QAD Reports Fiscal 2019 Third Quarter and Year-To-Date Financial Results
SANTA BARBARA, Calif., Nov. 20, 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 third quarter and first nine months ended October 31, 2018.
Fiscal 2019 Third Quarter Financial Highlights:
Total revenue for the fiscal 2019 third quarter grew to $79.6 million, from $77 million for the fiscal 2018 third quarter. Currency had a negative $1.4 million impact on total revenue. Subscription revenue increased 39 percent year-over-year, and represented 30 percent of total revenue for the third quarter of fiscal 2019, an eight-percentage point improvement over the prior-year third quarter.
Additional fiscal 2019 third quarter financial highlights, versus the comparable period last year, include:
-- Subscription revenue of $23.9 million, compared with $17.2 million.
Currency had a $252,000 negative impact.
-- Subscription gross margin of 64 percent, versus 56 percent.
-- License revenue of $4.6 million, compared with $6.6 million. The
currency impact was not meaningful.
-- Professional services revenue remained constant at $20.7 million.
Currency had a $492,000 negative impact.
-- Maintenance and other revenue of $30.4 million, compared with $32.4
million. Currency had a $550,000 negative impact.
-- GAAP pre-tax income of $3.6 million, versus $1.1 million. GAAP pre-tax
income was higher than the company's prior guidance as a result of
improved subscription margins and lower personnel expenses.
-- Non-GAAP pre-tax income of $5.7 million, compared with $3.5 million.
-- GAAP net income of $3 million, or $0.14 per diluted Class A share and
$0.12 per diluted Class B share, versus a GAAP net loss of $161,000, or
$(0.01) per Class A share and $(0.01) per Class B share.
"Our subscription business continued its revenue and margin growth as increasing numbers of global manufacturers embraced the cloud," said Pam Lopker, President of QAD. "With QAD's new Channel Islands offering now generally available in the cloud, the competitiveness of our product portfolio uniquely positions us for long term cloud revenue growth."
For the first nine months of fiscal 2019, total revenue was $250.3 million, compared with $224.3 million for the first nine months of the prior fiscal year. Currency had a $2.5 million positive impact on total revenue. Subscription revenue grew 36% to $67.8 million for the first nine months of fiscal 2019, compared with $50 million for the first nine months of fiscal 2018. GAAP net income was $5.5 million, or $0.26 per diluted Class A share and $0.23 per diluted Class B share, for the fiscal 2019 year-to-date period, versus a GAAP net loss of $3.9 million, or $(0.21) per Class A share and $(0.17) per Class B share, for the same period last year. Non-GAAP pre-tax income was $16.2 million for the first nine months of fiscal 2019, compared with $6.1 million for the same period last year.
QAD's cash and equivalents balance was $138.1 million at October 31, 2018, versus $147 million at January 31, 2018. Cash provided by operations was $15.1 million for the first nine months of fiscal 2019, compared with $2.8 million for the first nine months of fiscal 2018.
Fiscal 2019 Third Quarter Operational Highlights:
-- Received orders from 18 customers representing more than $500,000 each
in combined license, subscription, maintenance and professional services
billings, including seven orders exceeding $1 million, three of which
exceeded $2 million;
-- Received license or cloud orders from companies across QAD's six
vertical markets, including: Adient Limited, Amtico Holdings Ltd., Argon
Medical Devices, Avnet, Inc., Bakkersland B.V., Block & Company Inc.,
Danyang UPC Auto Parts Co., LTD, Exactech, Inc., Koninklijke Sanders
B.V., Changchun Engley Automotive Industry Co. Ltd., LGC Group Limited,
and Renolit SE;
-- Announced availability of the latest version of QAD Cloud ERP and
related solutions, including the general availability of its Channel
Islands offering for use with QAD Cloud ERP 2018;
-- Announced availability of Production Orders 3.0 with QAD Cloud ERP,
which is compatible with the company's Channel Islands offering and
includes enhancements to QAD Master Planning and Scheduling Workbenches;
-- Signed system integrator agreements with Tata Consultancy Services and
YASH Technologies to provide global consulting and implementation
services; and
-- Won the Frost & Sullivan 2018 North American ERP for Automotive Customer
Value Leadership Award.
Business Outlook
QAD updated its fiscal 2019 full year guidance as follows:
-- In the range of previous guidance, total revenue of approximately $332
million, including approximately $92 million of subscription revenue;
-- Increased GAAP pre-tax income to approximately $9 to $10 million from
previous guidance of $5 to $7 million; and
-- Increased Non-GAAP pre-tax income to approximately $19 to $21.5 million
from previous guidance of $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 full year:
QAD Inc.
Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance Measures
(in thousands)
(unaudited)
Twelve Months Ended
January 31, 2019
Low
High
Non-GAAP pre-tax income reconciliation
GAAP income before income taxes $
9,000 $
10,000
Add back
10,000 10,400
Stock-based compensation expense
67 67
Amortization of purchased intangible assets
Change in fair value of interest rate swap
Non-GAAP income before income taxes $
19,067 $
20,467
Estimated income tax expense on GAAP earnings $
3,600 $
4,000
Weighted average basic shares outstanding
16,200 16,600
Class A
3,200 3,300
Class B
Weighted average diluted shares outstanding
17,800 18,200
Class A
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 2019 Third Quarter Financial Results Conference Call
When: Tuesday, November 20, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9959 (international)
Replay: Accessible through midnight November 27, 2018; 800-475-6701 (domestic); 320-365-3844 (international); passcode 455726
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 third quarter and first nine 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 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 Nine Months Ended
October 31, October 31,
2018 2017 2018 2017
Revenue:
$
23,863 $
17,190 $
67,813 $
49,953
Subscription
4,631 6,628 16,458 18,636
License
30,401 32,407 92,458 96,284
Maintenance and other
20,682 20,700 73,581 59,392
Professional services
79,577 76,925 250,310 224,265
Total revenue
Cost of revenue:
8,686 7,605 25,248 22,753
Subscription
534 690 1,772 2,203
License
7,716 7,840 23,355 23,374
Maintenance and other
20,425 21,911 68,489 61,276
Professional services
37,361 38,046 118,864 109,606
Total cost of revenue
Gross profit 42,216 38,879 131,446 114,659
Operating expenses:
18,447 17,697 57,895 52,981
Sales and marketing
13,155 12,111 40,674 35,332
Research and development
8,095 8,556 26,823 26,373
General and administrative
45 85 45 359
Amortization of intangibles from
acquisitions
39,742 38,449 125,437 115,045
Total operating expenses
Operating income (loss) 2,474 430 6,009 (386)
Other (income) expense:
(646) (440) (1,913) (1,101)
Interest income
177 195 488 508
Interest expense
(636) (413) (1,309) 1,399
Other (income) expense, net
(1,105) (658) (2,734) 806
Total other (income) expense, net
Income (loss) before income taxes 3,579 1,088 8,743 (1,192)
597 1,249 3,251 2,701
Income tax expense
Net income (loss) $
2,982 $
(161) $
5,492 $
(3,893)
Net income (loss) $
2,982 $
(161) $
5,492 $
(3,893)
Other comprehensive income, net of
tax:
(1,174) (743) (2,010) 1,029
Foreign currency translation
adjustments
Total comprehensive income (loss) $
1,808 $
(904) $
3,482 $
(2,864)
Diluted income (loss) per share
$
0.14 $
(0.01) $
0.26 $
(0.21)
Class A
$
0.12 $
(0.01) $
0.23 $
(0.17)
Class B
Diluted Weighted Shares
17,948 16,011 17,911 15,913
Class A
3,433 3,214 3,429 3,212
Class B
QAD Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
October 31, January 31,
2018 2018
---
Assets
Current assets:
$
138,080 $
147,023
Cash and equivalents
46,420 83,518
Accounts receivable, net
19,493 15,856
Other current assets
203,993 246,397
Total current assets
Property and equipment, net 29,600 30,408
Capitalized software costs, net 1,486 990
Goodwill 12,284 11,023
Long-term deferred tax assets, net 11,363 7,944
Other assets, net 11,784 3,055
$
270,510 $
299,817
Total assets
===
Liabilities and stockholders'
equity
Current liabilities:
$
481 $
466
Current portion of long-term debt
45,719 58,278
Accounts payable and other current
liabilities
80,537 116,693
Deferred revenue
126,737 175,437
Total current liabilities
Long-term debt 12,957 13,313
Other liabilities 4,773 5,439
Stockholders' equity:
20 20
Common stock
194,292 200,456
Additional paid-in capital
(7,384) (12,461)
Treasury stock
(52,047) (75,559)
Accumulated deficit
(8,838) (6,828)
Accumulated other comprehensive
loss
126,043 105,628
Total stockholders' equity
$
270,510 $
299,817
Total liabilities and stockholders'
equity
===
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
October 31,
2018 2017
---
Net
cash
provided
by
operating
activities $
15,117 $
2,844
---
Cash flows from
investing
activities:
(3,225) (2,587)
Purchase of
property and
equipment
(2,655)
Acquisition of
businesses, net
of cash
acquired
(778) (809)
Capitalized
software costs
Net cash used in
investing
activities (6,658) (3,396)
Cash flows from
financing
activities:
(350) (333)
Repayments of
debt
(8,705) (3,243)
Tax payments
related to
stock awards
(4,105) (4,021)
Cash dividends
paid
Net cash used in
financing
activities (13,160) (7,597)
Effect of
exchange rates
on cash and
equivalents (4,242) 3,094
(8,943) (5,055)
Net decrease in
cash and
equivalents
147,023 145,082
Cash and
equivalents at
beginning of
period
$
138,080 $
140,027
Cash and
equivalents at
end of period
===
QAD Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
2018 2017 2018 2017
Total revenue $
79,577 $
76,925 $
250,310 $
224,265
Net income (loss) 2,982 (161) 5,492 (3,893)
Add back:
(469) (245) (1,425) (593)
Net interest income
1,183 1,153 3,571 3,396
Depreciation
216 274 521 997
Amortization
597 1,249 3,251 2,701
Income tax expense
EBITDA $
4,509 $
2,270 $
11,410 $
2,608
Add back:
2,148 2,311 7,618 6,671
Stock-based compensation expense
(46) (106) (198) (103)
Change in fair value of interest
rate swap
Adjusted EBITDA $
6,611 $
4,475 $
18,830 $
9,176
Adjusted EBITDA margin 8% 6% 8% 4%
Non-GAAP pre-tax income
reconciliation
Income (loss) before income taxes $
3,579 $
1,088 $
8,743 $
(1,192)
Add back
2,148 2,311 7,618 6,671
Stock-based compensation expense
52 165 52 732
Amortization of purchased
intangible assets
(46) (106) (198) (103)
Change in fair value of interest
rate swap
Non-GAAP income before income
taxes $
5,733 $
3,458 $
16,215 $
6,108
Estimated income tax expense on
GAAP earnings $
588 $
1,244 $
3,322 $
2,741
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SOURCE QAD Inc.
