NWRE Neoware (MM)

Neoware Reports Fiscal 2005 Second Quarter Revenue and Earnings; Revenues Up 34%, Net Income Up 47% KING OF PRUSSIA, Pa., Feb. 1 /PRNewswire-FirstCall/ -- Neoware Systems, Inc. (NASDAQ:NWRE), the leading supplier of software, services and appliances for thin client computing, today reported record revenues for its fiscal second quarter and six months ended December 31, 2004. FY05 Q2 Financial Highlights: -- Revenues increased 34% to $20,471,000 from $15,322,000 in the prior year second quarter and were a record for the Company. -- Gross profit was $8,745,000, or 43% of revenue, compared to $7,638,000, or 50% of revenue, in the prior year second quarter. Gross profit margin is consistent with the Company's previously announced plan to increase market share by introducing new products that compete more effectively with PCs, focus on larger enterprise customers, and expand the thin client segment of the PC market. -- Operating expenses were $5,594,000, or 27% of revenue, compared to $5,542,000, or 36% of revenue, in the prior year second quarter. -- Net income increased 48% to $2,066,000, or $.13 per diluted share, from $1,395,000, or $.09 per diluted share, in the year ago quarter, reflecting the operating leverage of the Company's software focused business model. -- Results include $376,000 of amortization of intangibles as a result of acquisitions, compared to $317,000 in the prior year quarter. FY05 Six Month Financial Highlights: -- Revenues increased 21% to $36,774,000 from $30,336,000 in the prior year six-month period. -- Gross profit was $15,836,000, or 43% of revenue, compared to $15,603,000, or 51% of revenue, in the prior year six-month period. -- Operating expenses were $10,719,000, or 29% of revenue, compared to $10,685,000, or 35% of revenue, in the prior year six-month period. -- Net income was $3,453,000, or $.21 per diluted share, compared to $3,259,000, or $.20 per diluted share, in the prior year six-month period. -- Results include $647,000 of amortization of intangibles as a result of acquisitions, compared to $503,000 in the prior year six-month period. "This was a record quarter for Neoware, and we believe that it reflects the fact that companies around the globe are adopting thin client computing to improve security and lower the cost of desktop computing," stated Michael Kantrowitz, Neoware's Chairman and CEO. "We saw significant growth in all geographies and most notably with enterprise customers both directly and through our alliance with IBM. The strong demand for Neoware thin client products and services in this quarter supports our belief that a significant opportunity exists to grow our business both internally and through acquisitions. "Our acquisition program, which has been a key element of our successful growth strategy over the past several years, is back on track. In September, we acquired Visara's thin client business, which has now been fully integrated into Neoware, providing us with innovative new products and important new customers. After the end of the quarter we entered into a definitive agreement to acquire TeleVideo's thin client business, and we are now the exclusive reseller for TeleVideo thin clients worldwide. We believe that this acquisition will broaden our product offerings and allow us to pursue the upgrade of millions of TeleVideo green-screen terminals installed worldwide. After the quarter ended, we acquired Mangrove Systems, an innovative provider of Linux software for thin clients, which provides us with unique Linux-based technology and local software development and support expertise in our important European market. "While we do not give quarterly guidance, we believe that the combination of the significant organic growth we delivered this quarter and our recent acquisitions will lead to continued growth in revenues in calendar 2005 and beyond," Kantrowitz continued. "While our results in any particular period will vary due to the timing of individual orders, given the trends we see in our markets, we now believe that we can achieve revenue growth of 20% to 30% - or higher - in calendar 2005 compared to calendar 2004. Our gross profit margin targets during this period will continue to be in the 40% to 45% range and increases in operating expenses will be consistent with our revenue increases as we continue to target operating expenses of 30% percent of revenues or less. "We firmly believe that the cost and security benefits of thin client computing are becoming increasingly appreciated by technology purchasers and that Neoware's products and services are gaining market share. This quarter's financial results demonstrate the strength of our core markets and of Neoware's profitable business model. Neoware thin client computing is attracting increasing attention by corporate customers as well as industry and mainstream press. Our ownership of core software technologies, our software- focused operating model, and our financial strength make us the clear choice for thin client customers around the globe," 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 website closer to the event date. Thomas Weisel Partners Tech 2005 Conference - Feb. 8, 2005 Roth Capital Partners Growth Stock Conference - Feb. 23, 2005 CONFERENCE CALL INFORMATION In connection with this release, management of Neoware will host a conference call at 5:00 PM Eastern Time on February 1, 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, 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 1-800-895-1715 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 February 8, 2005 by dialing 1-800-695-2185 domestically and +1-402-530-9028 internationally. About Neoware Recently ranked America's eighth fastest-growing company by Fortune Magazine, Neoware is a leading provider of software, services, and