QAD Announces Fiscal 2008 Fourth Quarter and Full Year Financial Results

QAD Inc. (Nasdaq:QADI), a global provider of enterprise software and services, today reported financial results for the fiscal 2008 fourth quarter and full year ended January 31, 2008. In the fourth quarter of fiscal 2008, total revenue increased 13 percent to $75.3 million from $66.5 million in the same period last year. License revenue was up 14 percent to $22.4 million, compared with $19.7 million for the fiscal 2007 fourth quarter. Maintenance and other revenue grew 7 percent to $33.1 million, versus $30.9 million in the comparable period of fiscal 2007. Services revenue increased 24 percent to $19.8 million, compared with $15.9 million in last year's fourth quarter. Net income for the fiscal 2008 fourth quarter was $5.2 million, or $0.16 per diluted share, including pre-tax stock compensation expense of $1.8 million, or $0.04 per diluted share net of tax. In the comparable period last year, net income was $3.8 million, or $0.12 per diluted share, including pre-tax stock compensation expense of $1.6 million, or $0.03 per diluted share net of tax. It should be noted that the tax amounts presented are still subject to revision. "We are proud to have achieved the highest quarterly and full year revenue in the company’s history,” said Karl Lopker, chief executive officer of QAD. "During the year, we made significant additions to our product suite, introducing new functionality and usability enhancements in line with our strategy of delivering total enterprise capability to our customers. We believe the breadth of our products, strong services capabilities and continued focus on execution, positions us well in fiscal 2009 and beyond.” Gross margin in the fourth quarter of fiscal 2008 was 59 percent, compared with 61 percent in the same period last year, primarily reflecting the increase of services revenue in the company’s overall revenue mix. Total operating expenses were $39.5 million, or 52 percent of total revenue, in the fiscal 2008 fourth quarter, compared with $35.4 million, or 53 percent of total revenue, in the comparable period last year. The increase in total operating expenses reflects higher personnel costs in the fourth quarter of fiscal 2008. Operating income in the fiscal 2008 fourth quarter was $4.7 million, compared with $5.2 million in fiscal 2007. For the full fiscal year ended January 31, 2008, revenue increased 12 percent to $262.7 million from $235.6 million in fiscal 2007. Gross margin was 58 percent in fiscal 2008, versus 60 percent in the prior year, primarily reflecting the increase of services revenue in the company’s overall revenue mix. Total operating expenses in fiscal 2008 were $146.3 million, or 56 percent of total revenue, versus $133.9 million, or 57 percent of total revenue, last year. Operating income in fiscal 2008 was $5.6 million, compared with $8.1 million in fiscal 2007. Net income for fiscal 2008 was $5.4 million, or $0.17 per diluted share, including pre-tax stock compensation expense of $6.2 million, or $0.13 per diluted share net of tax. In the comparable period last year, net income was $7.3 million, or $0.22 per diluted share, including stock compensation expense of $5.5 million, or $0.12 per diluted share net of tax, in fiscal 2007. As previously mentioned, the fiscal 2008 tax amounts are still subject to revision. QAD's cash and equivalents balance at January 31, 2008 was $45.6 million, versus $56.8 million at January 31, 2007. The decrease primarily reflects the company’s stock repurchase program in fiscal 2008. Fiscal 2008 cash flow provided by operations was $15.3 million, compared with $18.9 million in fiscal 2007. Fourth Quarter Fiscal 2008 Highlights: QAD received orders from 38 customers representing more than $500,000 each in combined license, support and services billings, including 16 orders in excess of $1.0 million, six in excess of $2.0 million and two in excess of $4.0 million; QAD received license orders across its six vertical markets, including the following companies: A.O. Smith, Alpine Biomed, Australian Bakels, Eaton Corporation, Faurecia, GKN, Google, Grupo Calidata, Hood Packaging, Laird Technologies, Nippon Paper, Orly, Qantas Airways, Tecnofarma and Transitions Optical; Under its existing stock repurchase program, QAD purchased approximately 510,000 shares of its common stock at an average price of $8.83 per share for a total of $4.5 million in the fourth quarter of fiscal 2008. In fiscal 2008, the company has purchased a total of approximately 2.2 million shares at an average price of $8.37 for a total of $18.7 million; Augmented QAD’s board with well-respected software industry leaders Terry Cunningham, former President and Chief Operating Officer of Veritas Software Company and current CEO of Coral8, and Lee Roberts, former Chairman and CEO of FileNet Corporation and currently with IBM. Business Outlook QAD anticipates revenue between $63 million and $65 million and earnings per share of approximately break-even for the first fiscal quarter of 2009 ending April 30, 2008. This guidance includes an estimated charge for stock compensation expense of $0.03 per diluted share net of tax. For fiscal 2009, QAD expects revenue in the range of $275 million and $285 million and earnings in the range of $0.22 to $0.35 per diluted share. This guidance includes an estimated charge of $0.14 per diluted share net of tax for stock compensation expense. QAD assumes an effective tax rate of 36 percent for both the first quarter and full fiscal year of 2009. Investor Conference Call QAD management will host an investor conference call today at 2:00 p.m. PT (5:00 p.m. ET) to review the company's financial results and operations for the fiscal 2008 fourth quarter and full year. The conference call will be webcast live and is accessible on the investor relations section of QAD's Web site at www.qad.com, where it will be available for approximately one year. About QAD 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 6,100 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; timely and effective integration of newly acquired businesses; general economic conditions; exchange rate fluctuations; and, the global political environment. In addition, revenue and earnings in the enterprise resource planning (ERP) software industry are 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 2007 ended January 31, 2007. QAD Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited)             Three Months Ended January 31, Twelve Months Ended January 31, 2008     2007(1)   2008   2007(1) Revenue: License fees $ 22,409 $ 19,689 $ 61,491 $ 54,425 Maintenance and other 33,093 30,893 128,183 122,740 Services   19,796     15,907     73,073     58,422   Total revenue 75,298 66,489 262,747 235,587 Cost of revenue: Cost of license fees 3,577 2,940 9,794 8,307 Cost of maintenance, service and other revenue   27,541     22,893     101,072     85,239   Total cost of revenue   31,118     25,833     110,866     93,546   Gross profit 44,180 40,656 151,881 142,041 Operating expenses: Sales and marketing 19,862 16,676 71,016 63,790 Research and development 10,694 9,962 41,069 40,054 General and administrative 8,733 8,557 33,459 29,695 Amortization of intangibles from acquisitions   173     217     749     365   Total operating expenses   39,462     35,412     146,293     133,904   Operating income 4,718 5,244 5,588 8,137 Other (income) expense: Interest income (530 ) (525 ) (2,243 ) (2,533 ) Interest expense 337 277 1,362 1,136 Other (income) expense, net   289     (341 )   720     (1,874 ) Total other (income) expense   96     (589 )   (161 )   (3,271 ) Income before income taxes 4,622 5,833 5,749 11,408 Income tax (benefit) expense   (626 )   2,034     333     4,133   Net income $ 5,248   $ 3,799   $ 5,416   $ 7,275     Basic net income per share $ 0.17 $ 0.12 $ 0.17 $ 0.22 Diluted net income per share $ 0.16 $ 0.12 $ 0.17 $ 0.22   Basic weighted shares 30,988 32,272 31,617 32,425 Diluted weighted shares 31,894 32,880 32,355 33,113     (1) In accordance with Staff Accounting Bulletin No. 108, GAAP results for the fiscal year 2007 and the fiscal fourth quarter 2007 have been revised from previously reported amounts. For both periods the impact of the revision resulted in a reduction to net income of $0.4 million and a reduction to diluted EPS of $0.01. The revision relates to four adjustments which were immaterial individually and in the aggregate to both the fiscal fourth quarter and the year. Additional information relating to the revision will be provided in the fiscal year 2008 10-K. QAD Inc. Condensed Consolidated Balance Sheets (In thousands) (unaudited)       January 31, January 31, 2008 2007(1) Assets Current assets: Cash and equivalents $ 45,613 $ 54,192 Restricted cash - 2,612 Accounts receivable, net 83,027 68,806 Other current assets   20,862     16,352   Total current assets 149,502 141,962   Property and equipment, net 42,450 42,396 Capitalized software costs, net 8,783 9,631 Goodwill 22,591 18,834 Other assets, net   12,135     14,310     Total assets $ 235,461   $ 227,133       Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 274 $ 272 Accounts payable and other current liabilities 53,278 49,853 Deferred revenue   89,349     77,075   Total current liabilities 142,901 127,200   Long-term debt 16,998 17,271 Other liabilities 3,180 6,090   Stockholders' equity: Common stock 35 35 Additional paid-in capital 135,146 129,062 Treasury stock (36,336 ) (22,870 ) Accumulated deficit (21,593 ) (22,307 ) Accumulated other comprehensive loss   (4,870 )   (7,348 ) Total stockholders' equity   72,382     76,572     Total liabilities and stockholders' equity $ 235,461   $ 227,133       (1) In accordance with Staff Accounting Bulletin No. 108, GAAP results for the fiscal year 2007 and the fiscal fourth quarter 2007 have been revised from previously reported amounts. The revision relates to four adjustments which were immaterial individually and in the aggregate to both the fiscal fourth quarter and the year. Additional information relating to the revision will be provided in the fiscal year 2008 10-K. QAD Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited)       Twelve Months Ended   January 31, 2008   2007     Net cash provided by operating activities $ 15,324 $ 18,876   Cash flows from investing activities: Purchase of property and equipment (5,165 ) (4,631 ) Restricted cash 1,575 (2,612 ) Capitalized software costs (1,428 ) (1,510 ) Acquisitions of businesses, net of cash acquired (3,983 ) (8,516 ) Proceeds from sale of intangible assets - 906 Proceeds from sale of property and equipment   104     204   Net cash used in investing activities (8,897 ) (16,159 )   Cash flows from financing activities: Repayments of debt (277 ) (310 ) Proceeds from issuance of common stock 2,910 1,720 Changes in cash overdraft 649 975 Repurchase of common stock (18,723 ) (6,008 ) Minority shareholder payment - (389 ) Dividends paid   (3,187 )   (3,249 ) Net cash used in financing activities (18,628 ) (7,261 )   Effect of exchange rates on cash and equivalents   3,622     (1,235 ) Net (decrease) increase in cash and equivalents (8,579 ) (5,779 ) Cash and equivalents at beginning of period   54,192     59,971   Cash and equivalents at end of period $ 45,613   $ 54,192