QAD Reports Fiscal 2013 Second Quarter Financial Results

QAD Inc. (NASDAQ: QADA) (NASDAQ: QADB), a leading provider of enterprise software and services for global manufacturing companies, today reported financial results for the fiscal 2013 second quarter ended July 31, 2012.

Total revenue was $61.0 million for the second quarter of fiscal 2013, compared with $62.0 million for the second quarter of fiscal 2012. The decrease was principally the result of lower license revenue driven primarily by the slowdown in the global manufacturing economy, as well as the impact of foreign exchange on maintenance and professional services revenue.

License revenue was $6.9 million for the fiscal 2013 second quarter, compared with $8.6 million for the same period last year. Maintenance and other revenue totaled $33.9 million, compared with $35.4 million for last year’s second fiscal quarter. Professional services revenue increased to $16.4 million, from $15.7 million for the second quarter of fiscal 2012. Subscription revenue, which includes QAD’s On Demand deployment option, grew to $3.7 million, from $2.3 million for last year’s fiscal second quarter.

Net income for the fiscal 2013 second quarter was $959,000, or $0.06 per diluted Class A share and $0.05 per diluted Class B share. Net income for the fiscal 2013 second quarter was negatively impacted by $588,000, or $0.04 per diluted Class A share and $0.03 per diluted Class B share, due to a mark-to-market adjustment for an interest rate swap related to the refinancing of QAD’s mortgage on its Santa Barbara headquarters. Net income for the fiscal 2012 second quarter was $3.1 million, or $0.19 per diluted Class A share and $0.16 per diluted Class B share.

“While we saw good performance in some territories and in our Precision division, overall performance was negatively impacted by the slowing global manufacturing economy,” said Karl Lopker, CEO of QAD Inc. “In response, we have implemented cost containment initiatives to improve our profitability. At the same time, we still see areas of opportunity and are putting greater emphasis on initiatives that support our customers in this uncertain climate.”

Gross profit for the fiscal 2013 second quarter was $34.0 million, or 56 percent of total revenue, compared with $35.1 million, or 57 percent of total revenue, for the fiscal 2012 second quarter.

Total operating expenses amounted to $32.4 million, or 53 percent of total revenue, for the fiscal 2013 second quarter, versus $30.5 million, or 49 percent of total revenue, for the same period last year.

Operating income for the fiscal 2013 second quarter was $1.6 million, which included $1.4 million in stock compensation expense, compared with $4.6 million, including $1.2 million in stock compensation expense, for the second quarter of the last fiscal year.

For the first six months of fiscal 2013, total revenue rose to $124.7 million, from $121.4 million for the first six months of fiscal 2012. Net income for the fiscal 2013 year-to-date period was $2.8 million, or $0.18 per diluted Class A share and $0.15 per diluted Class B share. Net income for the fiscal 2012 year-to-date period was $4.1 million, or $0.26 per Class A share and $0.21 per Class B share.

QAD’s cash and equivalents balance was $73.8 million at July 31, 2012, compared with $76.9 million at January 31, 2012. Cash provided by operations was $6.4 million for the second quarter of fiscal 2013, versus $7.8 million for the fiscal 2012 second quarter.

During the second quarter of fiscal 2013, QAD purchased 149,000 Class A shares of its common stock at an average price of $13.12 per share, and 12,000 Class B shares at an average price of $12.82 per share, for a total expenditure of approximately $2.1 million. Approximately 328,000 shares remain available under the previously authorized one million share repurchase program.

During the second quarter of fiscal 2013, QAD paid quarterly dividends totaling $1.1 million, of which $893,000 was paid in cash and the remainder in common stock.

2013 Second Quarter Highlights:

  • Received orders from 11 customers representing more than $500,000 each in combined license, maintenance, subscription and professional services billings, including four orders in excess of $1.0 million;
  • Received license or On Demand orders from companies across QAD’s six vertical markets, including: Biomet Japan, ECE, FCI Automotive Holdings, Gemalto, HeartWare, INOAC Exterior Products, Intertechnique, Lear Automotive India, MedTech Group, Metalsa, Musculoskeletal Transplant, NHK Spring (Thailand), Yamamoto FB Engineering, and Yangfeng Visteon Automotive, among others;
  • Hosted Explore 2012 Global Customer Conference in Atlanta;
  • Named 2012 “Partner of the Year” by Progress Software in recognition of the company’s collaboration in solving customer business challenges; and
  • Acquired DynaSys S.A., a leading provider of supply chain planning software solutions.

Business Outlook

For the third quarter of fiscal 2013, QAD expects total revenue of approximately $62 million and earnings of approximately $0.10 per diluted Class A share and $0.08 per diluted Class B share.

Calculation of Earnings Per Share

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.

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 2013 second quarter. The conference call will be webcast live and is accessible through the investor relations section of QAD’s web site at www.qad.com, where it will be available for approximately one year. Interested parties may participate in the call by dialing 800-230-1059 (domestic) or 612-234-9959 (international). A replay of the call will be accessible through August 30, 2012 by dialing 800-475-6701 (domestic) or 320-365-3844 (international), passcode 250576.