thin client appliances that make computing more open, secure, reliable, affordable and manageable. By leveraging open technologies and eliminating the obsolescence that is built into standard PC architectures, Neoware enables enterprises to leverage server-based computing to provide 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 and software 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 product and marketing initiatives; anticipated increased adoption of thin client computing by our customers; growth opportunities generated internally and through acquisitions in coming periods; the consummation of our acquisition of TeleVideo's thin client business and our belief that the technology to be acquired will broaden our product offerings and help us build sales; continued growth in revenues in calendar year 2005 and thereafter; revenue growth and gross profit margin targets and operating expense increases for the 2005 calendar year; and increased acceptance of thin client products in the market resulting in a gain in market share. 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 TeleVideo acquisition; our inability to achieve our expectations for the coming year; the timing and receipt of future orders; our timely development and customers' acceptance of our products, including our new products, Mangrove products and TeleVideo 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 dependence on our suppliers; increased competition; our continued ability to sell our products through IBM to its customers; our ability to attract and retain qualified personnel, including the former Mangrove employees; 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, 2004 and Form 10-Q for the quarter ended September 30, 2004. Neoware is a 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 (in thousands, except per share data) (Unaudited) ASSETS December 31, June 30, 2004 2004 Current assets: Cash and cash equivalents $36,286 $17,119 Short-term investments 16,226 38,177 Accounts receivable, net 13,322 10,580 Inventories 3,847 795 Prepaid expenses and other 1,578 1,628 Deferred income taxes 643 643 Total current assets 71,902 68,942 Property and equipment, net 445 509 Goodwill 20,177 17,466 Intangibles, net 4,656 3,545 Deferred income taxes 145 145 $97,325 $90,607 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $4,326 $5,685 Accrued compensation and benefits 1,792 1,534 Other accrued expenses 1,778 1,071 Income taxes payable 2,516 854 Deferred revenue 982 739 Total current liabilities 11,394 9,883 Deferred revenue 278 235 Total liabilities 11,672 10,118 Stockholders' equity: Preferred stock - - Common stock 16 16 Additional paid-in capital 72,574 71,718 Treasury stock, 100,000 shares at cost (100) (100) Accumulated other comprehensive income 1,791 936 Retained earnings 11,372 7,919 Total stockholders' equity 85,653 80,489 $97,325 $90,607 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 Net revenues $20,471 $15,322 $36,774 $30,336 Cost of revenues 11,726 7,684 20,938 14,733 Gross profit 8,745 7,638 15,836 15,603 Sales and marketing 3,178 3,377 6,281 6,342 Research and development 769 687 1,433 1,408 General and administrative 1,647 1,478 3,005 2,935 Operating expenses 5,594 5,542 10,719 10,685 Operating income 3,151 2,096 5,117 4,918 Foreign exchange loss (214) - (237) - Interest income, net 193 94 352 177 Income before income taxes 3,130 2,190 5,232 5,095 Income taxes 1,064 795 1,779 1,836 Net income $2,066 $1,395 $3,453 $3,259 Earnings per share: Basic $.13 $.09 $.22 $.21 Diluted $.13 $.09 $.21 $.20 Weighted average number of common shares outstanding: Basic 15,754 15,743 15,726 15,594 Diluted 16,188 16,285 16,111 16,282 NEOWARE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 Cash flows from operating activities: Net income $2,066 $1,395 $3,453 $3,259 Adjustments to reconcile net income to net cash provided by operating activities Income tax benefit, primarily from stock option exercises 101 - 121 1,618 Depreciation 66 64 130 136 Amortization of intangibles 376 317 647 503 Changes in operating assets and liabilities - net of effect from acquisition Accounts receivable (2,508) 422 (2,742) 1,819 Inventories (2,139) 823 (3,052) 33 Prepaid expenses and other (56) (152) 51 (107) Accounts payable 277 1,921 (1,359) (573) Accrued expenses 2,082 308 2,631 (421) Deferred revenue 338 48 285 186 Net cash provided by operating activities 603 5,146 165 6,453 Cash flows from investing activities: Purchase of Visara thin client business (24) - (3,799) - Purchase of the TeemTalk software business - (32) - (9,995) Purchase of short-term investments (2,333) (5,847) (20,233) (22,056) Sales of short-term investments 24,815 13,431 42,184 14,414 Purchase of intangible assets - - - (125) Purchases of property and equipment (47) (26) (66) (106) Net cash provided by (used in) investing activities 22,411 7,526 18,086 (17,868) Cash flows from financing activities: Repayments of capital leases (2) (1) (5) (3) Sale of common stock, net of expenses - - - 24,609 Expenses for prior issuance of common stock - (3) - (3) Exercise of stock options and warrants 666 92 735 830 Net cash provided by financing activities 664 88 730 25,433 Effect of foreign exchange rate changes on cash 135 (41) 186 (28) Increase in cash and cash equivalents 23,813 12,719 19,167 13,990 Cash and cash equivalents, beginning of period 12,473 27,285 17,119 26,014 Cash and cash equivalents, end of period $36,286 $40,004 $36,286 $40,004 Supplemental disclosures: Cash paid for income taxes $15 $- $46 $264 DATASOURCE: Neoware Systems, Inc. CONTACT: Investor Relations: Cameron Associates: Kevin McGrath, +1-212-245-8000 x 203, , for Neoware Systems; or Neoware Systems, Inc.: Keith Schneck, CFO, +1-610-277-8300, Web site: http://www.neoware.com/

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