Press Release
Source: Neoware Systems, Inc.
Neoware Reports Fiscal 2003 and Fourth Quarter Revenue and Earnings
Thursday August 21, 4:31 pm ET
Revenues, Gross Margins and Earnings Hit New Records Driven by Increasing Market
Acceptance of Neoware's Thin Client Appliances and Software
KING OF PRUSSIA, Pa., Aug. 21 /PRNewswire-FirstCall/ -- Neoware Systems, Inc.
(Nasdaq: NWRE - News), the leading supplier of award-winning software, services, and
managed thin client appliances, today reported record financial results for its fiscal year
and fourth quarter ended June 30, 2003.
FINANCIAL HIGHLIGHTS
For the fiscal year ended June 30, 2003:
-- Revenues increased 68% to a record $57,522,240 from $34,309,667 in
the prior year.
-- Operating income increased 230% to $9,839,284 from $2,982,275, and
represented 17% of revenue, up from 9% of revenue in the prior year.
-- Net income tripled to $6,311,757, or $.43 per diluted share, compared
to a pro-forma net income of $2,098,125, or $.18 per diluted share in
the prior year. GAAP net income in the prior year was $4,625,048, or
$.39 per diluted share. The pro-forma, or non-GAAP, net income for
the prior year assumes an effective tax rate of 36% and removes the
income tax benefit of $1,346,728 that resulted from the reversal of a
previously recorded reserve against deferred income tax assets.
For the quarter ended June 30, 2003:
-- Revenues increased 12% to a record $15,823,667 from $14,081,225 in
the prior year quarter. The quarter ended June 30, 2002 was the
first full quarter following the NCD ThinSTAR acquisition, which
occurred in March 2002.
-- Operating income increased 56% to $2,597,838 from $1,662,722, and
represented 16% of revenues, up from 12% of revenues in the prior
year quarter.
-- Net income increased 56% to $1,700,218, or $.12 per diluted share,
compared to a pro-forma net income of $1,089,933, or $.08 per diluted
share a year ago. GAAP net income in the prior year quarter was
$3,049,749, or $.23 per diluted share. The pro-forma, or non-GAAP,
net income for the prior year assumes an effective tax rate of 36%
and removes the income tax benefit of $1,346,728 that resulted from
the reversal of a reserve against deferred income tax assets.
-- Gross margin increased to a record 47% from 40% in the prior year
quarter. Gross margin increased as a result of lower product costs on
higher revenues, as well as a favorable product mix including
increased revenues from software sales.
"This was the strongest year and the strongest quarter yet for Neoware, with record
revenues, gross margins, cash flow, and earnings," stated Michael Kantrowitz, Neoware's
Chairman and CEO. "Our alliance with IBM is delivering very positive results, as sales
through IBM - particularly to large enterprise customers - were significantly higher than in
previous quarters, and our pipeline of opportunities with IBM continues to grow."
"During this year we established our Company as a leader in the thin client appliance
market. We are investing significantly in our business, and have increased operating
expenses in all areas over this past year to position ourselves for the upturn that we
believe is occurring in our market. Importantly, even as we have done this, we improved
our financial results significantly by effectively managing our business and our growth."
"Neoware is very well positioned to continue to grow, both organically and through
carefully targeted acquisitions. We have a robust and growing market, a strong
competitive position, a proven business model, positive cash flow from operations, and a
current cash balance of more than $42 million. We have successfully integrated four
acquisitions, we developed a strategic alliance with IBM that is delivering results, and we
recently filed a registration statement that would allow us to raise up to $100 million in
additional capital to fund potential acquisitions," Mr. Kantrowitz continued.
ADDITIONAL FINANCIAL HIGHLIGHTS
-- Cash flow from operations for the year ended June 30, 2003 was
$10,154,933 compared to cash used by operations of $843,661 in the
prior year.
-- Cash increased to $29,164,875 at June 30, 2003 from $17,031,422 at
June 30, 2002, primarily as a result of positive cash flow from
operations and the fact that limited federal income taxes were
payable as a result of tax loss carryforwards and current deductions
from the exercise of options by employees. As a result of the net
effect of the acquisition of the TeemTalk software business from
Pericom Software and a private placement of our common stock, both of
which occurred in July 2003, the Company's current cash balance is in
excess of $42 million.
-- Inventory on hand was $772,494, or 8 days at June 30, 2003, down from
$1,040,851, or 11 days, in the prior year as a result of the supply
chain efficiencies of the Company's software-focused business model.
CUSTOMER HIGHLIGHTS
-- Selected customers in the quarter included 1-800-Flowers, Air New
Zealand, Ardent Health Services, Autozone, Comcast Cable, Cook County
Courts, Discount Tire, IKEA, Keystone Automotive, Kroger, Lee
Memorial Health, Missouri Department of Corrections, National City
Mortgage, Panasonic, Safeway, Sears, Target Corporation, T.J. Maxx
Stores, Widener University, VA Medical Centers, and Verizon.
"Looking forward, we project continued top line growth, driven by the robust growth that is
projected in the thin client market by IDC, as well as our leadership position in the market.
For our targeted customers, Neoware's products save money, increase desktop security,
improve reliability, and reduce management difficulties associated with large networks of
personal computers. These benefits are driving the growth we're seeing," Mr. Kantrowitz
continued.
"We further expect our financial results to benefit from Neoware's new ThinPC and
TeemTalk software, which provide our customers many of the benefits of thin client
technology without replacing their existing personal computers. These new software
products have lower up-front costs for our customers with higher gross margins than our
traditional thin client products, and they allow us to pursue a significant new market
opportunity."
