NWRE Neoware (MM)

Neoware Reports Fiscal 2004 and Fourth Quarter Revenue and Earnings KING OF PRUSSIA, Pa., Aug. 5 /PRNewswire-FirstCall/ -- Neoware Systems, Inc. (NASDAQ:NWRE), the leading supplier of software, services and appliances for thin client computing, today reported financial results for its fiscal fourth quarter and year ended June 30, 2004. For the quarter ended June 30, 2004: -- Revenues increased to a record $17,080,000 from $15,824,000 in the prior year fourth quarter as a result of positive customer response to the Company's new product and market strategies and increased sales through IBM to large enterprise customers. -- Gross profit was $7,353,000, or 43% of revenue, compared to $7,491,000, or 47% of revenue, in the prior year fourth quarter as a result of higher enterprise sales and the introduction of new products designed to build market share and expand the thin client segment of the PC market. -- In June 2004, the Company wrote off approximately $1.6 million in deferred expenses for acquisitions that were determined to be unlikely to be consummated in the near future. Excluding this charge, operating expenses were $5,032,000, compared to $4,893,000 in the prior year and $5,681,000 in the prior quarter, as the Company maintained control of its expenditures. -- Excluding the write-off of deferred acquisition costs and the associated income tax benefit, net income was $1,536,000, or $.10 per diluted share, compared to $1,701,000, or $.12 per diluted share, in the year ago quarter. On a GAAP basis, net income was $477,000, or $.03 per diluted share. For the fiscal year ended June 30, 2004: -- Revenues increased to a record $63,165,000 from $57,522,000 in the prior year. -- Excluding the write-off of deferred acquisition costs and the associated income tax benefit, net income was $6,453,000, or $.40 per diluted share, compared to $6,312,000, or $.43 per diluted share, in the prior year. On a GAAP basis, net income was $5,394,000, or $.34 per diluted share Accompanying this release is a schedule of a reconciliation of these non- GAAP measures to GAAP financial measures presented in this release. Customer Highlights -- Selected customers in the quarter included BMC Software, Computer Sciences Corporation, Corestaff Services, CVS, Federated Department Stores, Goodyear Tire and Rubber, Haven Healthcare Management, Independence Air, Johnson and Johnson, Kansas Board of Public Utilities, Kroger, Lockheed Martin, Meridian Health, National Asset Recovery Services, Nike, Renault, Siemens Medical Systems, and Wal- Mart. "Our new operating plan is producing positive results, as evidenced by our fourth quarter financials," stated Michael Kantrowitz, Neoware's Chairman and CEO. "Record sales to large enterprise customers resulted in the highest quarterly revenues we have ever delivered, and excluding the write-off of acquisition expenses, the second highest net income we achieved this year. Our alliance with IBM delivered substantial sales that were significantly higher than in any previous period. "During this year we faced challenges in our market and we responded by introducing a number of new initiatives. We are now more proactive in our marketing and selling efforts and have developed new products - including the industry's only $199 thin client from a major provider - that are designed to grow the thin client segment of the PC market and our share of it. While we are disappointed that we spent resources this year on an acquisition that we did not complete, we see a real opportunity to pursue acquisitions that we believe can provide additional value for our shareholders. We have this opportunity because our Company is solidly profitable, generated more than $10 million in cash this fiscal year, and ended the year with more than $55 million in cash and short term investments with virtually no debt - the strongest financial position ever for Neoware. "Looking forward, we project continued top line growth, driven by increased sales of thin client appliances, as well as our TeemTalk and ThinPC software, through IBM and our other channels. While our results may vary in any given quarter, we are comfortable with current analyst revenue estimates of $70 to $71 million in the coming fiscal year, and believe that if we continue to see positive results from our new product and marketing strategies we may be in a position to raise this guidance in the future. We also believe that we can achieve our existing estimate of 40% to 45% gross margins, and intend to drive operating expenses below 30% as a percentage of revenue, generating improvements in operating and net income. Based on these results, we are comfortable with current analyst estimates of earnings between $.35 and $.42 per share for fiscal 2005, assuming 16 million fully diluted shares. The effects of potential acquisitions that we are pursuing, should any be consummated, are not included in these projections. "Neoware's products are more secure, reliable, affordable and manageable than personal computers, and they eliminate the obsolescence built into traditional PCs. These benefits are increasingly known throughout our potential customer base and we believe they will continue to drive acceptance of our products and the financial performance of our Company," 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 web site closer to the event date. Roth Capital Partners Technology Conference New York, NY September 13, 2004 AEA Classic San Diego, CA November 9-10, 2004 Neoware Annual Meeting King of Prussia, PA December 1, 2004 CONFERENCE CALL INFORMATION In connection with this release, management of Neoware will host a conference call at 5:00 PM Eastern Time on August 5, 2004. 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 1.866.238.1636 for domestic calls and +1.703.639.1160 for international calls. The conference ID will be 509420. A replay of the call will be available through August 14, 2004 by dialing 1.888.266.2081 domestically and +1.703.925.2533 internationally. 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. Operating expenses for the fiscal year and fourth quarter ended June 30, 2004 included a charge of $1,604,000, and net income included the charge and an associated income tax benefit of $545,000, that resulted from the write-off of deferred expenses incurred over the last year in connection with acquisitions that the Company determined to be unlikely to be consummated in the near future. We have, therefore, provided the non-GAAP measures in order to present information about the Company's financial performance without this expense, as we believe it provides a more comparable view of the financial performance of the Company's core business. 