QAD Reports Fiscal 2019 Second Quarter and Year-To-Date Financial Results
SANTA BARBARA, Calif., Aug. 22, 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 2019 second quarter and first six months ended July 31, 2018.
Fiscal 2019 Second Quarter Financial Highlights:
Total revenue for the fiscal 2019 second quarter increased 11 percent to $84.5 million, from $76 million for the fiscal 2018 second quarter. Subscription revenue, which grew 29 percent year-over-year, was 27 percent of total revenue for the second quarter of fiscal 2019, a two-percentage point improvement over the first quarter of fiscal 2019.
Additional fiscal 2019 second quarter financial highlights, versus the fiscal 2018 second quarter, include:
-- Subscription revenue of $22.4 million, compared with $17.4 million.
-- Subscription gross margin of 63 percent, versus 57 percent.
-- License revenue of $5.6 million, compared with $6.7 million.
-- Professional services revenue of $26 million, versus $19.8 million.
-- Maintenance and other revenue of $30.6 million, compared with $32
million.
-- GAAP pre-tax income of $2.6 million, versus a GAAP pre-tax loss of
$329,000.
-- Non-GAAP pre-tax income of $5.9 million, compared with $2.5 million.
-- GAAP net income of $1.1 million, or $0.05 per diluted Class A share and
$0.05 per diluted Class B share, versus a GAAP net loss of $1.2 million,
or $0.06 per Class A share and $0.05 per Class B share.
"We continued to generate robust cloud growth and margin improvement during the first half of the year," said Pam Lopker, President of QAD. "Looking ahead, our proven ability to deliver customer success provides a firm foundation for QAD's future growth."
For the first six months of fiscal 2019, total revenue increased to $170.7 million from $147.3 million for the first six months of last year. Subscription revenue grew 34% to $44.0 million for the first six months of fiscal 2019 compared to $32.8 million in the prior year period. GAAP net income was $2.5 million, or $0.12 per diluted Class A share and $0.11 per diluted Class B share, for the fiscal 2019 year-to-date period, versus a GAAP net loss of $3.7 million, or $0.20 per Class A share and $0.17 per Class B share, for the same period last year. Non-GAAP pre-tax income was $10.5 million for the fiscal 2019 year-to-date period, compared with $2.7 million for the same period last year.
QAD's cash and equivalents balance was $139.5 million at July 31, 2018, versus $147 million at January 31, 2018. Cash provided by operations was $9.1 million for the first six months of fiscal 2019, compared with $7.6 million for the first six months of fiscal 2018.
Fiscal 2019 Second Quarter Operational Highlights:
-- Received orders from 20 customers representing more than $500,000 each
in combined license, subscription, maintenance and professional services
billings, including seven orders exceeding $1 million;
-- Received license or cloud orders from companies across QAD's six
vertical markets, including: Adient Limited, Amcor Ltd., ARC France SAS,
Argon Medical Devices, Caterpillar Inc., CoorsTek, Inc., Essilor
International, GKN Plc, Harada Industry Co. Ltd., Haulotte Groupe SA,
Irvin Automotive Products, Koninklijke A-ware Food Group B.V., and
Visteon Corporation;
-- Inbound Logistics named Precision Software, QAD's global trade
management and transportation execution solution division, as a Top 100
Logistics IT Provider for 2018;
-- Received Frost & Sullivan's 2018 Customer Value Leadership Award for the
Automotive Industry; and
-- Subsequent to the end of the quarter, announced the opening of an
Indonesian subsidiary, and that it will acquire the assets of long-term
QAD distributor, PT Iris, a 40-person business consulting group
supporting local and multinational companies in Indonesia and the ASEAN
region. Terms of the transaction were not disclosed, and QAD does not
expect a material impact to fiscal 2019 operating results.
QAD Adds Leslie J. Stretch to Board of Directors
QAD also today announced that Leslie Stretch has rejoined QAD's Board of Directors. Stretch previously served on QAD's Board from June 2014 to February 2018.
"I am excited to be able to rejoin QAD's Board, and I believe the company is uniquely positioned to continue growing its cloud business by delivering best-in-class solutions to global manufacturing companies," said Stretch.
