Neoware Reports Fiscal 2004 Third Quarter Revenue and Earnings.Business Editors/High-Tech Writers KING OF PRUSSIA King of Prussia, industrialized suburban area (1990 pop. 18,406), Montgomery co., SE Pa. It has glass and steel fabricating, food processing, printing and publishing, and varied manufacturing (textiles, liquified petroleum gas, water-treatment and electrical , Pa.--(BUSINESS WIRE)--April 26, 2004 Neoware Neoware (NASDAQ: NWRE) is a company that manufactures and markets a type of computer hardware called thin clients. It also develops and markets enterprise software, thin client appliances, and related services aimed at reducing the TCO of IT infrastructure. Systems, Inc. (Nasdaq:NWRE), the leading supplier of award-winning Adj. 1. award-winning - having received awards; "this award-winning bridge spans a distance of five miles" software, services and appliances for thin client computing See thin client. , today reported financial results for its fiscal 2004 third quarter and nine months ended March 31, 2004. Q3 FINANCIAL HIGHLIGHTS -- Revenues for the quarter ended March 31, 2004 increased 17% to $15,750,000 compared to $13,468,000 in the prior year quarter as a result of higher sales of thin client appliances and software, including increased sales through IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) to large enterprise customers. -- Gross margin for the current quarter was 47% compared to 46% in the prior year quarter as a result of lower product costs on higher revenues and a larger percentage of revenues from software sales, offset by lower gross margins as a results of deriving de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. a larger percentage of sales from large enterprise customers and the effects of the Company's new marketing initiatives. -- Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the current quarter were $5,681,000 compared to $4,023,000 in the prior year quarter as the Company increased operating expenses as part of its growth initiatives, as planned. -- Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the current quarter was $1,743,000 compared to $2,218,000 in the prior year quarter, the result of higher sales and higher gross margin, offset by higher operating expenses. -- Net income for the current quarter was $1,658,000, or $.10 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net income of $1,281,000, or $.09 per diluted share, a year ago, on approximately 1.5 million additional shares. Net income in the current quarter includes an income tax benefit of approximately $435,000 of recovery of prior year taxes and an adjustment to the year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. effective tax rate, partially offset by approximately $120,000 of associated G&A expense from the creation of a more efficient international tax structure. On an ongoing basis, this new tax structure is expected to reduce the Company's effective tax rate to approximately 34% from 36%. -- Operating results for the current quarter include $278,000 of non-cash amortization of intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. as a result of acquisitions, versus $108,000 in the prior year quarter. NINE MONTH FINANCIAL HIGHLIGHTS -- Revenues for the nine-month period ended March 31, 2004 were $46,086,000 compared to $41,699,000 in the prior year nine-month period. -- Net income for the nine-month period ended March 31, 2004 was $4,917,000, or $.31 per diluted share, compared to net income of $4,612,000, or $.31 per diluted share, for the nine-month period a year ago, on approximately 1.5 million additional shares in the current period. -- Gross margin for the nine-month period ended March 31, 2004 was 50% compared to 44% for the nine-month period a year ago. -- Cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has increased to $53,008,000 at March 31, 2004 from $29,165,000 at June June: see month. 30, 2003, primarily as a result of positive cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses as well as the net impact of the issuance of 1.5 million shares of common stock, partially offset by the cost of the TeemTalk acquisition completed in July July: see month. 2003. Customers of note in the quarter included Bed Bath & Beyond, Deaconess dea·con·ess n. 1. A Protestant woman who assists the minister in various functions. 