prior year
first quarter. * Gross profit was $10,701,000 or 40.4% of revenue,
compared to $7,090,000, or 43.5% of revenue, in the prior year
first quarter. Excluding $273,000 for amortization of
acquisition-related intangible assets and $19,000 of stock based
compensation in the September 2005 quarter as compared to $101,000
of amortization expense in the prior year first quarter, non-GAAP
gross profit was 41.3% of revenue in the September 2005 quarter,
compared to 44.1% of revenue in the prior year quarter. Cost of
sales reflects very strong initial sales of the Neoware e900 thin
client which carries higher average selling prices and lower
percentage gross margins than other Neoware products. Percentage
gross margin on other sales was consistent with recent prior
periods. * Operating expenses were $8,066,000, or 30.4% of revenue,
compared to $5,124,000, or 31.4% of revenue, in the prior year
first quarter. Operating expenses in the September 2005 quarter
include $315,000 for amortization of acquisition-related
intangibles and $701,000 of stock based compensation as a result of
the adoption of SFAS No. 123R on July 1, 2005, compared to
operating expenses in the prior year quarter that included $170,000
for amortization of acquisition-related intangible assets.
Excluding these expenses, non-GAAP operating expenses were
$7,050,000, or 26.6% of revenue, in the September 2005 quarter,
compared to $4,954,000, or 30.4% of revenue, in the prior year
first quarter. * GAAP net income for the quarter was $1,841,000, or
$.11 per diluted share, compared to $1,387,000, or $.09 per diluted
share, in the prior year first quarter. * Non-GAAP net income for
the quarter was $2,811,000, or $.17 per fully diluted share,
compared to $1,566,000, or $.10 per fully diluted share, in the
year ago quarter. Non-GAAP net income excludes amortization of
acquisition-related intangible assets and stock based compensation
as well as a pro forma tax rate of 33% and 34% in the first quarter
of fiscal 2006 and 2005, respectively. "Neoware is delivering
strong financial results as we grow our business and our share of
the global desktop market," continued Mr. Kantrowitz. "We believe
that after many years of promise, enterprises around the globe are
now turning to Neoware thin client and software solutions to solve
significant security, management and cost issues they face with
their current IT infrastructure. We're especially pleased with the
initial revenue contribution from our new Neoware e900 thin client
to a major global retailer in the first quarter." "To further our
growth plans we acquired five businesses over the last year to
expand our channels of distribution, enhance our ownership of key
intellectual property, and build the ability to customize our
software products for major local markets. We expect to close our
acquisition of Maxspeed Corporation before the end of the year,
marking our entry into Asian markets, as Maxspeed has development
and sales offices in China. We now have a truly global presence,
and we believe that this will allow us to satisfy the needs of
multinational and global enterprises by acting globally and
delivering locally, including providing software support and
customization in local markets, which is essential in many large
thin client deployments. "Neoware has focused on building
successful partnerships with other industry leaders, and we believe
that these partnerships will continue to generate growth
opportunities for us in the future. We have expanded our
partnership with IBM by supporting their Virtualized Hosted Client
initiative, and we now have a successful business relationship with
Lenovo, the world's third largest PC company, which was formed by
Lenovo Group's purchase of IBM's PC business this past year. We
recently entered into a business relationship with ClearCube, the
leading supplier of Blade PC systems that opens opportunities for
us in new markets. We have entered into newly expanded distribution
relationships with knowledgeable thin client distributors in the UK
and South Africa that provide us with new opportunities to win and
support customers in these geographies. We believe that Neoware's
new global organization gives us even greater ability to capitalize
on these partnerships, as well as the opportunity to create new
ones." CONFERENCE CALL INFORMATION Neoware will host a conference
call at 5:00 PM on November 2, 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, 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 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 January 1,
2006 by dialing 1-888-566-0148 domestically and +1-402-220-9184
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
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 a pro-forma tax rate of 33% and
34% the first quarter of fiscal 2006 and 2005, respectively. This
compares to a GAAP effective tax rate for the same periods of 36%
and 34% for the 2006 and 2005 first quarter periods, respectively.
