QAD Reports Fiscal 2018 Fourth Quarter and Full Year Financial Results
QAD Reports Fiscal 2018 Fourth Quarter and Full Year Financial Results
--Subscription Revenue Increased 33 Percent for Full Year; Record Annual Revenue of $305 Million Achieved--
SANTA BARBARA, Calif., March 21, 2018 /PRNewswire/ -- QAD Inc. (Nasdaq: QADA) (Nasdaq: QADB), a leading provider of flexible, cloud-based enterprise software and services for global manufacturing companies, today reported financial results for the fiscal 2018 fourth quarter and full year ended January 31, 2018.
Fiscal 2018 Fourth Quarter Financial Highlights:
Total revenue for the fiscal 2018 fourth quarter increased 10 percent to $80.8 million, from $73.3 million for the fiscal 2017 fourth quarter. Subscription revenue for the fourth quarter represented 24 percent of total revenue and grew by 34 percent.
Additional fiscal 2018 fourth quarter financial highlights, versus the fiscal 2017 fourth quarter, include:
-- Subscription revenue of $19.7 million, compared with $14.7 million.
-- Subscription gross margin increased to 60 percent, compared with 53
percent.
-- License revenue of $7.2 million, compared with $8.9 million.
-- Professional services revenue of $22.1 million, compared with $17.9
million.
-- Maintenance and other revenue of $31.9 million, compared with $31.8
million.
-- GAAP pre-tax loss of $3 million, versus GAAP pre-tax income of $4.6
million. As previously disclosed, stronger than anticipated new cloud
business bookings in the fiscal 2018 fourth quarter resulted in higher
commissions and bonuses without the associated revenue, as the company
currently recognizes these expenses up front, while the revenue is
recognized ratably over the contract period.
-- Non-GAAP pre-tax loss of $927,000, versus non-GAAP pre-tax income of
$6.3 million.
-- GAAP net loss of $5.2 million, or $0.28 per Class A share and $0.23 per
Class B share, compared with a GAAP net loss of $15.2 million, or $0.82
per Class A share and $0.68 per Class B share. Fiscal 2018 included a
one-time tax expense of $2 million related to the U.S. Tax Cuts and Jobs
Act of 2017. Fiscal 2017 included placement of a valuation allowance of
$16.3 million against U.S. federal and state net deferred tax assets.
"We are continuing to successfully drive our cloud business, resulting in 33 percent subscription growth year-over-year," said Karl Lopker, Chief Executive Officer. "An ongoing strong global manufacturing environment, combined with the success of our Cloud offerings, sets the stage for continuing growth in the coming year."
Fiscal 2018 Full Year Results:
For fiscal 2018, total revenue grew 10 percent to $305 million, up from $278 million last year. Subscription revenue for the year grew 33% to $69.6 million from $52.2 million in the prior year. GAAP pre-tax loss was $4.2 million, versus GAAP pre-tax income of $3.8 million for fiscal 2017. GAAP net loss was $9.1 million, or $0.49 per Class A share and $0.41 per Class B share, for fiscal 2018, versus a GAAP net loss of $15.5 million, or $0.84 per Class A share and $0.70 per Class B share, last year. Non-GAAP pre-tax income was $5.2 million for fiscal 2018, compared with $12 million for fiscal 2017.
Income tax expense was $4.9 million in fiscal 2018 and incorporates the effects of the U.S. Tax Cuts and Jobs Act of 2017 enacted in December. This includes a one-time required transition tax on previously untaxed foreign earnings, partially offset by the re-measurement of deferred taxes using the new U.S. statutory tax rate. The company is currently evaluating the impact of the U.S. Tax Cuts and Jobs Act of 2017 on its anticipated results for fiscal 2019.
QAD's cash and equivalents balance was $147 million at January 31, 2018, up from $145.1 million one year ago. Cash provided by operations was $10.4 million for the fiscal 2018 full year, compared with $18.7 million for the fiscal 2017 full year.
Fiscal 2018 Fourth Quarter Operational Highlights:
-- Received orders from 49 customers representing more than $500,000 each
in combined license, subscription, maintenance and professional services
billings, including 20 orders exceeding $1 million;
-- Received license or cloud orders from companies across QAD's six
vertical markets, including: Adient Limited, CCL Industries Inc., Ceva
Santé Animale, Cultura Socultur SAS, Deerfield Imaging, Inc.,
Expanscience SA, Harada Industry Co. Ltd., Johnson Controls, Inc.,
Kinnerton Confectionery Co. Ltd., Lemo S.A., Mayne Pharma, Inc.,
Pentair, Rexel Group, Saint-Gobain SA, Solvay SA, Tsubaki Nakashima,
Visteon Corporation, Welbilt Inc., Whyte's Food Inc., and Yanfeng US
Automotive; and
-- Opened registration for QAD's 2018 Explore customer conference in Dallas
May 7-10 during which attendees will receive updates on key trends in
manufacturing, strategic developments in the industries QAD serves, and
information on new solution developments. The program will include more
than 75 speakers.