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. 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 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 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 operating plan; our proactive marketing and sales efforts; our new products designed to grow the thin client segment of the PC market and our market share; our acquisition strategy to provide shareholder value; expectations for fiscal year 2005 revenue of $70 to $71 million, and the possibility of raising this guidance, gross margins in the 40% to 45% range, operating expenses at near current levels, and earnings per share in the range of $0.35 to $0.42; the continued success of our IBM relationship; and the benefits of our products driving our financial performance. 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 ability to achieve our expectations for our 2005 fiscal year, 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, increased competition, our continued ability to sell our products through IBM to its customers; our ability to attract and retain qualified personnel, 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, 2003 and Form 10-Q for the quarter ended March 31, 2004. 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 per share data) ASSETS June 30, June 30, 2004 2003 CURRENT ASSETS: Cash and cash equivalents $17,119 $26,014 Short-term investments 38,177 3,151 Accounts receivable, net 10,580 11,089 Inventories 795 772 Prepaid expenses and other 1,628 798 Deferred income taxes 643 946 Total current assets 68,942 42,770 Property and equipment, net 509 572 Goodwill 17,466 8,943 Intangibles, net 3,545 2,091 Deferred income taxes 145 - $90,607 $54,376 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $5,685 $4,206 Accrued expenses 3,448 2,818 Capital lease obligations 7 7 Deferred revenue 739 464 Total current liabilities 9,879 7,495 Capital lease obligations 4 10 Deferred revenue 235 227 Deferred income taxes - 17 STOCKHOLDERS' EQUITY: Common stock 16 14 Additional paid-in capital 71,718 44,215 Treasury stock (100) (100) Other comprehensive income (loss) 936 (27) Retained earnings 7,919 2,525 Total stockholders' equity 80,489 46,627 $90,607 $54,376 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three Months Ended Twelve Months Ended June 30, June 30, 2004 2003 2004 2003 Unaudited Net revenues $17,080 $15,824 $63,165 $57,522 Cost of revenues 9,727 8,333 32,785 31,549 Gross profit 7,353 7,491 30,380 25,973 Sales and marketing 3,340 3,034 13,125 9,971 Research and development 678 536 2,798 1,837 General and administrative 1,014 1,323 5,476 4,326 Abandoned acquisition costs 1,604 - 1,604 - Operating expenses 6,636 4,893 23,003 16,134 Operating income 717 2,598 7,377 9,839 Transaction adjustment (106) - (106) - Loss on investment - - - (300) Interest income, net 105 59 392 323 Income before income taxes 716 2,657 7,663 9,862 Income taxes 239 956 2,269 3,550 Net income $477 $1,701 $5,394 $6,312 Basic earnings per share $0.03 $0.12 $0.34 $0.46 Diluted earnings per share $0.03 $0.12 $0.34 $0.43 Weighted average number of common shares outstanding in basic earnings per share computation 15,778 13,950 15,683 13,601 Weighted average number of common shares outstanding in diluted earnings per share computation 16,142 14,647 16,020 14,695 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended Twelve Months Ended June 30, June 30, 2004 2003 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $477 $1,701 $5,394 $6,312 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 53 84 261 296 Amortization of intangibles 268 139 1,049 538 Loss on investment - - - 249 Stock option benefit on deferred income taxes 297 1,805 2,005 1,805 Deferred income tax benefit 141 (1,939) 141 640 Changes in operating assets and liabilities, net of effect from acquisition- (Increase) decrease in: Accounts receivable 603 (1,773) 509 (1,568) Inventories (47) 355 (22) 268 Prepaid expenses and other (589) 142 (820) (274) Increase (decrease) in: Accounts payable 581 775 1,478 1,095 Accrued expenses 467 668 629 685 Deferred revenue (2) 63 284 110 Net cash provided by operating activities 2,249 2,020 10,908 10,156 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of the TeemTalk software business - - (9,995) - Purchases of short-term investments (5,992) (3,151) (39,470) (3,151) Sales of short-term investments - - 4,444 - Purchase of intangible assets - 47 (125) - Purchases of property and equipment (69) (47) (198) (154) Net cash used in investing activities (6,061) (3,151) (45,344) (3,305) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of capital leases (1) (202) (6) (250) Proceeds from issuance of common stock, net of expenses - - 24,609 - Expenses for prior issuance of common stock - - (3) (122) Exercise of stock options and warrants 50 263 884 2,241 Repayments of officer loans - 254 - 263 Net cash provided by financing activities 49 315 25,484 2,132 EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 59 - 57 - INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,704) (816) (8,895) 8,983 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,823 26,830 26,014 17,031 CASH AND CASH EQUIVALENTS, END OF PERIOD $17,119 $26,014 $17,119 $26,014 SUPPLEMENTAL DISCLOSURES: Cash paid for income taxes $(3) $896 $261 $976 Cash paid for interest $2 $6 $9 $32 NEOWARE SYSTEMS, INC. Reconciliation of Non-GAAP Financial Measures (in thousands, except per share data) Three Months Ended Twelve Months Ended June 30, 2004 June 30, 2004 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP Unaudited Net income $477 $1,059 A $1,536 $5,394 $1,059 A $6,453 Basic earnings per share $0.03 $0.07 $0.10 $0.34 $0.07 $0.41 Diluted earnings per share $0.03 $0.07 $0.10 $0.34 $0.07 $0.40 Footnotes: A - Abandoned acquisition costs, net of income tax benefit DATASOURCE: Neoware Systems, Inc. CONTACT: Investor Relations: Kevin McGrath of Cameron Associates, +1-212-245-8000 x 203, , for Neoware Systems, Inc.; or Keith Schneck, CFO of Neoware Systems, Inc., +1-610-277-8300, Web site: http://www.neoware.com/

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