QAD Announces Fiscal 2006 Third Quarter Financial Results
QAD Inc. (NASDAQ:QADI) today reported financial results for the fiscal 2006 third quarter and nine-month period ended October 31, 2005. Reported results are in line with the preliminary figures released earlier in the month.
For the fiscal 2006 third quarter, QAD posted total revenue of $51.4 million compared with $55.5 million in the same prior-year period. License revenue for the most recent quarter was $10.1 million versus $13.9 million last year. Maintenance and other revenue was $29.3 million compared with $28.3 million in the third quarter of last year. Services revenue was $12.0 million versus $13.2 million last year.
Net income for the fiscal 2006 third quarter was $2.7 million, equal to $0.08 per diluted share, compared with $3.1 million, equal to $0.09 per diluted share, in the comparable period last year. Net income in the most recent quarter includes a $0.5 million pre-tax benefit from an insurance settlement as well as a $0.4 million one-time tax benefit that when combined equate to $0.02 per diluted share, net of tax.
Gross margin for the most recent quarter and the same period last year was 59%. Total operating expenses were $27.5 million in the fiscal 2006 third quarter compared with $27.8 million in the comparable period last year.
“We experienced a shortfall in license revenue this quarter related to industry challenges in one of our core verticals, the automotive sector, coupled with slower decision cycles across all verticals,” said Karl Lopker, chief executive officer. “During the quarter, we continued to dedicate significant effort to revamping our EMEA operations with a new management and sales team that we anticipate will reinvigorate our operations in the region. Our efforts are focused on building our pipeline by further augmenting our sales team and effectively differentiating QAD’s expertise in the vertical markets we serve.”
QAD’s cash and equivalents balance at October 31, 2005 was $52.8 million. Cash flow provided by operations for the fiscal 2006 third quarter was $5.2 million.
For the nine-month period ended October 31, 2005, total revenue was $165.4 million compared with $170.5 million for the first nine months of fiscal 2005. Net income for the nine-month period was $9.0 million, equal to $0.27 per diluted share, compared with net income of $10.7 million for the first nine months of last year, equal to $0.30 per diluted share. Results for the nine-month periods include tax benefits of $0.8 million, or $0.02 per diluted share, in fiscal 2006 compared with $1.3 million, or $0.04 per diluted share, in fiscal 2005.
Recent Highlights
— In the fiscal 2006 third quarter, QAD received orders from 9
customers representing more than $500,000 each in combined
license, support and services billings, including 4 orders in
excess of $1 million;
— In the quarter, QAD sold licenses to global manufacturers in
its six vertical markets, including Atlas Copco, Bakery Chef,
Casco Products, David Yurman, Druck Holdings, Ford Motor
Company, Kleenmaid, Laerdal Medical, Moog, Vita-Tech
International and Yamaha Motor;
— QAD entered into a strategic partnership with Sterling
Commerce to offer customers an end-to-end solution for B2B
ecommerce including communications, translation, application
integration, business process management and business activity
management. The QAD Total eCommerce Solution leverages our
history of working with Sterling Commerce and continues our
commitment to resolving real-world manufacturing challenges
with expertise, products and services;
— QAD’s Explore EMEA User Conference, held from November 14-16
in Munich, Germany, hosted nearly 400 attendees representing
200 companies from 30 different countries. The forum enabled
customers to learn how colleagues are solving technical and
business issues, receive practical information to gain maximum
benefit from QAD solutions, interact on a one-to-one basis
with QAD solutions experts and attend a wide range of
practical learning sessions;
— QAD hosted its Greater China User Conference in Lijiang,
China, on November 7-8 where more than 350 attendees from the
manufacturing industries of Hong Kong, Macao and mainland
China gathered to discuss the status and future development of
China’s ERP market, as well as an outlook on manufacturing in
Asia;
— In early November, QAD hosted its Thailand User Day in
Bangkok, Thailand, with 380 attendees, including company and
industry experts focused on addressing users’ needs and ERP
deployment aspirations.
Business Outlook
QAD anticipates posting full-year fiscal 2006 revenue of between $220 million and $225 million and earnings in the range of $0.35 to $0.42 per diluted share, assuming an effective tax rate of 23%. The company noted that these projections are subject to various risks, including, among other factors, the environment for information technology investment and other global economic dynamics.
Investor Conference Call
QAD management will host an investor conference call today at 2:00 p.m. PST (5:00 p.m. EST) to review the company’s financial results and operations for the fiscal 2006 third quarter and nine-month period. The conference call will be webcast live and accessible on the investor relations section of QAD’s Web site at www.qad.com/company/ir, where it will be available for approximately one year.
About QAD Inc.
QAD is a leading provider of enterprise applications for global manufacturing companies. QAD applications provide critical functionality for managing manufacturing resources and operations within and beyond the enterprise, enabling global manufacturers to collaborate with their customers, suppliers and partners to make and deliver the right product, at the right cost and at the right time. Manufacturers of automotive, consumer products, electronics, food and beverage, industrial and life science products use QAD applications at approximately 5,300 licensed sites in more than 90 countries and in as many as 27 languages. For more information about QAD, telephone +1 805 684 6614, or visit the QAD Web site at: www.qad.com. “QAD” is a registered trademark of QAD Inc. All other products or company names herein may be trademarks of their respective owners.