Stretch, 57, was recently appointed President and CEO of Medallia, a leading customer experience management cloud company. Previously, Stretch was President and CEO of CallidusCloud, leading the transition from an on-premises vendor to the cloud that delivered strong returns for shareholders. Prior to joining Callidus, Stretch worked for Sun Microsystems for nearly a decade. At Sun, he held the position of senior vice president of global channel sales, and was the managing director of Sun Microsystems U.K. Ltd. Before joining Sun, Stretch held various sales positions at Oracle Corporation.
"We are very pleased to have Leslie rejoin our Board. Leslie's knowledge and experience delivering cloud solutions in the enterprise software space is a perfect fit for us. Leslie will be able to add value immediately as he is already very familiar with our business," said Pam Lopker.
QAD's board now totals six members, four of whom are independent directors. Stretch will also be appointed to QAD's Audit and Governance Committees.
Business Outlook
For the fiscal 2019 third quarter, QAD expects:
-- Total revenue of approximately $80 to $82 million, including
approximately $22.9 to $23.4 million of subscription revenue;
-- GAAP pretax income of approximately breakeven; and
-- Non-GAAP pretax income of approximately $2.5 to $3.7 million.
QAD raised fiscal 2019 full year guidance and now expects:
-- Total revenue of approximately $332 to $336 million, including
approximately $91 to $93 million of subscription revenue;
-- GAAP pretax income of approximately $5 to $7 million; and
-- Non-GAAP pretax income of approximately $16 to $19 million.
The following is a forward-looking reconciliation of GAAP pre-tax income to non-GAAP pre-tax income for the fiscal 2019 third 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
October 31, 2018 January 31, 2019
---------------- ----------------
Low High Low High
--- ---- --- ----
Non-GAAP pre-tax income
reconciliation
GAAP (loss) income before
income taxes $(500) $500 $5,000 $7,000
Add back
Stock-based compensation expense 3,000 3,200 11,000 12,000
Change in fair value of interest
rate swap - - - -
Non-GAAP income before
income taxes $2,500 $3,700 $16,000 $19,000
------ ------ ------- -------
Estimated income tax (benefit)
expense on GAAP earnings (250) $250 $3,200 $3,700
---- ---- ------ ------
Weighted average basic shares
outstanding
Class A 16,300 16,600 16,200 16,600
Class B 3,200 3,300 3,200 3,300
Weighted average diluted shares
outstanding
Class A 17,900 18,200 17,900 18,300
Class B 3,400 3,500 3,400 3,500
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 2019 Second Quarter Financial Results Conference Call
When: Wednesday, August 22, 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 August 29, 2018; 800-475-6701(domestic); 320-365-3844 (international); passcode 451877
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 estimated income tax expense on GAAP earnings in this press release for the second quarter and first six months of fiscal 2019. 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.
-- Estimated income tax expense on GAAP earnings - 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 and global trade 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 and Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
-------- --------
2018 2017 2018 2017
---- ---- ---- ----
Revenue:
Subscription $22,439 $17,420 $43,950 $32,763
License 5,561 6,743 11,827 12,008
Maintenance and other 30,574 31,971 62,057 63,877
Professional services 25,969 19,824 52,899 38,692
Total revenue 84,543 75,958 170,733 147,340
Cost of revenue:
Subscription 8,334 7,428 16,562 15,148
License 574 828 1,238 1,513
Maintenance and other 7,774 7,840 15,639 15,534
Professional services 23,754 20,598 48,064 39,365
Total cost of revenue 40,436 36,694 81,503 71,560
------ ------ ------ ------
Gross profit 44,107 39,264 89,230 75,780
------ ------ ------ ------
Operating expenses:
Sales and marketing 19,502 17,697 39,448 35,284
Research and
development 13,513 11,689 27,519 23,221
General and
administrative 9,366 9,224 18,728 17,817
Amortization of
intangibles from
acquisitions - 111 - 274