2. Used as a title prefixed to the surname of such a woman: Deaconess Brown. Noun 1. Clinic, Fortis Insurance, Gap, Geodis Logistics logistics In military science, all the activities of armed-force units in support of combat units, including transport, supply, communications, and medical aid. The term, first used by Henri Jomini, Alfred Thayer Mahan, and others, was adopted by the U.S. , Harrahs, Kroger The Kroger Co. (NYSE: KR) is an American retail supermarket chain and parent company, founded by Bernard Henry Kroger in 1883 in Cincinnati, Ohio. It reported over US$60 billion in sales during its most recent fiscal year and is the top grocery retailer in the country and , Lufthansa Lufthansa in full Deutsche Lufthansa AG One of Europe's largest air-passenger, cargo, and airline-services companies. The airline originated in 1926 as Deutsche Luft Hansa AG and eventually was flying to destinations in South America and Southeast Asia before , Macy's Macy's formerly R.H. Macy & Co., Inc. Major U.S. department-store chain. Its former flagship, an 11-story store that occupies a city block in New York City's Herald Square, was for many years the largest single store in the country. Rowland H. , Manpower, Pathmark Pathmark (NASDAQ: PTMK), headquartered in Carteret, New Jersey, is a supermarket chain founded in 1968 when its parent, Supermarkets General (now known by the store name), pulled out of the ShopRite retailers' cooperative. , Royal Bank of Canada Bank of Canada Canada's central bank, established under the Bank of Canada Act (1934). It was founded during the Great Depression to regulate credit and currency. The Bank acts as the Canadian government's fiscal agent and has the sole right to issue paper money. , University of NC Hospitals, the Veterans Administration Hospitals, and WalMart. During the quarter, Neoware's strategic alliance with IBM continued to deliver strong results, with increased sales through IBM and a significant increase in the Company's pipeline of opportunities with large enterprise customers. "We are seeing positive initial results from Neoware's new marketing strategies, and while our results will vary in any given quarter based upon the timing of individual transactions, we are cautiously optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that we'll we'll Contraction of we will. we'll we will or we shall we'll will ~shall see an increase in our sales, especially through IBM to large corporate enterprises, over the next several quarters," stated Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. Kantrowitz, Neoware's Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "As we announced in January January: see month. and demonstrated in subsequent product introductions, Neoware is leveraging its leadership position in thin client computing to pursue a more aggressive growth strategy targeted at increasing the size of the thin client segment of the PC industry. We believe that thin clients represent approximately 1% of the overall PC market. Our goal is to build that share by making thin clients more affordable compared to PCs and by promoting the significant benefits of thin client computing in our target markets," Mr. Kantrowitz noted. "Neoware's recent product introductions and our new branding campaign are the first steps in this strategy. By introducing thin client appliances with a starting price starting price n (COMM) → precio inicial starting price n → prix initial starting price start n (at auction of $199, which is nearly one-fourth the price of the average business PC, and by making them compatible with industry-standard PC management software, we are providing a real solution for enterprises seeking to replace personal computers in server-based environments. One example of our new marketing strategy is our "Wouldn't would·n't Contraction of would not. wouldn't would not wouldn't would It Be Great" campaign that emphasizes that Neoware's products are more secure, reliable, and manageable than PCs, and delivers the message that our products save money, and are technically superior." "We expect these new marketing strategies to have a positive impact on the Company's top line and believe that they will enable us to gain market share in the PC industry. Although we are seeing positive initial results, these new strategies will take time to fully implement, so we are not changing our revenue guidance at this time. As we implement this plan over the next year, we expect our revenues to grow, we will seek to deliver gross margins in the 40% to 45% range as our sales to large global enterprises through IBM become a larger percentage of our overall business, and we intend to control our operating expenses so that they begin to decline as a percentage of revenue as revenues increase." "Neoware is a leader in the thin client segment of the PC market. Our software makes computing computing - computer more open, secure, reliable, affordable, and manageable, and we eliminate the obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. that is built into standard PC architectures. With an exciting new lineup A criminal investigation technique in which the police arrange a number of individuals in a row before a witness to a crime and ask the witness to identify which, if any, of the individuals committed the crime. of products, a strong market position, as well as $53 million in cash and no debt, Neoware has the leadership and financial strength to drive our growth initiatives, both organically and through carefully targeted acquisitions," Mr. Kantrowitz concluded. CONFERENCE CALL INFORMATION In connection with this release, Neoware management will host a conference call and simultaneous webcast on April 26, 2004 at 5:00 p.m. Eastern Time. The conference call will be available live via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the on the Neoware website at www.neoware.com and at www.vcall.com. To participate, please go to the website 10 minutes prior to the call to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. 