MRO Magazine

QAD Reports Fiscal 2016 Third Quarter and Year-to-Date Financial Results


November 24, 2015
By Business Wire News

SANTA BARBARA, Calif.

QAD Inc. (NASDAQ: QADA) (NASDAQ: QADB), a leading provider of enterprise business software and services for global manufacturing companies, today reported financial results for the fiscal 2016 third quarter and first nine months ended October 31, 2015.

Total revenue was $68.0 million for the fiscal 2016 third quarter, compared with $74.0 million for the fiscal 2015 third quarter. Currency had a $4.9 million negative impact on fiscal 2016 third quarter total revenue. On a constant currency basis, total revenue declined less than 2 percent compared with the prior-year period.

Additional fiscal 2016 third quarter financial results, compared with last year’s third fiscal quarter include:

  • Subscription revenue of $9.7 million, up from $7.7 million. Subscription revenue increased approximately 30 percent in constant currency. Currency had an approximate $300,000 negative impact on subscription revenue.
  • License revenue of $6.4 million, compared with $8.6 million. Currency had an approximate $500,000 negative impact on license revenue.
  • Professional services revenue of $18.6 million, versus $22.6 million. Currency had an approximate $1.7 million negative impact on professional services revenue.
  • Maintenance and other revenue of $33.4 million, compared with $35.0 million. Currency had an approximate $2.4 million negative impact on maintenance and other revenue.
  • GAAP net income of $2.6 million, or $0.14 per diluted Class A share and $0.12 per diluted Class B share, compared with $5.1 million, or $0.31 per diluted Class A share and $0.27 per diluted Class B share. Diluted weighted average Class A shares outstanding increased 21 percent year-over-year.
  • Non-GAAP net income (defined as GAAP net income before stock-based compensation expense, amortization of purchased intangible assets, the change in fair value of the interest rate swap and certain income tax adjustments) of $4.4 million, or $0.24 per diluted Class A share and $0.20 per diluted Class B share, compared with $6.4 million, or $0.40 per diluted Class A share and $0.34 per diluted Class B share.

“QAD met its profit plan for the third quarter, reflecting the company’s expense structure and resource management, despite a decline in revenue. We met our subscription revenue guidance, expanded subscription margins, and are on track to meet our growth expectations for subscription revenue for the full year,” said Karl Lopker, Chief Executive Officer of QAD Inc. “Going into the fourth quarter, our new business funnel is strong, especially in the Cloud, and our new User Experience is being very well received by our customers. We see many opportunities to drive activity in the year ahead.”

Gross profit for the fiscal 2016 third quarter totaled $37.0 million, or 54 percent of total revenue, versus $40.9 million, or 55 percent of total revenue, for the fiscal 2015 third quarter.

Total operating expenses amounted to $33.6 million, or 49 percent of total revenue, for the third quarter of fiscal 2016, compared with $35.0 million, or 47 percent of total revenue, for the same period last year.

Operating income for the third quarter of fiscal 2016 was $3.5 million, which included $1.9 million in stock compensation expense. Operating income for the third quarter of fiscal 2015 was $5.9 million, which included $1.2 million in stock compensation expense. The increase in stock compensation expense related primarily to a higher stock price.

For the first nine months of fiscal 2016, total revenue was $208.6 million, compared with $215.5 million for the same period one year ago. Currency had a $15.9 million negative impact on fiscal 2016 year-to-date total revenue. On a constant currency basis, total revenue grew 4 percent from the first nine months of fiscal 2015. The company reported GAAP net income of $4.8 million, or $0.25 per diluted Class A share and $0.21 per diluted Class B share, for the first nine months of fiscal 2016, versus $6.0 million, or $0.37 per diluted Class A share and $0.31 per diluted Class B share, for the first nine months of fiscal 2015. Non-GAAP net income was $9.6 million, or $0.51 per diluted Class A share and $0.43 per diluted Class B share, for the nine months ended October 31, 2015, compared with $9.9 million, or $0.61 per diluted Class A share and $0.52 per diluted Class B share, for the same period in fiscal 2015.

