NWRE Neoware (MM)

KING OF PRUSSIA, Pa., April 27 /PRNewswire-FirstCall/ -- Neoware, Inc. (NASDAQ:NWRE), the leading supplier of software-powered thin client solutions for enterprises that make computing more secure, reliable, affordable and manageable, today reported financial results for its fiscal third quarter ended March 31, 2006. "We are experiencing healthy demand from enterprise customers for our thin client solutions and we are translating this demand into positive financial results," commented Michael Kantrowitz, Neoware's Chairman and CEO. Q3 Financial Highlights: -- Revenues increased 46% to $27,787,000 from $19,001,000 in the prior year third quarter. -- Gross profit was 44% of revenue, compared to 43% of revenue in the prior year third quarter. Non-GAAP gross profit was 45% of revenue, compared to 44% of revenue in the prior year third quarter. -- Operating expenses were $8,977,000, or 32% of revenue, compared to $5,809,000, or 31% of revenue, in the prior year third quarter. Non-GAAP operating expenses were $7,631,000, or 28% of revenue, compared to $5,515,000, or 29% of revenue, in the prior year third quarter. -- Non-GAAP net income for the quarter increased 71% to $.19 per fully diluted share, compared to $.13 per fully diluted share, in the prior year third quarter. -- Net income for the quarter was $.12 per diluted share, compared to $.11 per diluted share in the prior year third quarter. -- The Company generated approximately $6.1 million in cash from operations, and ended the quarter with $111 million of cash, the result of positive cash flow and the Company's underwritten public stock offering in February 2006. -- Non-GAAP results exclude amortization of acquisition-related intangibles and stock-based compensation and apply pro forma tax rates of 33% and 34% in the third quarter of fiscal 2006 and 2005, respectively, for the purpose of showing a comparable view of the Company's performance from period to period. -- The Company's fully diluted share count increased to 18.8 million shares from 16.4 million shares in the year ago quarter as a result of the Company's public offering of its common stock in February 2006, and is expected to be approximately 20.6 million shares in coming periods. "This quarter we were able to grow our revenues significantly with less customer concentration than in recent quarters," commented Mr. Kantrowitz. "In this quarter our largest individual end customer generated approximately $2 million of revenue while in the prior two quarters our largest end customers each generated nearly $6 million per quarter. While we expect large orders from individual customers to result in concentrations in future quarters, we are encouraged by the broadening of our end customer base and believe this is a very positive sign that shows increasing breadth of demand for our products." "Neoware thin clients and software enable enterprises to address some of the most important challenges they face today. Our products enable organizations to significantly improve the security and manageability of devices on the edge of their networks - their most vulnerable entry points - while substantially reducing the cost of computing compared to traditional PC computing," Mr. Kantrowitz continued. "As a result, our customers can access centralized PC and host applications, and do so from more manageable devices with central control, significantly enhanced security, and much lower costs." "Neoware has global reach with sales and integration centers in the U.S., Australia, Austria, China, France, Germany, India, and the United Kingdom. Combining these integration centers with our software focus and ownership of key software technologies gives us the ability to integrate our thin client devices and software into our customers' IT infrastructure. Our alliances with IBM and Lenovo continue to deliver positive results and provide us with access to large enterprise customers around the globe." "We now have $111 million of cash and short-term investments, the result of positive cash flow and the underwritten offering we completed in February. As a result, we believe we are better positioned than ever to execute our strategy to grow our market, and to build upon our leadership position within it," Mr. Kantrowitz concluded. CONFERENCE CALL INFORMATION Neoware will host a conference call at 5:00 PM on April 27, 2006. 