KING OF PRUSSIA, Pa., Oct. 29, 2002 (PRIMEZONE) -- Neoware Systems, Inc. (Nasdaq:NWRE), the leading supplier of award-winning software, services, and solutions for the Appliance Computing market, today reported sharply higher revenue and earnings for its fiscal 2003 first quarter ended September 30, 2002.
FINANCIAL HIGHLIGHTS
-- Revenues for the quarter ended September 30, 2002 increased 157%
to $13,516,678, from $5,264,729 in the prior year quarter. Pretax
income increased 771% to $2,260,986, or $0.15 per fully diluted
share, from $259,672, or $0.02 per fully diluted share, in the
prior year quarter.
-- Net income for the quarter ended September 30, 2002 increased 457%
to $1,447,031, or $0.10 per fully diluted share, after an income
tax provision of $813,955, from $259,672, or $0.02 per fully
diluted share, in the prior year quarter, which had no income tax
provision.
"Appliance Computing is gaining traction as a recognized solution that saves enterprises money," stated Michael Kantrowitz, Neoware's Chairman and CEO. "We see strong demand for our products, and believe that we are very well positioned to continue to gain market share and to deliver revenue and profit growth as we capitalize upon the benefits of our software-powered business model."
ADDITIONAL FINANCIAL HIGHLIGHTS
-- Organic appliance and software revenue grew significantly in the
quarter, even during the typically slow summer months. Excluding
revenue attributable to sales of ThinSTAR products and to third-
party products sold as a result of the ACTIV-e acquisition,
revenues in Q1 2003 grew by approximately 116% from the prior year
quarter and 10% sequentially from Q4. Since the ThinSTAR and
ACTIV-e acquisitions were consummated in the Q2 and Q3 of fiscal
2002, there were no such revenues in the prior year quarter.
-- Revenue from Neoware's alliance with IBM increased to
approximately $2,500,000 in Q1 from zero in the prior year
quarter, and from approximately $2,000,000 in the prior sequential
quarter.
-- Revenue from the NCD ThinSTAR product line was approximately
$1,500,000 in Q1, compared to approximately $2,500,000 in the
prior sequential quarter as the Company discontinued the ThinSTAR
hardware products in the United States and began the transition
process to move customers to the Company's Eon and Capio products.
During this transition process customers typically place purchases
on hold as they evaluate the Company's new product offerings. The
Company expects this transition to be complete during Q2.
-- Cash and marketable securities increased to $20,209,006 from
$17,214,755 in the prior quarter as a result of positive cash flow
from operations and exercises of warrants and employee stock
options.
-- Total gross margin was 42% in Q1 2003, compared to 42% in the
prior year quarter and 40% in the prior sequential quarter.
-- Inventory on hand was $721,431, or 8 days, at September 30, 2002,
compared to 12 days in the prior year quarter.
-- Days sales outstanding (DSOs) were 60 days at the end of Q1 2003,
based upon the timing of sales within the quarter, which was
within the Company's goal, compared to 45 days in the prior year
quarter. DSOs are higher in the current period as a result of
increased sales in Europe, via IBM, and via distributors, since
these sales typically have payment terms of 45-60 days as opposed
to 30 day payment terms with end users.
-- Total operating expenses decreased to 26% of revenue for Q1 2003,
compared to 39% of revenue in the prior year quarter, reflecting
the scaling benefits of the Company's software-powered business
model.
-- Annualized revenue per employee increased 67% to approximately
$500,000 in Q1 2003 from approximately $300,000 in the prior year
quarter, even as employment grew by 51%. During the year, the
Company significantly expanded its sales, marketing and executive
management ranks to implement its growth plans.
CUSTOMER WINS AND MARKET DATA
-- Specific customers sold during the quarter included Air Canada,
Air New Zealand, Ardent Health, Art Van Furniture, California
Department of Human Services, Discount Tire, Electrolux, Foxwoods
Casino, Ikea, Safeway, Sears, Target Corporation, Total Fina Elf,
and Wal-Mart.
-- According to IDC, the worldwide enterprise thin client appliance
market continued to show excellent growth during the quarter, with
shipments reaching more than 335,000 units, the highest ever
recorded for the market, and representing unit growth of 28.4%
compared to the prior year. According to the IDC report, "thin
clients are not only surviving, but thriving, as IT managers
continue to recognize the excellent long-term value and ROI
advantages that thin clients can offer."
-- According to IDC, Neoware grew at more than four times the
market's rate, gained more market share than any other supplier,
doubled its market share compared to one year ago, and grew to be
the number two supplier of thin client appliances and software
worldwide.
"Unlike other technology companies, Neoware is delivering significant increases in revenues and profits," Mr. Kantrowitz commented. "The fact that Neoware's products save money -- both up-front and in total ownership cost -- is resonating with customers given today's IT spending climate."
"Looking forward, we are confident that we'll deliver continued, significant year-over-year increases in revenues through the balance of this fiscal year as a result of growth in our markets, our software-powered business model, and our strong industry partnerships, including our alliance with IBM. We're comfortable with consensus analyst estimates for revenue growth for the balance of the fiscal year, and believe that as our top line grows, we can continue to reduce our operating expenses as a percentage of revenue, driving additional profitability. We're very encouraged by our progress, and believe that we are very well positioned to deliver continued growth," Mr. Kantrowitz concluded.