About QAD

QAD is a leading provider of enterprise applications for global manufacturing companies specializing in automotive, consumer, electronics, food and beverage, industrial and life sciences products. 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. For more information about QAD, telephone +1 805-566-6000, 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, including, but not limited to, statements relating to the company’s revenue outlook and earnings per share outlook for the third quarter of fiscal 2013. Words such as “expects,” “believes,” “anticipates,” “could,” “will likely result,” “estimates,” “intends,” “may,” “projects,” “should,” and variations of these words and similar expressions are intended to identify these forward looking statements. Forward-looking statements are based on the company’s current expectations and assumptions regarding its business, the economy and future conditions. 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 2012 ended January 31, 2012, and in particular, the section entitled “Risk Factors” therein, and in other periodic reports the company files with the Securities and Exchange Commission.

 
 
QAD Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
                 
 
Three Months Ended

July 31,
Six Months Ended

July 31,
2012 2011 2012 2011
Revenue:
License fees $ 6,906 $ 8,550 $ 14,771 $ 14,894
Maintenance and other 33,886 35,393 68,406 69,731
Subscription fees 3,745 2,322 6,968 4,530
Professional services   16,432     15,692     34,532     32,205  
Total revenue 60,969 61,957 124,677 121,360
Cost of revenue:
License 832 1,004 1,713 2,035
Maintenance, subscription and other 10,341 9,067 20,341 17,842
Professional services   15,846     16,741     31,584     33,029  
Total cost of revenue   27,019     26,812     53,638     52,906  
Gross profit 33,950 35,145 71,039 68,454
Operating expenses:
Sales and marketing 14,747 13,864 30,243 28,353
Research and development 9,210 9,237 18,744 17,720
General and administrative   8,435     7,397     16,540     15,110  
Total operating expenses   32,392     30,498     65,527     61,183  
Operating income 1,558 4,647 5,512 7,271
Other (income) expense:
Interest income (164 ) (146 ) (327 ) (282 )
Interest expense 330 287 616 557
Other (income) expense, net   92     (356 )   538     462  
Total other (income) expense   258     (215 )   827     737  
Income before income taxes 1,300 4,862 4,685 6,534
Income tax expense   341     1,792     1,882     2,444  
Net income $ 959   $ 3,070   $ 2,803   $ 4,090  
 
Diluted Net Income per Share
Class A $ 0.06 $ 0.19 $ 0.18 $ 0.26
Class B $ 0.05 $ 0.16 $ 0.15 $ 0.21
 
Diluted Weighted Shares
Class A 13,082 13,297 13,144 13,242
Class B 3,264 3,294 3,274 3,288
 
 
         
 
QAD Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
 
 
July 31, January 31,
2012 2012
Assets
Current assets:
Cash and equivalents $ 73,843 $ 76,927
Accounts receivable, net 36,343 64,757
Deferred tax assets, net 4,365 4,355
Other current assets   11,448     11,853  
Total current assets 125,999 157,892
 
Property and equipment, net 33,106 33,139
Capitalized software costs, net 2,334 583
Goodwill 8,739 6,412
Long-term deferred tax assets, net 17,427 17,285
Other assets, net   3,982     2,834  
 
Total assets $ 191,587   $ 218,145  
 
 
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 388 $ 321
Accounts payable and other current liabilities 31,805 40,823
Deferred revenue   77,111     93,871  
Total current liabilities 109,304 135,015
 
Long-term debt 15,659 15,813
Other liabilities 6,095 5,302
 
Stockholders' equity:
Common stock 18 18
Additional paid-in capital 148,601 148,993
Treasury stock (28,762 ) (27,968 )
Accumulated deficit (49,344 ) (48,974 )
Accumulated other comprehensive loss   (9,984 )   (10,054 )
Total stockholders' equity   60,529     62,015  
 
Total liabilities and stockholders' equity $ 191,587   $ 218,145  
 
 
 
 
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
         
 
Six Months Ended
July 31,
2012 2011
 
Net cash provided by operating activities $ 11,445 $ 13,307
 
Cash flows from investing activities:
Purchase of property and equipment (2,029 ) (1,969 )
Capitalized software costs (199 ) (117 )
Acquisition of businesses, net of cash acquired (4,713 ) (6 )
Other, net   2     19  
Net cash used in investing activities (6,939 ) (2,073 )
 
Cash flows from financing activities:
Repayments of debt (111 ) (172 )
Tax payments, net of proceeds, related to stock awards (786 ) (356 )
Excess tax benefits from share-based payment arrangements 51 11
Repurchase of stock (3,899 ) -
Dividends paid in cash   (1,841 )   (645 )
Net cash used in financing activities (6,586 ) (1,162 )
 
Effect of exchange rates on cash and equivalents   (1,004 )   1,490  
Net (decrease) increase in cash and equivalents (3,084 ) 11,562
Cash and equivalents at beginning of period   76,927     67,276  
Cash and equivalents at end of period $ 73,843   $ 78,838  
 

Copyright Business Wire 2010

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