QAD’s cash and equivalents balance rose to $126.6 million at October 31, 2015, up from $120.5 million at January 31, 2015 and $71.4 million at October 31, 2014. Cash provided by operations for the fiscal 2016 year-to-date period was $9.2 million, compared with $5.0 million for the fiscal 2015 year-to-date period.

Fiscal 2016 Third Quarter Operational Highlights:

  • Received orders from 14 customers representing more than $500,000 each in combined license, maintenance, subscription and professional services billings, including two orders in excess of $1.0 million;
  • Received license or cloud orders from companies across QAD’s six vertical markets, including: Acclarent Inc., a division of Johnson & Johnson, CoorsTek, Inc., Denso Corporation, Electrium Sales Limited, a division of Siemens AG, Elizabeth Arden Inc., Johnson Controls, Lear Corporation, Saint-Gobain SA, Samvardhana Motherson, Theranos, Inc., TRW Automotive, Vulcan Group, Wander AG, a division of Associated British Foods, and Yanfeng Visteon;
  • Launched several new innovations for QAD Cloud ERP and QAD Enterprise Applications 2015, including a more effective User Experience and internationalization enhancements;
  • Expanded Dell Boomi partnership to enhance QAD’s cloud implementations;
  • Celebrated DynaSys’ 30th anniversary of demand and supply chain planning; and
  • Subsequent to the end of the quarter, held its annual EMEA customer conference and solutions expo.

Business Outlook

For fiscal 2016, QAD expects:

  • Total revenue of approximately $279 million, including approximately $38 million of subscription revenue.
  • Stock compensation expense of approximately $7.6 million.
  • GAAP earnings per share of approximately $0.36 per diluted Class A share and $0.30 per diluted Class B share.
  • Non-GAAP earnings per share of approximately $0.68 per diluted Class A share and $0.57 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.

Fiscal 2016 Third Quarter Conference Call

When:

  Tuesday, November 24, 2015

Time:

2:00 p.m. PT (5:00 p.m. ET)

Phone:

800-230-1059 (domestic); 612-234-9960 (international)

Replay:

Accessible through midnight December 2, 2015
800-475-6701 (domestic); 320-365-3844 (international); passcode 370878

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 net income and non-GAAP earnings per diluted share in this press release for the third quarter and first nine months of fiscal 2016 and fiscal 2015. 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 net income – GAAP net income before stock-based compensation expense, amortization of purchased intangible assets, the change in fair value of the interest rate swap and certain income tax adjustments.
  • Non-GAAP earnings per diluted share – Non-GAAP net income allocated to Class A and Class B shares divided by the weighted average diluted shares outstanding of each class.

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. A table providing a reconciliation of the non-GAAP measures to their most comparable GAAP measures is included at the end of this press release.

QAD non-GAAP measures reflect adjustments based on the following items:

EBITDA: The company reports EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income because doing so makes internal comparisons to the company’s historical operating results more consistent. In addition, the company believes providing an EBITDA calculation is a more useful comparison of its operating results to the operating results of its peers.

Stock-based compensation expense: The company has excluded the effect of stock-based compensation expense from its non-GAAP adjusted EBITDA, non-GAAP net income and non-GAAP earnings per diluted share 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 net income and non-GAAP earnings per diluted share calculations, 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, non-GAAP net income and non-GAAP earnings per diluted share 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.

Income tax adjustments: Beginning in fiscal 2016, the company began to compute and utilize a fixed long-term projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the effects of non-recurring and period-specific items such as changes in the tax valuation allowance and tax effects of acquisition-related costs, since each of these can vary in size and frequency. When projecting the long-term rate the company evaluated four years of historical and expected results excluding the impact of the following non-cash items: stock-based compensation expense, amortization of purchased intangibles and the change in fair value of the interest rate swap. The projected rate assumes no new acquisitions and takes into account other factors including the current tax structure, existing tax positions in various jurisdictions and key legislation in major jurisdictions where the company operates. The non-GAAP tax rate is 25%. The company intends to re-evaluate this long-term rate on an annual basis or if any significant events that may materially affect this long-term rate occur. This long-term rate could be subject to change for a variety of reasons, for example, significant changes in the geographic earnings mix, acquisition activity or fundamental tax law changes in major jurisdictions where the company operates.