Business Outlook
For the fiscal 2019 first quarter, QAD expects:
-- Total revenue of approximately $80 million, including $20.5 to $21
million of subscription revenue.
-- GAAP pre-tax income of breakeven.
-- Non-GAAP pre-tax income of approximately $2 million.
For the fiscal 2019 full year, QAD expects:
-- Total revenue of $328 to $332 million, including $90 to $92 million of
subscription revenue.
-- GAAP pre-tax income of breakeven to $3 million.
-- Non-GAAP pre-tax income of $11 to $15 million.
The following is a forward-looking reconciliation of GAAP pre-tax income to non-GAAP pre-tax income for the fiscal 2019 first quarter and full year:
QAD Inc.
Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance Measures
(in thousands)
(unaudited)
Three Months Ended Twelve Months Ended
April 30, 2018 January 31, 2019
-------------- ----------------
Low High Low High
--- ---- --- ----
Non-GAAP pre-tax income reconciliation
GAAP (loss) income before income taxes $(250) $250 $ - $3,000
Add back
2,200 2,400 10,900 11,900
Stock-based compensation expense
- - - -
Change in fair value of interest rate swap
Non-GAAP income before income taxes $1,950 $2,650 $10,900 $14,900
------ ------ ------- -------
Cash taxes $650 $750 $2,600 $3,000
Weighted average basic shares outstanding
16,000 16,400 16,200 16,600
Class A
3,200 3,300 3,200 3,300
Class B
Weighted average diluted shares outstanding
17,800 18,200 17,900 18,300
Class A
3,400 3,500 3,400 3,500
Class B
Calculation of Earnings per Share (EPS)
EPS is reported based on the company's dual-class share structure, and includes a calculation for both Class A and Class B shares. Since Class A shares have rights to 120% of dividends paid on Class B shares, net income is apportioned so that earnings per share attributable to a Class A share are 120% of earnings per share attributable to a Class B share.
Fiscal 2018 Fourth Quarter Financial Results Conference Call
When: Wednesday, March 21, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9960 (international)
Replay: Accessible through midnight March 26, 2018; 800-475-6701(domestic); 320-365-3844 (international); passcode 443403
Webcast: Accessible at www.qad.com; archive available for approximately one year
Note about Non-GAAP Financial Measures
QAD has disclosed non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margins, non-GAAP pre-tax income and cash taxes in this press release for the fiscal 2018 fourth quarter and full year. These are non-GAAP financial measures as defined by SEC Regulation G. QAD defines the non-GAAP measures as follows:
-- Non-GAAP adjusted EBITDA - EBITDA is GAAP net income before net interest
expense, income tax expense, depreciation and amortization. Non-GAAP
adjusted EBITDA is EBITDA less stock-based compensation expense and the
change in the fair value of the interest rate swap.
-- Non-GAAP adjusted EBITDA margins - Calculated by dividing non-GAAP
adjusted EBITDA by total revenue.
-- Non-GAAP pre-tax income - GAAP income before income taxes not including
the effects of stock-based compensation expense, amortization of
purchased intangible assets and the change in fair value of the interest
rate swap.
-- Cash taxes - Cash taxes are defined as GAAP total tax expense excluding
changes in reserves for unrecognized tax benefits.
QAD's management uses non-GAAP measures internally to evaluate the business and believes that presenting non-GAAP measures provides useful information to investors regarding the company's underlying business trends and performance of the company's ongoing operations as well as useful metrics for monitoring the company's performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the company's consolidated financial statements in their entirety and to not rely on any single financial measure in evaluating the company.
Tables providing a reconciliation of the non-GAAP measures to their most comparable GAAP measures are included at the end of this press release.
QAD non-GAAP measures reflect adjustments based on the following items:
Stock-based compensation expense: The company has excluded the effect of stock-based compensation expense from its non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by QAD, and therefore is not used by the company to assess the profitability of its operations. The company also believes the exclusion of stock-based compensation expense provides a more useful comparison of its operating results to the operating results of its peers.