Investor's Business Daily
Neoware CEO Uses Buys To Fatten His Firm's Thin-Client Business
Thursday August 21, 10:33 am ET
By Marilyn Much
It's been less than two months since Neoware Systems Inc. (NasdaqNM:NWRE
- News) made its last buy, and Chief Executive Michael Kantrowitz is already on
the prowl for another.
Neoware makes thin-client
computer systems for
businesses. Thin-client systems
are desktop computing devices
that connect directly to a server,
rather than operate with their own
hard drives.
The gear performs the same
functions as client/server personal
computer setups such as
Windows applications and
Internet access. But it costs less,
requires less maintenance and
includes more security.
Neoware has made four acquisitions since June 2001. Its latest came on July 1,
when it paid $9.8 million cash for Pericom Holdings PLC. Pericom provides
software that lets a thin-client device connect to older computers. In the past,
Neoware licensed Pericom's software.
Kantrowitz eyes more buys as he moves to build Neoware's position in its field.
The King of Prussia, Pa.-based firm targets businesses, such as call centers,
with thousands of remote locales and a large number of users to do various
tasks.
Neoware fared well even during the tech downturn, when companies cut back on
tech spending. It turned its first profit in fiscal 2002, earning 28 cents a share.
Analysts polled by First Call expect earnings to come in at 44 cents a share for
fiscal 2003, which ended in June.
Those results are partly due to a marketing alliance that Neoware struck with
IBM Corp. in January 2002. The deal names Neoware the preferred provider of
thin-client appliance products to IBM and its customers.
As part of the deal, Neoware has licensed IBM's technology to develop the next
generation of thin-client appliance products.
Kantrowitz recently spoke with IBD to discuss that relationship and other recent
events.
IBD: What does the Pericom acquisition bring to the table?
Kantrowitz: This was a very important acquisition. This is the software that lets a
thin-client device replace a green-screen terminal like you see in airline
reservation systems.
With Pericom software, our thin-client systems can directly connect to
mainframes and replace that green-screen terminal. It also lets the user connect
to the (Internet) or run e-mail or a Windows application, which they can't do on a
green-screen terminal.
IBD: What's the market potential for Pericom's software?
Kantrowitz: We figure there are from 30 million to 50 million green-screen
terminals installed around the world, and none of those can connect to the Net
and run a Windows application.
Pericom makes the most popular software of its type in the thin-client market. It's
installed in about 85% of almost all the thin-client devices shipped. This
purchase gives us ownership and control of that software.
The revenue potential is significant. Pericom software also runs on companies'
PCs. So we can now offer our customer the terminal emulation software they
can use on their PCs.
Pericom gives us another very high-margin revenue stream. This software has a
90% plus gross margin. We can leverage (it) to provide better and more
complete solutions to our customers.
IBD: What's your acquisition strategy?
Kantrowitz: We have $45 million in cash and no debt. Our business is growing,
and we don't have capital expenditures. So we have the capital to make
additional acquisitions.
The current leader is (privately held) Wyse Technology. We want to do
acquisitions that build our leadership in the thin-client terminal market and give
us new technology to sell to the same customers through the same channels as
part of the same sale.
We're always looking at acquisitions. In July, we raised $26 million through a
private placement (so we'd) have cash to do additional acquisitions.
We've integrated (buys) efficiently. We purchased the assets and no liabilities.
There have been no restructurings or layoffs as a result.
We didn't acquire revenue streams, but interesting . . . products and new
technology to let us sell more of our products to customers.
IBD: Tell me more about the IBM alliance and how it's enhanced your business.
Kantrowitz: IBM sells our products to its customers. Our revenue with IBM has
grown significantly, and it's made a significant contribution to the growth and
success of our company.
We preannounced that our revenue for the fourth quarter will be more than $1
million higher than (our) previous $15.3 million projection.
IBM has good relationships with all the major enterprises we're targeting. The
alliance provides us access to larger customers and transactions than before.
For instance, (in July) Federated Department Stores Inc. said it's rolling out our
thin-client (devices). That business was brought to us from IBM.
Before the IBM alliance, the size of the average transaction was about 500
thin-client devices. Now they're much larger: between 1,000 (and) 2,000 or
more.
IBD: What's your growth strategy?
Kantrowitz: Our growth is mostly . . . organic, (though) we have significant
revenue (opportunities)from acquisitions. We believe we can develop new
revenue streams with Pericom's intellectual (property).
We're investing in (research and development). We just introduced a product
called the ThinPC. This is software that lets customers (extend) the benefit of
thin-client computing to existing PCs. Companies can . . . turn their older PCs
into thin-client (devices) without replacing the hardware.
(As a result), it lowers the cost of buying thin-client (systems). Since we
introduced it in June the initial response has been very strong, and we believe
over time . . . it will be a strong contributor.
IBD: What's the climate for your business?
Kantrowitz: Tech spending has been down, but companies are still spending
money.
Our message is we can save companies money upfront in total cost of
ownership and in administration expenses and ongoing capital expenditures.
Thin-client alliances also offer increased security and let companies do more
with lower budgets. The fact that companies are constrained in IT spending is
making them look more at thin-client computers and consider them as an
alternative to PCs.
We see more tech companies reporting the climate is getting better.
We believe there will be a resurgence in IT spending in this year's second half
and into 2004.
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