About QAD – The Effective Enterprise

QAD Inc. (NASDAQ:QADA) (NASDAQ:QADB) is a leading provider of enterprise software and services designed for global manufacturing companies. For more than 35 years, QAD has provided global manufacturing companies with QAD Enterprise Applications, an enterprise resource planning (ERP) system that supports operational requirements, including financials, manufacturing, demand and supply chain planning, customer management, business intelligence and business process management. QAD Enterprise Applications is offered in flexible deployment models in the cloud, on-premise, or in a blended environment. With QAD, customers and partners in the automotive, consumer products, food and beverage, high technology, industrial products and life sciences industries can better align daily operations with their strategic goals to meet their vision of becoming more Effective Enterprises.

For more information about QAD, call +1 805-566-6000 or visit 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 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.

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

October 31,

Nine Months Ended

October 31,

2015  2014  2015  2014  
Revenue:
License fees $ 6,350 $ 8,616 $ 21,761 $ 24,231
Subscription fees 9,659 7,710 28,223 20,344
Maintenance and other 33,395 35,029 100,611 107,225
Professional services   18,633     22,649     57,998     63,739  
Total revenue 68,037 74,004 208,593 215,539
Cost of revenue:
License 827 1,217 2,728 3,270
Subscription 5,134 4,134 15,360 12,132
Maintenance and other 7,924 7,921 23,608 24,344
Professional services   17,120     19,799     54,035     57,975  
Total cost of revenue   31,005     33,071     95,731     97,721  
Gross profit   37,032     40,933     112,862     117,818  
Operating expenses:
Sales and marketing 15,531 16,421 49,658 50,319
Research and development 10,193 10,152 31,440 32,249
General and administrative 7,676 8,295 24,719 26,464
Amortization of intangibles from acquisitions 165     176     495     535  
Total operating expenses   33,565     35,044     106,312     109,567  
Operating income   3,467     5,889     6,550     8,251  
Other (income) expense:
Interest income (80 ) (56 ) (224 ) (169 )
Interest expense 171 185 544 598
Other (income) expense, net   61     (164 )   (471 )   (56 )
Total other (income) expense, net   152     (35 )   (151 )   373  
Income before income taxes 3,315 5,924 6,701 7,878
Income tax expense   729     834     1,935     1,879  
Net income $ 2,586   $ 5,090   $ 4,766   $ 5,999  
 
Diluted net income per share
Class A $ 0.14 $ 0.31 $ 0.25 $ 0.37
Class B $ 0.12 $ 0.27 $ 0.21 $ 0.31
 
Diluted Weighted Shares
Class A 16,308 13,487 16,208 13,474
Class B 3,286 3,265 3,283 3,270
 
QAD Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
     
October 31,January 31,
2015  2015  
Assets
Current assets:
Cash and equivalents $ 126,621 $ 120,526
Accounts receivable, net 41,233 78,887
Deferred tax assets, net 8,597 9,313
Other current assets   13,162     14,799  
Total current assets 189,613 223,525
 
Property and equipment, net 32,646 33,154
Capitalized software costs, net 1,733 2,485
Goodwill 10,706 10,911
Long-term deferred tax assets, net 10,515 9,680
Other assets, net   2,953     3,614  
 
Total assets $ 248,166   $ 283,369  
 
 
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt $ 417 $ 406
Accounts payable and other current liabilities 35,504 48,637
Deferred revenue   69,616     102,721  
Total current liabilities 105,537 151,764
 
Long-term debt 14,364 14,680
Other liabilities 4,455 5,219
 
Stockholders’ equity:
Common stock 21 20
Additional paid-in capital 193,836 185,546
Treasury stock (18,816 ) (22,977 )
Accumulated deficit (42,675 ) (43,465 )
Accumulated other comprehensive loss   (8,556 )   (7,418 )
Total stockholders’ equity   123,810     111,706  
 