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 Lenovo and 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: the strong demand for our products; our plans
to grow the business and our share of the global desktop market;
the expansion of our distribution channels; the enhancement of our
ownership of intellectual property; our ability to customize our
software products; our entry into the Asian market; the closing of
our acquisition of Maxspeed; our global presence; and our existing
and future partnerships generating growth opportunities in new
markets. 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
Maxspeed acquisition; 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 report on Form 10-K for the year ended June 30,
2005. NOTE: Neoware is a trademark of Neoware Systems, Inc. All
other names products and services are trademarks or registered
trademarks of their respective holders. CONSOLIDATED BALANCE SHEETS
(in thousands) (Unaudited) ASSETS September 30, June 30, 2005 2005
Current assets: Cash and cash equivalents $12,550 $8,285 Short-term
investments 31,524 34,874 Accounts receivable, net 17,565 17,165
Inventories 3,638 3,051 Prepaid expenses and other 2,021 2,627
Deferred income taxes 1,015 1,015 Total current assets 68,313
67,017 Property and equipment, net 497 416 Goodwill 33,087 31,223
Intangibles, net 8,767 9,386 $110,664 $108,042 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $8,234
$8,408 Accrued compensation and benefits 1,065 2,018 Other accrued
expenses 5,355 3,166 Income taxes payable 991 2,290 Deferred
revenue 762 734 Total current liabilities 16,407 16,616 Deferred
income taxes 1,151 1,151 Deferred revenue 280 306 Total liabilities
17,838 18,073 Stockholders' equity: Preferred stock -- -- Common
stock 16 16 Additional paid-in capital 75,904 74,577 Treasury
stock, 100,000 shares at cost (100) (100) Accumulated other
comprehensive income (loss) (193) 118 Retained earnings 17,199
15,358 Total stockholders' equity 92,826 89,969 $110,664 $108,042
NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in
thousands, except per share data) (Unaudited) Three Months Ended
September 30, 2005 2004 Net revenues $26,543 $16,303 Cost of
revenues 15,842 9,213 Gross profit 10,701 7,090 Sales and marketing
4,473 3,102 Research and development 1,295 664 General and
administrative 2,298 1,358 Operating expenses 8,066 5,124 Operating
income 2,635 1,966 Foreign exchange gain (loss) 9 (23) Interest
income, net 244 159 Income before income taxes 2,888 2,102 Income
taxes 1,047 715 Net income $1,841 $1,387 Earnings per share: Basic
$.11 $.09 Diluted $.11 $.09 Weighted average number of common
shares outstanding: Basic 16,271 15,799 Diluted 16,434 16,136
NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in
thousands, except per share data) (Unaudited) Three Months Ended
September 30, 2005 2004 Cash flows from operating activities: Net
income $1,841 $1,387 Adjustments to reconcile net income to net
cash provided by operating activities- Amortization of intangibles
588 271 Depreciation 89 64 Non-cash share-based compensation 720 --
Tax benefit related to stock options -- 20 Changes in operating
assets and liabilities, net of effect from acquisitions- (Increase)
decrease in: Accounts receivable (410) (233) Inventories (587)
(913) Prepaid expenses and other 605 107 Increase (decrease) in:
Accounts payable (130) (1,636) Accrued compensation and benefits
(953) (297) Other accrued expenses 25 407 Income taxes payable
(1,271) 439 Deferred revenue 5 (52) Net cash provided by (used in)
operating activities 522 (436) Cash flows from investing
activities: Purchase of Visara thin client business, net of cash
acquired -- (3,774) Purchases of short-term investments (900)
(17,900) Sales of short-term investments 4,250 17,368 Purchases of
property and equipment (174) (19) Net cash provided by (used in)
investing activities 3,176 (4,325) Cash flows from financing
activities: Exercise of stock options and warrants 161 69
Repayments of capital leases (2) (3) Excess tax benefit related to
stock options 446 -- Net cash provided by financing activities 605
66 Effect of foreign exchange rate changes on cash (38) 49 Increase
(decrease) in cash and cash equivalents 4,265 (4,646) Cash and cash
equivalents, beginning of year 8,285 17,119 Cash and cash
equivalents, end of year $12,550 $12,473 Supplemental cash flow
disclosures: Cash paid for income taxes $2,647 $31 NEOWARE SYSTEMS,
INC. RECONCILIATION OF GAAP TO NON GAAP AMOUNTS (in thousands,
except per share data) (Unaudited) Three Months Ended September 30,
2005 2004 GAAP Income Before Income taxes $2,888 $2,102
Amortization of purchased intangible assets included within cost of
sales 273 101 Amortization of purchased intangible assets included
within operating expenses 315 170 Amortization of stock based
compensation 720 -- Non GAAP Income Before Income Taxes 4,196 2,373
Non GAAP Income Taxes (33% and 34%) (1,385) (807) Non GAAP Net
Income $2,811 $1,566 Non GAAP Earnings per share: Basic $0.17 $0.10
Diluted $0.17 $0.10 GAAP Weighted Average Number of Common Shares
Outstanding: Basic 16,271 15,779 Diluted 16,464 16,106 GAAP Gross
Profit $10,701 $7,090 Amortization of purchased intangible assets
273 101 Amortization of stock based compensation 19 -- Non GAAP
Gross Profit $10,993 $7,191 Non GAAP Gross Profit Percentage 41.4%
44.1% GAAP Operating Expense $8,066 $5,124 Amortization of
purchased intangible assets (315) (170) Amortization of stock based
compensation (701) -- Non GAAP Operating Expense $7,050 $4,954
DATASOURCE: Neoware Systems, Inc. CONTACT: investors, 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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