About Neoware
Neoware provides software, services, and solutions to enable Appliance Computing, a new Internet-based computing architecture targeted at business customers that is designed to be simpler and easier than traditional PC-based computing. Neoware's software and management tools power and manage a new generation of smart computing appliances that utilize the benefits of open, industry-standard technologies to create new alternatives to personal computers used in business and a wide variety of proprietary business devices.
Neoware's products are designed to run local applications for specific vertical markets, plus allow access across a network to multi-user Windows servers, Linux servers, mainframes, minicomputers, and the Internet. Computing appliances that run and are managed by Neoware's software offer the cost benefits of industry-standard hardware and software, easier installation, and have lower up-front and administrative costs than proprietary or PC-based alternatives.
More information about Neoware can be found on the Web at 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 within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding: strong demand for our products; our expectation that our existing customers may purchase through IBM in the future; our expectation of continued, significant increases in revenues during the fiscal year as a result of growth in our markets, our business model and our strong industry partnerships, including the IBM alliance; continued gains in market share and revenue and profit growth due to our business model; our views regarding consensus analyst estimates of revenue growth for the balance of the fiscal year; revenue growth resulting in the reduction of our operating expenses as a percentage of revenue driving growth in our profitability; our position as the leading supplier of software, products, services and solutions for the Appliance Computing market; the benefits of our business model; and our competitive advantage. These forward-looking statements involve risks and uncertainties. Factors that could cause actual results to differ materially from those predicted in any such forward-looking statement include our ability to continue to lower our costs, our timely development and customers' acceptance of our Appliance Computing products, including acceptance by IBM and NCD customers, NCD's creditworthiness as a distributor of our products in Europe, pricing pressures, rapid technological changes in the industry, growth of the Appliance Computing market, increased competition, our ability to attract and retain qualified personnel, our ability to identify and successfully consummate future acquisitions; adverse changes in customer order patterns, 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 report on Form 10-K for its fiscal year ended June 30, 2002.
Neoware is a registered trademark 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
ASSETS September 30, 2002 June 30, 2002
(Unaudited)
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents $20,062,339 $17,031,422
Marketable securities 146,667 183,333
Accounts receivable, net 10,188,130 9,520,558
Inventories 721,431 1,040,851
Prepaid expenses and other 658,147 551,598
Deferred income taxes 595,728 1,394,864
Total current assets 32,372,442 29,722,626
------------ ------------
Property and equipment, net 634,454 622,235
Goodwill and other
intangibles 11,468,607 11,568,940
Notes receivable 254,269 263,732
Deferred income taxes 173,648 173,648
Capitalized and purchased
software, net 40,413 47,779
------------ ------------
$44,943,833 $42,398,960
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $2,934,061 $3,111,164
Accrued expenses 2,019,942 2,136,776
Capital lease obligations 64,597 63,037
Deferred revenue 714,151 582,290
---------- ----------
Total current liabilities 5,732,751 5,893,267
---------- ----------
Capital lease obligations,
non-current portion 187,388 204,131
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 13,556 12,936
Additional paid-in capital 41,616,574 40,291,861
Treasury stock (100,000) (100,000)
Accumulated other
comprehensive income (166,904) (116,672)
Retained earnings (deficit) (2,339,532) (3,786,563)
------------ -----------
Total stockholders' equity 39,023,694 36,301,562
------------ -----------
$44,943,833 $42,398,960
=========== ===========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
September 30, September 30,
2002 2001
------------------ ------------------
Net revenues $13,516,678 $ 5,264,729
Cost of revenues 7,822,502 3,060,589
------------ -----------
Gross profit 5,694,176 2,204,140
------------ -----------
Sales and marketing 2,227,333 1,210,108
Research and development 387,763 330,866
General and administrative 908,117 515,447
------------ -----------
Operating expenses 3,523,213 2,056,421
------------ -----------
Operating income 2,170,963 147,719
Interest income, net 90,023 111,953
------------ -----------
Income before income taxes 2,260,986 $ 259,672
Income tax expense (813,955) --
------------ -----------
Net income $1,447,031 $259,672
=========== ===========
Basic income per share $ 0.11 $ 0.03
=========== ===========
Diluted income per share $ 0.10 $ 0.02
=========== ===========
Weighted average number of common
shares outstanding used in basic
earnings per share computation 13,162,589 10,179,851
========= ==========
Weighted average number of common
shares outstanding used in diluted
earnings per share computation 14,652,096 10,596,720
========== ==========
NEOWARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,447,031 $259,672
Adjustments to reconcile net income
to net cash provided by
operating activities-
Deferred income taxes 799,136 --
Depreciation and amortization 187,509 50,821
Changes in operating assets and
liabilities-
(Increase) decrease in:
Accounts receivable (667,572) 166,954
Inventories 319,420 43,590
Prepaid expenses and other (120,114) 114,403
Increase (decrease) in:
Accounts payable (177,103) 168,587
Accrued expenses (116,934) (348,755)
Deferred revenue 131,861 4,694
----------- -----------
Net cash provided by operating
activities 1,803,234 459,966
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (148,592) (12,421)
Purchases of property and equipment,
net (62,378) (31,336)
----------- -----------
Net cash provided used in investing
activities (210,970) (43,757)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital leases (15,183) --
Exercise of stock options and warrants 1,444,273 6,112
Repayments of officer loans 9,463 30,644
----------- -----------
Net cash provided by financing
activities 1,438,553 36,756
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 3,030,917 452,965
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 17,031,422 11,712,535
CASH AND CASH EQUIVALENTS,
END OF PERIOD $20,062,339 $12,165,500
=========== ===========