Amortization of purchased intangible assets: The company amortizes purchased intangible assets in connection with its acquisitions. QAD has excluded the effect of amortization of purchased intangible assets, which include purchased technology, customer relationships, trade names and other intangible assets, from its non-GAAP pre-tax income calculation, because doing so makes internal comparisons to the company's historical operating results more consistent. In addition, the company believes excluding amortization of purchased intangible assets provides a more useful comparison of its operating results to the operating results of its peers.
Change in fair value of the interest rate swap: The company entered into an interest rate swap to mitigate its exposure to the variability of one-month LIBOR for its floating rate debt related to the mortgage of its headquarters. QAD has excluded the gain/loss adjustments to record the interest rate swap at fair value from its non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. The company believes that these fluctuations are not indicative of its operational costs or meaningful in evaluating comparative period results because the company currently has no intention of exiting the debt agreement early; and therefore over the life of the debt the sum of the fair value adjustments will be $0.
About QAD - The Effective Enterprise
QAD Inc. (Nasdaq: QADA) (Nasdaq: QADB) is a leading provider of flexible, cloud-based enterprise software and services for global manufacturing companies. QAD Cloud ERP for manufacturing supports operational requirements in the areas of financials, customer management, supply chain, manufacturing, service and support, analytics, business process management and integration. QAD's portfolio includes related solutions for quality management software, supply chain management software, transportation management software and B2B interoperability. Since 1979, QAD solutions have enabled customers in the automotive, consumer products, food and beverage, high tech, industrial manufacturing and life sciences industries to better align operations with their strategic goals to become Effective Enterprises.
To learn more, visit www.qad.com or call +1 805-566-6000.
"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, including, but not limited to, statements regarding projections of revenue, income and loss, capital expenditures, plans and objectives of management regarding the company's business, future economic performance or any of the assumptions underlying or relating to any of the foregoing. Forward-looking statements are based on the company's current expectations. Words such as "expects," "believes," "anticipates," "could," "will likely result," "estimates," "intends," "may," "projects," "should," "would," "might," "plan" and variations of these words and similar expressions are intended to identify these forward-looking statements. 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: risks associated with our cloud service offerings, such as defects and disruptions in our services, our ability to properly manage our cloud service offerings, our reliance on third-party hosting and other service providers, and our exposure to liability and loss from security breaches; demand for the company's products, including cloud service, licenses, services and maintenance; pressure to make concessions on our pricing and changes in our pricing models; protection of our intellectual property; dependence on third-party suppliers and other third-party relationships, such as sales, services and marketing channels; changes in our revenue, earnings, operating expenses and margins; the reliability of our financial forecasts and estimates of the costs and benefits of transactions; the ability to leverage changes in technology; defects in our software products and services; third party opinions about the company; competition in our industry; the ability to recruit and retain key personnel; delays in sales; timely and effective integration of newly acquired businesses; economic conditions in our vertical markets and worldwide; exchange rate fluctuations; and the global political environment. For a more detailed description of the risk factors associated with the company and factors that may affect our forward-looking statements, please refer to the company's latest Annual Report on Form 10-K and, in particular, the section entitled "Risk Factors" therein, and in other periodic reports the company files with the Securities and Exchange Commission thereafter. Management does not undertake to update these forward-looking statements except as required by law.
For More Information, Contact:
Kara Bellamy Laurie Berman
Chief Accounting Officer PondelWilkinson Inc.