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 any other financial information about the period to be presented in the conference call will be available at the Company's website at investor.neoware.com. The call will also be accessible by dialing 1.877.817.7175 for domestic calls and +1.703.871.3599 for international calls. The conference ID will be 433699. A replay of the call will be available through May 9, 2004 by dialing 1.888.266.2081 domestically and +1.703.925.2533 internationally. About Neoware Neoware's software, services, and thin client appliances make computing more secure, manageable, reliable and affordable by enabling global enterprises to fully leverage server-based computing Refers to applications that run in a server. Also known as "thin client computing," it may refer to a browser-based environment that uses a Web browser as the client with all applications running on a Web server on the Internet or in an intranet on the LAN. . By incorporating open, standards-based technologies and eliminating the obsolescence that is built into standard PC architectures, Neoware provides enterprises with increased flexibility and choice, as well as lower up-front up-front or up·front Informal adj. 1. Straightforward; frank. 2. Paid or due in advance: up-front cash. adv. and total costs. Neoware's software products enable enterprises to gain control of their desktops, and to integrate mainframe, midrange midrange Epidemiology The halfway point or midpoint in a set of observations; for most data, MR is calculated as the sum of the smallest observation and the largest observation, divided by 2; for age data, one is added to the numerator; a midrange is usually , UNIX UNIX Operating system for digital computers, developed by Ken Thompson of Bell Laboratories in 1969. It was initially designed for a single user (the name was a pun on the earlier operating system Multics). and Linux Linux Nonproprietary operating system (OS) for digital computers. In 1991 Linus Torvalds of Finland began asking for volunteer programmers over the Internet to collaborate on the development of a UNIX-like OS for personal computers; the “1. applications with Windows(R) and the web. Neoware's thin client appliances 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 services enable corporations to benefit from server-based computing with training and end-to-end end-to-end a pattern of anastomosis in which severed ends are matched and united, in contrast with other patterns such as end-to-side or side-to-side. Usually applied to anastomosis of the intestine. support. 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 invest@neoware.com. Neoware is based in King of Prussia, PA. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, including statements regarding: the tax benefits to be derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from our new tax structure; our growth strategy based upon increased thin client sales in the overall PC market; our expectation of revenue growth, gross margins and expenses as a result of our new strategy; our continued growth, organically and through acquisitions; the benefits of our leadership position; and the cost-saving benefits of our products to our customers which we believe will drive growth in our industry. 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 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, increased competition, our ability to attract and retain qualified personnel, adverse changes in customer order patterns, our ability to identify and successfully consummate To carry into completion; to fulfill; to accomplish. A Common-Law Marriage is consummated when the parties live in a manner intended to bring about public recognition of their relationship as Husband and Wife. 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended June 30, 2003 and Form 10-Q Form 10-Q See 10-Q. for the quarter ended December December: see month. 31, 2003. Neoware, ThinPC, and TeemTalk are trademarks 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 share and per share data)
(Unaudited)
March 31, June 30,
ASSETS 2004 2003
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 20,823 $ 26,014