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 through May 30, 2006. The call will also be accessible by dialing 1-800-974-9436 from the US and +1-641-297-7617 for international calls. The conference ID will be NEOWARE. A replay of the call will be available through May 30, 2006 by dialing 1-800-645-7959 in the US and +1-973-854-2594 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 accurate 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 pro- forma tax rates of 33% and 34% for the third quarter of fiscal 2006 and 2005, respectively. This compares to GAAP effective tax rates of 36% and 34% for the 2006 and 2005 third quarter periods, respectively. About Neoware Neoware, Inc. (NASDAQ:NWRE), provides software-powered thin client solutions for enterprises throughout the world. Neoware's software powers and manages 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 . 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: demand for our solutions from our enterprise customers; the expectation that we will have approximately 20.6 million fully diluted shares in coming periods; the increasing demand for our products from a less concentrated group of customers; customers demonstrating an increase in the breadth of demand for our products; our alliances with IBM and Lenovo contributing to our positive results and providing us with access to large enterprise customers; 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 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 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 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 and December 31, 2005. 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) (unaudited) March 31, June 30, ASSETS 2006 2005 Current assets: Cash and cash equivalents $82,428 $8,285 Short-term investments 28,813 34,874 Accounts receivable, net 22,233 17,165 Inventories 6,125 3,051 Prepaid expenses and other 2,332 2,627 Deferred income taxes 1,015 1,015 Total current assets 142,946 67,017 Goodwill 43,642 31,223 Intangibles, net 12,954 9,386 Other 546 -- Property and equipment, net 1,630 416 $201,718 $108,042 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $12,538 $8,408 Accrued compensation and benefits 2,830 2,018 Restructuring reserve 1,012 -- Income taxes payable -- 2,290 Other accrued expenses 3,748 3,166 Deferred revenue 983 734 Total current liabilities 21,111 16,616 Deferred income taxes 2,841 1,151 Deferred revenue 285 306 Total liabilities 24,237 18,073 Stockholders' equity: Preferred stock -- -- Common stock 20 16 Additional paid-in capital 155,856 74,577 Treasury stock, 100,000 shares at cost (100) (100) Accumulated other comprehensive income (loss) (349) 118 Retained earnings 22,054 15,358 Total stockholders' equity 177,481 89,969 $201,718 $108,042 NEOWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2006 2005 2006 2005 Net revenues $27,787 $19,001 $83,666 $55,775 Cost of revenues Cost of products (a) 15,353 10,571 47,051 31,286 Amortization of intangibles 338 177 913 400 Total cost of revenues 15,691 10,748 47,964 31,686 Gross profit 12,096 8,253 35,702 24,089 Operating expenses Sales and marketing 4,295 2,806 12,864 8,664 Research and development 1,645 866 4,446 2,299 General and administrative 2,451 1,843 7,614 4,848 Amortization of intangibles 586 294 1,377 717 Total operating expenses (b) 8,977 5,809 26,301 16,528 Operating income 3,119 2,444 9,401 7,561 Foreign exchange gain (loss) (12) (7) 64 (243) Interest income, net 507 241 998 594 Income before income taxes 3,614 2,678 10,463 7,912 Income taxes 1,301 913 3,767 2,692 Net income $2,313 $1,765 $6,696 $5,220 Earnings per share: Basic $0.13 $0.11 $0.40 $0.33 Diluted $0.12 $0.11 $0.38 $0.32 Weighted average number of common shares outstanding: Basic 18,023 16,061 16,931 15,836 Diluted 18,848 16,404 17,474 16,207 (a) includes stock-based compensation expense of $20 and $60 for the three and nine months ended March 31, 2006. (b) includes stock-based compensation expense of $760 and $2,239 for the three and nine months ended March 31, 2006. NEOWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2006 2005 2006 2005 Cash flows from operating activities: Net income $2,313 $1,765 $6,696 $5,220 Adjustments to reconcile net income to net cash provided by operating activities- Amortization of intangibles 924 470 2,290 1,117 Depreciation 134 69 302 199 Non-cash share-based compensation 780 - 2,298 - Income tax benefit on stock option exercises - 264 - 385 Changes in operating assets and liabilities - net of effect from acquisition- Accounts receivable 1,220 (271) (4,239) (3,013) Inventories (579) 1,529 465 (1,523) Prepaid expenses and other (987) (201) 379 590 Accounts payable 2,883 880 3,104 (479) Accrued expenses (306) 778 (3,931) 2,662 Deferred revenue (313) 7 108 292 Net cash provided by operating activities 6,069 5,290 7,472 5,450 Cash flows