Total liabilities and stockholders’ equity $ 248,166   $ 283,369  
 
 
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
     
Nine Months Ended
October 31,
2015  2014  
 
Net cash provided by operating activities $ 9,235   $ 5,031  
 
Cash flows from investing activities:
Purchase of property and equipment (2,641 ) (3,337 )
Capitalized software costs   (70 )   (115 )
Net cash used in investing activities   (2,711 )   (3,452 )
 
Cash flows from financing activities:
Repayments of debt (305 ) (291 )
Tax payments, net of proceeds, related to stock awards (2,419 ) (2,354 )
Excess tax benefits from share-based payment arrangements 930
Payment of contingent liability associated with acquisitions (750 ) (471 )
Cash dividends paid (3,922 ) (3,334 )
Proceeds from issuance of common stock, net of issuance costs   8,365      
Net cash provided by (used in) financing activities   1,899     (6,450 )
 
Effect of exchange rates on cash and equivalents   (2,328 )   298  
Net increase (decrease) in cash and equivalents 6,095 (4,573 )
Cash and equivalents at beginning of period   120,526     75,984  
Cash and equivalents at end of period $ 126,621   $ 71,411  
 
 
QAD Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(unaudited)
           
Three Months Ended

October 31,

Nine Months Ended

October 31,

2015  2014  2015  2014  
 
Total revenue $ 68,037 $ 74,004 $ 208,593 $ 215,539
 
Net income 2,586 5,090 4,766 5,999
Add back:
Net interest expense 91 129 320 429
Depreciation 980 958 2,953 2,809
Amortization 455 483 1,363 1,467
Income taxes   729     834     1,935     1,879  
EBITDA $ 4,841   $ 7,494   $ 11,337   $ 12,583  
Add back:
Non-cash stock-based compensation 1,881 1,209 5,618 3,794
Change in fair value of interest rate swap   187     214     (164 )   321  
Adjusted EBITDA $ 6,909   $ 8,917   $ 16,791   $ 16,698  
Adjusted EBITDA margin 10 % 12 % 8 % 8 %
 
 
Non-GAAP net income reconciliation
 
Net income $ 2,586 $ 5,090 $ 4,766 $ 5,999
Add back:
Non-cash stock-based compensation 1,881 1,209 5,618 3,794
Amortization of purchased intangible assets 345 374 1,034 1,130
Change in fair value of interest rate swap 187 214 (164 ) 321
Income tax adjustments   (603 )   (449 )   (1,622 )   (1,311 )
Non-GAAP net income $ 4,396   $ 6,438   $ 9,632   $ 9,933  
 
 
Non-GAAP earnings per diluted Class A share reconciliation
 
Earnings per diluted Class A share $ 0.14 $ 0.31 $ 0.25 $ 0.37
Add back:
Non-cash stock-based compensation 0.10 0.08 0.30 0.23
Amortization of purchased intangible assets 0.02 0.03 0.05 0.07
Change in fair value of interest rate swap 0.01 0.01 (0.01 ) 0.02
Income tax adjustments   (0.03 )   (0.03 )   (0.08 )   (0.08 )
Non-GAAP earnings per diluted Class A share $ 0.24   $ 0.40   $ 0.51   $ 0.61  
 
Shares used in computing earnings per diluted Class A share 16,308 13,487 16,208 13,474
 
 
Non-GAAP earnings per diluted Class B share reconciliation
 
Earnings per diluted Class B share $ 0.12 $ 0.27 $ 0.21 $ 0.31
Add back:
Non-cash stock-based compensation 0.08 0.06 0.25 0.20
Amortization of purchased intangible assets 0.02 0.02 0.05 0.06
Change in fair value of interest rate swap 0.01 0.01 (0.01 ) 0.02
Income tax adjustments   (0.03 )   (0.02 )   (0.07 )   (0.07 )
Non-GAAP earnings per diluted Class B share $ 0.20   $ 0.34   $ 0.43   $ 0.52  
 
Shares used in computing earnings per diluted Class B share 3,286 3,265 3,283 3,270

QAD Inc.
Kara Bellamy
Chief Accounting Officer
805-566-6100
investor@qad.com
or
PondelWilkinson Inc.
Laurie Berman | Matt Sheldon
310-279-5980
pwinvestor@pondel.com