Short-term investments 32,185 3,151
Accounts receivable, net 11,183 11,089
Inventories 748 772
Prepaid expenses and other 1,029 798
Deferred income taxes 946 946
-------- --------
Total current assets 66,914 42,770
-------- --------
Property and equipment, net 493 572
Goodwill 17,554 8,943
Intangibles, net 3,835 2,091
-------- --------
$ 88,796 $ 54,376
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,104 $ 4,206
Accrued expenses 2,981 2,818
Capital lease obligations 7 7
Deferred revenue 975 691
-------- --------
Total current liabilities 9,067 7,722
-------- --------
Capital lease obligations 5 10
-------- --------
Deferred income taxes 17 17
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares
authorized and none issued and outstanding - -
Common stock, $.001 par value, 50,000,000 shares
authorized, 15,769,139 and 14,054,800 shares
issued and 15,669,139 and 13,954,800 shares
outstanding 16 14
Additional paid-in capital 71,362 44,215
Treasury stock, 100,000 shares at cost (100) (100)
Other comprehensive income (loss) 987 (27)
Retained earnings 7,442 2,525
-------- --------
Total stockholders' equity 79,707 46,627
-------- --------
$ 88,796 $ 54,376
======== ========
NEOWARE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net revenues $ 15,750 $ 13,468 $ 46,086 $ 41,699
Cost of revenues 8,326 7,227 23,059 23,217
----------- ----------- ----------- -----------
Gross profit 7,424 6,241 23,027 18,482
----------- ----------- ----------- -----------
Sales and marketing 3,442 2,411 9,785 6,937
Research and
development 712 492 2,120 1,301
General and
administrative 1,527 1,120 4,462 3,002
----------- ----------- ----------- -----------
Operating
expenses 5,681 4,023 16,367 11,240
----------- ----------- ----------- -----------
Operating
income 1,743 2,218 6,660 7,242
Loss on investment - (300) - (300)
Interest income,
net 109 83 287 264
----------- ----------- ----------- -----------
Income before
income taxes 1,852 2,001 6,947 7,206
Income taxes 194 720 2,030 2,594
----------- ----------- ----------- -----------
Net income $ 1,658 $ 1,281 $ 4,917 $ 4,612
=========== =========== =========== ===========
Basic earnings per
share $ 0.11 $ 0.09 $ .31 $ 0.34
=========== =========== =========== ===========
Diluted earnings
per share $ 0.10 $ 0.09 $ .31 $ 0.31
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding
in basic earnings
per share
computation 15,769,139 13,724,625 15,651,750 13,485,220
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding
in diluted
earnings per share
computation 16,171,058 14,704,171 15,942,110 14,712,321
=========== =========== =========== ===========
NEOWARE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------------
2004 2003 2004 2003
------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,658 $ 1,281 $ 4,917 $ 4,611
Adjustments to reconcile net
income to net cash provided
by operating activities-
Loss on investment - 300 - 300
Income tax benefit, primarily from
stock option exercises 90 720 1,708 2,578
Depreciation 72 81 209 175
Amortization of intangibles 278 107 782 391
Changes in operating assets and
liabilities- net of effect from
acquisition-
(Increase) decrease in:
Accounts receivable (1,912) 1,378 (94) 205
Inventories (8) (333) 24 (86)
Prepaid expenses and other (125) (418) (231) (416)
Increase (decrease) in:
Accounts payable 1,471 (842) 897 320
Accrued expenses 584 324 163 13
Deferred revenue 97 (58) 284 46
------------------------------------
Net cash provided by operating
activities 2,205 2,540 8,659 8,137
------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of the TeemTalk software
business - - (9,995) -
Purchase of short-term investments (28,129) - (50,186) -
Sales of short-term investments 6,738 - 21,153 -
Purchase of intangible assets - (2) (125) (47)
Purchases of property and
equipment (23) (28) (129) (107)
------------------------------------
Net cash used in investing
activities (21,414) (30) (39,282) (154)
------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayments of capital leases (2) (18) (4) (49)
Sale of common stock, net of
expenses - - 24,609 -
Expenses for prior issuance of
common stock - - (3) (122)
Exercise of stock options and
warrants 5 343 834 1,978
Repayments of officer loans - - - 9
------------------------------------
Net cash provided by
financing activities 3 325 25,436 1,816
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 25 - (4) -
------------------------------------
INCREASE IN CASH AND CASH
EQUIVALENTS (19,181) 2,835 (5,191) 9,799
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 40,004 23,995 26,014 17,031
------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $20,823 $26,830 $20,823 $26,830
====================================
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes $ - $ - $ 264 $ 80
Cash paid for interest 2 9 8 26
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