Note to Investors: This press release contains certain forward-looking statements made under the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. A number of risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements. These risks include, but are not limited to, evolving demand for the company’s software products and products that operate with the company’s products; the company’s ability to sustain license and service demand; the company’s ability to leverage changes in technology; the company’s ability to sustain customer renewal rates at current levels; the publication of opinions by industry and financial analysts about the company, its products and technology; the reliability of estimates of transaction and integration costs and benefits; the entry of new competitors or new offerings by existing competitors and the associated announcement of new products and technological advances by them; delays in localizing the company’s products for new or existing markets; the ability to recruit and retain key personnel; delays in sales as a result of lengthy sales cycles; changes in operating expenses, pricing, timing of new product releases, the method of product distribution or product mix; general economic conditions; exchange rate fluctuations; and, the global political environment. In addition, revenue and earnings in the enterprise resource planning (ERP) software industry is subject to fluctuations. Software license revenue, in particular, is subject to variability with a significant proportion of revenue earned in the last month of each quarter. Given the high margins associated with license revenue, modest fluctuations can have a substantial impact on net income. Investors should not use any one quarter’s results as a benchmark for future performance. For a more detailed description of the risk factors associated with the company and the industries in which it operates, please refer to the company’s Annual Report on Form 10-K for fiscal 2005 ended January 31, 2005.
QAD Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended October 31, October 31, ————————————- 2005 2004 2005 2004 ——– ——– ——— ——— Revenue: License fees $10,066 $13,892 $40,233 $42,497 Maintenance and other 29,297 28,348 87,400 84,857 Services 12,049 13,213 37,805 43,126 ——– ——– ——— ——— Total revenue 51,412 55,453 165,438 170,480 Cost of revenue: Cost of license fees 1,604 2,212 5,852 6,059 Cost of maintenance, service and other revenue 19,425 20,274 60,093 62,673 ——– ——– ——— ——— Total cost of revenue 21,029 22,486 65,945 68,732 ——– ——– ——— ——— Gross profit 30,383 32,967 99,493 101,748 Operating expenses: Sales and marketing 13,818 12,879 45,636 42,973 Research and development 7,302 7,829 23,644 25,444 General and administrative 6,315 6,931 19,573 19,579 Amortization of intangibles from acquisitions 51 150 237 402 ——– ——– ——— ——— Total operating expenses 27,486 27,789 89,090 88,398 ——– ——– ——— ——— Operating income 2,897 5,178 10,403 13,350 Other (income) expense: Interest income (334) (193) (993) (518) Interest expense 336 564 1,240 1,315 Other (income) expense, net (350) 641 (1,345) 453 ——– ——– ——— ——— Total other (income) expense (348) 1,012 (1,098) 1,250 ——– ——– ——— ——— Income before income taxes 3,245 4,166 11,501 12,100 Income tax expense 557 1,050 2,463 1,425 ——– ——– ——— ——— Net income $2,688 $3,116 $9,038 $10,675 ======== ======== ========= ========= Basic net income per share $0.08 $0.09 $0.28 $0.31 Diluted net income per share $0.08 $0.09 $0.27 $0.30 Basic weighted shares 32,236 33,935 32,798 34,025 Diluted weighted shares 33,078 34,841 33,680 35,321 QAD Inc. Condensed Consolidated Balance Sheets (In thousands) October January 31, 31, 2005 2005 ———– ——— (unaudited) (audited) Assets Current assets: Cash and equivalents $52,797 $55,289 Marketable securities – 13,000 Accounts receivable, net 38,509 63,145 Other current assets 11,095 13,785 ———– ——— Total current assets 102,401 145,219 Property and equipment, net 40,956 39,701 Capitalized software costs, net 5,499 2,791 Goodwill 10,568 11,552 Other assets, net 8,490 7,830 ———– ——— Total assets $167,914 $207,093 =========== ========= Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $238 $1,725 Accounts payable and other current liabilities 37,507 45,130 Deferred revenue 54,440 70,805 ———– ——— Total current liabilities 92,185 117,660 Long-term debt 17,603 23,911 Other liabilities 1,501 1,485 Stockholders’ equity: Common stock 35 35 Additional paid-in capital 119,570 119,533 Treasury stock (21,507) (9,668) Accumulated deficit (34,288) (40,154) Unearned compensation – restricted stock (330) (440) Accumulated other comprehensive loss (6,855) (5,269) ———– ——— Total stockholders’ equity 56,625 64,037 ———– ——— Total liabilities and stockholders’ equity $167,914 $207,093 =========== ========= QAD Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) Nine Months Ended October 31, ——————– 2005 2004 ——— ———- Net cash provided by operating activities $18,029 $9,043 Cash flows from investing activities: Purchase of property and equipment (5,912) (9,042) Capitalized software costs (2,845) (787) Acquisitions of businesses, net of cash acquired – (766) Proceeds from sale of marketable securities 13,000 – Proceeds from sale of property and equipment 43 29 ——— ———- Net cash provided by (used in) investing activities 4,286 (10,566) Cash flows from financing activities: Proceeds from construction loan – 3,870 Repayment of construction loan – (14,338) Repayments of long-term debt (7,794) (1,189) Proceeds from issuance of common stock 2,236 2,520 Proceeds from notes payable, net of fees – 17,843 Repurchase of common stock (14,800) (5,581) Dividends paid (2,450) (4,277) ——— ———- Net cash used in financing activities (22,808) (1,152) Effect of exchange rates on cash and equivalents (1,999) 387 ——— ———- Net decrease in cash and equivalents (2,492) (2,288) Cash and equivalents at beginning of period 55,289 46,784 ——— ———- Cash and equivalents at end of period $52,797 $44,496 ========= ==========