Total operating expenses 42,381 38,721 85,695 76,596
------ ------ ------ ------
Operating income (loss) 1,726 543 3,535 (816)
----- --- ----- ----
Other (income) expense:
Interest income (743) (493) (1,267) (661)
Interest expense 154 157 311 313
Other (income) expense,
net (269) 1,208 (673) 1,812
Total other (income) expense, net (858) 872 (1,629) 1,464
---- --- ------ -----
Income (loss) before income taxes 2,584 (329) 5,164 (2,280)
Income tax expense 1,471 832 2,654 1,452
Net income (loss) $1,113 $(1,161) $2,510 $(3,732)
====== ======= ====== =======
Net income (loss) $1,113 $(1,161) $2,510 $(3,732)
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments (326) 1,132 (836) 1,772
Total comprehensive income (loss) $787 $(29) 1,674 (1,960)
==== ==== ===== ======
Diluted income (loss) per share
Class A $0.05 $(0.06) $0.12 $(0.20)
Class B $0.05 $(0.05) $0.11 $(0.17)
Diluted Weighted Shares
Class A 17,927 15,914 17,886 15,863
Class B 3,434 3,212 3,425 3,211
QAD Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
July 31, January 31,
2018 2018
---- ----
Assets
Current assets:
Cash and equivalents $139,528 $147,023
Accounts receivable, net 54,258 83,518
Other current assets 21,116 15,856
Total current assets 214,902 246,397
Property and equipment, net 29,741 30,408
Capitalized software costs, net 1,405 990
Goodwill 11,095 11,023
Long-term deferred tax assets, net 11,869 7,944
Other assets, net 10,931 3,055
------ -----
Total assets $279,943 $299,817
==========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $476 $466
Accounts payable and other current
liabilities 46,664 58,278
Deferred revenue 91,195 116,693
Total current liabilities 138,335 175,437
Long-term debt 13,075 13,313
Other liabilities 4,943 5,439
Stockholders' equity:
Common stock 20 20
Additional paid-in capital 192,421 200,456
Treasury stock (7,532) (12,461)
Accumulated deficit (53,655) (75,559)
Accumulated other comprehensive loss (7,664) (6,828)
Total stockholders' equity 123,590 105,628
------- -------
Total liabilities and stockholders'
equity $279,943 $299,817
==========
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
July 31,
--------
2018 2017
---- ----
Net cash provided by operating activities $9,146 $7,638
------ ------
Cash flows from investing activities:
Purchase of property and equipment (2,004) (1,571)
Acquisition of businesses, net of cash acquired (450) -
Capitalized software costs (536) (480)
Net cash used in investing activities (2,990) (2,051)
------ ------
Cash flows from financing activities:
Repayments of debt (234) (222)
Tax payments related to stock awards (8,576) (2,781)
Cash dividends paid (2,731) (2,675)
Net cash used in financing activities (11,541) (5,678)
------- ------
Effect of exchange rates on cash and equivalents (2,110) 4,211
------ -----
Net (decrease) increase in cash and equivalents (7,495) 4,120
Cash and equivalents at beginning of period 147,023 145,082
Cash and equivalents at end of period $139,528 $149,202
===
QAD Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
-------- --------
2018 2017 2018 2017
---- ---- ---- ----
Total revenue $84,543 $75,958 $170,733 $147,340
Net income (loss) 1,113 (1,161) 2,510 (3,732)
Add back:
Net interest income (589) (336) (956) (348)
Depreciation 1,188 1,139 2,388 2,243
Amortization 146 307 305 723
Income tax expense 1,471 832 2,654 1,452
EBITDA $3,329 $781 $6,901 $338
------ ---- ------ ----
Add back:
Stock-based compensation expense 3,364 2,592 5,470 4,360
Change in fair value of interest
rate swap (35) 16 (152) 3
Adjusted EBITDA $6,658 $3,389 $12,219 $4,701
------ ------ ------- ------
Adjusted EBITDA margin 8% 4% 7% 3%
Non-GAAP pre-tax income reconciliation
Income (loss) before income
taxes $2,584 $(329) $5,164 $(2,280)
Add back
Stock-based compensation expense 3,364 2,592 5,470 4,360
Amortization of purchased
intangible assets - 225 - 567
Change in fair value of interest
rate swap (35) 16 (152) 3
Non-GAAP income before income
taxes $5,913 $2,504 $10,482 $2,650
------ ------ ------- ------
Estimated income tax expense
on GAAP earnings $1,622 $849 $2,734 $1,497
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SOURCE QAD Inc.