805.566.6100 310.279.5980
investor@qad.com lberman@pondel.com
(financial tables follow)
QAD Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
January 31, January 31,
----------- -----------
2018 2017 2018 2017
---- ---- ---- ----
Revenue:
Subscription $19,662 $14,680 $69,615 $52,167
License 7,171 8,947 25,807 23,633
Maintenance
and other 31,858 31,752 128,142 130,406
Professional
services 22,062 17,885 81,454 71,767
80,753 73,264 305,018 277,973
Total revenue
Cost of revenue:
Subscription 7,810 6,942 30,563 27,027
License 743 918 2,946 2,990
Maintenance
and other 7,872 7,526 31,246 30,517
Professional
services 23,394 17,466 84,670 70,317
39,819 32,852 149,425 130,851
Total cost of
revenue
Gross profit 40,934 40,412 155,593 147,122
------ ------ ------- -------
Operating expenses:
Sales and
marketing 22,387 17,650 75,368 67,194
Research and
development 12,329 10,568 47,661 43,587
General and
administrative 8,849 7,895 35,222 32,318
Amortization
of
intangibles
from
acquisitions 57 163 416 659
43,622 36,276 158,667 143,758
Total
operating
expenses
Operating (loss) income (2,688) 4,136 (3,074) 3,364
------ ----- ------ -----
Other (income) expense:
Interest
income (446) (181) (1,547) (696)
Interest
expense 161 167 669 670
Other (income)
expense, net 613 (460) 2,012 (436)
328 (474) 1,134 (462)
Total other
(income)
expense, net
(Loss) income before income taxes (3,016) 4,610 (4,208) 3,826
Income tax
expense 2,156 19,769 4,857 19,276
Net loss $(5,172) $(15,159) $(9,065) $(15,450)
======= ======== ======= ========
Diluted net loss per share
Class A $(0.28) $(0.82) $(0.49) $(0.84)
Class B $(0.23) $(0.68) $(0.41) $(0.70)
Diluted Weighted Shares
Class A 16,029 15,797 15,942 15,715
Class B 3,217 3,208 3,213 3,206
QAD Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
January 31, January 31,
2018 2017
---- ----
Assets
Current assets:
Cash and
equivalents $147,023 $145,082
Accounts
receivable,
net 83,518 69,441
Other current
assets 15,856 15,351
246,397 229,874
Total current
assets
Property and equipment, net 30,408 30,872
Capitalized software costs, net 990 732
Goodwill 11,023 10,558
Long-term deferred tax assets, net 7,944 6,166
Other assets, net 3,055 2,688
----- -----
Total
assets $299,817 $280,890
Liabilities and stockholders' equity
Current liabilities:
Current portion
of long-term
debt $466 $446
Accounts
payable and
other current
liabilities 58,278 44,952
Deferred
revenue 116,693 104,125
175,437 149,523
Total current
liabilities
Long-term debt 13,313 13,767
Other liabilities 5,439 4,914
Stockholders' equity:
Common
stock 20 20
Additional
paid-in
capital 200,456 197,594
Treasury
stock (12,461) (15,170)
Accumulated
deficit (75,559) (61,127)
Accumulated
other
comprehensive
loss (6,828) (8,631)
105,628 112,686
Total
stockholders'
equity
Total
liabilities
and
stockholders'
equity $299,817 $280,890
==========
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Twelve Months Ended
January 31,
-----------
2018 2017
---- ----
Net cash provided by
operating activities $10,418 $18,680
------- -------
Cash flows from investing
activities:
Purchase of property and
equipment (3,650) (3,260)
Capitalized software costs (1,019) (146)
Net cash used in investing
activities (4,669) (3,406)
------ ------
Cash flows from financing
activities:
Repayments of debt (445) (434)
Tax payments related to stock
awards (3,353) (2,079)
Cash dividends paid (5,367) (5,301)
Net cash used in financing
activities (9,165) (7,814)
------ ------
Effect of exchange rates on cash
and equivalents 5,357 (109)
----- ----
Net decrease in cash and
equivalents 1,941 7,351
Cash and equivalents at
beginning of period 145,082 137,731
Cash and equivalents at end of
period $147,023 $145,082
===
QAD Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands)
(unaudited)
Three Months Ended Twelve Months Ended
January 31, January 31,
----------- -----------
2018 2017 2018 2017
---- ---- ---- ----
Total revenue $80,753 $73,264 $305,018 $277,973
Net loss (5,172) (15,159) (9,065) (15,450)
Add back:
Net interest
income (285) (14) (878) (26)
Depreciation 1,166 1,090 4,562 4,326
Amortization 202 423 1,199 1,710
Income tax
expense 2,156 19,769 4,857 19,276
EBITDA $(1,933) $6,109 $675 $9,836
------- ------ ---- ------
Add back:
Stock-based
compensation
expense 2,253 1,802 8,924 7,323
Change in fair
value of
interest rate
swap (274) (454) (377) (485)
Adjusted EBITDA $46 $7,457 $9,222 $16,674
--- ------ ------ -------
Adjusted EBITDA margin 0% 10% 3% 6%
Non-GAAP pre-tax income reconciliation
(Loss) income before income taxes $(3,016) $4,610 $(4,208) $3,826
Add back
Stock-based
compensation
expense 2,253 1,802 8,924 7,323
Amortization
of purchased
intangible
assets 110 342 842 1,377
Change in fair
value of
interest rate
swap (274) (454) (377) (485)
Non-GAAP (loss) income before income
taxes $(927) $6,300 $5,181 $12,041
----- ------ ------ -------
Cash taxes $71 $1,171 $2,812 $2,688
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SOURCE QAD Inc.