from investing activities: Acquisition of Maxspeed, net of cash acquired (259) - (12,053) - Purchase of TeleVideo thin client business - - (3,520) - Purchase of Visara thin client business - (6) (2,107) (3,805) Purchase of ThinTune thin client business, net of cash acquired - (10,119) - (10,119) Purchase of Mangrove Systems, SAS, net of cash acquired - (2,829) - (2,829) Purchase of short-term investments (12,850) - (26,288) (20,233) Sales of short-term investments 7,864 10,055 33,226 52,239 Purchases of property and equipment (594) (24) (1,412) (90) Net cash provided by (used in) investing activities (5,839) (2,923) (12,154) 15,163 Cash flows from financing activities: Proceeds from issuance of common stock, net of expenses 71,236 - 71,236 - Exercise of stock options 638 433 6,014 1,168 Tax benefit from share-based payment arrangements 296 - 1,733 - Net cash provided by financing activities 72,170 433 78,983 1,168 Effect of foreign exchange rate changes on cash (65) 1 (158) 187 Increase in cash and cash equivalents 72,335 2,801 74,143 21,968 Cash and cash equivalents, beginning of period 10,093 36,286 8,285 17,119 Cash and cash equivalents, end of period $82,428 $39,087 $82,428 $39,087 Supplemental disclosures: Cash paid for income taxes $974 $14 $4,841 $60 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) Three Months Ended Three Months Ended March 31, 2006 March 31, 2005 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP Net revenues $27,787 - $27,787 $19,001 - $19,001 Cost of revenues Cost of products 15,353 (20)A 15,333 10,571 - 10,571 Amortization of intangibles 338 (338)B - 177 (177)B - Total cost of revenue 15,691 (358) 15,333 10,748 (177) 10,571 Gross profit 12,096 358 12,454 8,253 177 8,430 Gross profit percentage 43.5% 44.8% 43.4% 44.4% Operating expenses Sales and marketing 4,295 (282)A 4,013 2,806 - 2,806 Research and development 1,645 (99)A 1,546 866 - 866 General and administrative 2,451 (379)A 2,072 1,843 - 1,843 Amortization of intangibles 586 (586)B - 294 (294)B - Operating expenses 8,977 (1,346) 7,631 5,809 (294) 5,515 Operating income 3,119 1,704 4,823 2,444 471 2,915 Percentage of revenue 11% 17% 13% 15% Foreign exchange gain (loss) (12) - (12) (7) - (7) Interest income, net 507 - 507 241 - 241 Income before income taxes 3,614 1,704 5,318 2,678 471 3,149 Income taxes 1,301 454C 1,755 913 158C 1,071 Net income $2,313 $1,250 $3,563 $1,765 $313 $2,078 Earnings per share - diluted $0.12 $0.07 $0.19 $0.11 $0.02 $0.13 Weighted average shares outstanding - diluted 18,848 18,848 18,848 16,404 16,404 16,404 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 exclude the tax effect of stock-based compensation expense and amortization of intangible assets and to adjust to an effective tax rate of 33% and 34% for the three months ended March 31, 2006 and March 31, 2005, respectively. NEOWARE, INC. RECONCILIATION OF GAAP TO NON-GAAP AMOUNTS (in thousands, except per share data) (unaudited) Nine Months Ended Nine Months Ended March 31, 2006 March 31, 2005 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP Net revenues $83,666 - $83,666 $55,775 - $55,775 Cost of revenues Cost of products 47,051 (60)A 46,991 31,286 - 31,286 Amortization of intangibles 913 (913)B - 400 (400)B - Total cost of revenue 47,964 (973) 46,991 31,686 (400) 31,286 Gross profit 35,702 973 36,675 24,089 400 24,489 Gross profit percentage 42.7% 43.8% 43.2% 43.9% Operating expenses Sales and marketing 12,864 (829)A 12,035 8,664 - 8,664 Research and development 4,446 (306)A 4,140 2,299 - 2,299 General and administrative 7,614 (1,104)A 6,510 4,848 - 4,848 Amortization of intangibles 1,377 (1,377)B - 717 (717)B - Operating expenses 26,301 (3,616) 22,865 16,528 (717) 15,811 Operating income 9,401 4,589 13,990 7,561 1,117 8,678 Percentage of revenue 11% 16% 14% 16% Foreign exchange gain (loss) 64 - 64 (243) - (243) Interest income, net 998 - 998 594 - 594 Income before income taxes 10,463 4,589 15,052 7,912 1,117 9,029 Income taxes 3,767 1,200C 4,967 2,692 378C 3,070 Net income $6,696 $3,389 $10,085 $5,220 $739 $5,959 Earnings per share - diluted $0.38 $0.20 $0.58 $0.32 $0.05 $0.37 Weighted average shares outstanding - diluted 17,474 17,474 17,474 16,207 16,207 16,207 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 exclude the tax effect of stock-based compensation expense and amortization of intangible assets and to adjust to an effective tax rate of 33% and 34% for the nine months ended March 31, 2006 and March 31, 2005, respectively. DATASOURCE: Neoware, Inc. CONTACT: Neoware, Inc.: Keith Schneck, CFO, +1-610-277-8300, or Web site: http://www.neoware.com/

Copyright