QAD Announces Fiscal 2010 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 2010 fourth quarter and full year ended January 31, 2010.

Total revenue was $52.7 million for the fourth quarter of fiscal 2010, compared with $58.6 million for the fourth quarter of fiscal 2009. License revenue was $7.1 million, compared with $10.2 million for the fiscal 2009 fourth quarter. As reported previously, the company’s financial results for the quarter were negatively impacted by approximately $5 million related to a number of signed license agreements for which revenue was deferred for accounting purposes. Maintenance and other revenue was $32.4 million, versus $31.7 million for the fourth quarter of fiscal 2009. Services revenue was $13.1 million, compared with $16.7 million for last fiscal year's fourth quarter.

Net income for the fiscal 2010 fourth quarter was $0.7 million, or $0.02 per diluted share, compared with a net loss for the fourth quarter of fiscal 2009 of $19.7 million, or $0.64 per share. Fiscal 2009 fourth quarter net loss included a non-cash goodwill write-down of $14.4 million.

“Sales for the fourth quarter were generally in line with our plan, and we were profitable for the quarter and the year despite the revenue deferrals,” said Karl Lopker, chief executive officer of QAD. “We successfully navigated through a difficult economic environment by improving receivables and generating significant cash flow, which increased our cash balance by $13 million. At the same time, we advanced our product line and partnered with our manufacturing customers to help them deploy our solutions to capture growth opportunities and maximize profitability.”

Gross margin for the fourth quarter of fiscal 2010 was 60 percent, compared with 52 percent for the fourth quarter of fiscal 2009, primarily attributable to a decrease in services costs and changes in the company’s overall revenue mix.

Total operating expenses were $29.7 million, or 56 percent of total revenue, for the fiscal 2010 fourth quarter. Total operating expenses were $35.8 million, or 61 percent of total revenue, for the fourth quarter of fiscal 2009, excluding the $14.4 million goodwill write-down. Including the write-down, operating expenses for the 2009 fiscal fourth quarter were $50.2 million.

Operating income for the fiscal 2010 fourth quarter was $1.9 million, including $0.9 million in stock compensation expense. This compares with an operating loss of $19.5 million, including $1.0 million in stock compensation expense.

For the fiscal year ended January 31, 2010, total revenue was $215.2 million, versus $262.7 million for fiscal 2009.

Operating expenses for fiscal 2010 were $120.7 million, compared with $150.6 million in fiscal 2009, excluding the $14.4 million goodwill write-down.

Operating income for fiscal 2010 was $2.9 million, including $4.6 million in stock compensation expense. Fiscal 2009 operating loss was $23.9 million, including $5.5 million in stock compensation expense. Net income was $1.3 million, or $0.04 per diluted share, for fiscal 2010, compared with a net loss of $23.7 million, or $0.77 per share, for fiscal 2009.

Cash flow provided by operations was $2.1 million for the fourth quarter of fiscal 2010, versus cash flow used in operations of $2.4 million for the fourth quarter of fiscal 2009. For the full 2010 fiscal year, cash flow provided by operations was $17.7 million, versus $7.3 million in the prior fiscal year.

QAD's cash and equivalents balance at January 31, 2010 was $44.7 million, compared with $31.5 million at January 31, 2009. The increase in cash and equivalents was primarily attributable to a significant improvement in cash provided by operations, capital expenditure controls and the finalization of acquisition-related payments in fiscal 2009.

Fourth Quarter Fiscal 2010 Highlights:

• Received orders from 26 customers representing more than $500,000 each in combined license, support and services billings, including nine orders in excess of $1.0 million and three in excess of $2.0 million;
• Received license orders from companies across QAD’s six vertical markets including, among others:
  AB S.A., Beaphar B.V., The Boler Company, Crane Co., Essex Group Limited, ev3 Inc., PANalytical B.V., Schlumberger Limited and Watts Industries;
  
• Announced support for the latest version of the automotive industry’s Materials Management Operations Guideline/Logistics Evaluation (MMOG/LE). QAD participated with a variety of North American and European automotive trade groups to provide a set of best practices for automotive suppliers, which are reflected in the updated guidelines.

Business Outlook

For the first quarter of fiscal 2011, the company currently expects revenue of approximately $54.0 million and fully diluted earnings per share of approximately $0.03, assuming a tax rate of 30 percent. Given the continued uncertainty surrounding the global economic recovery, the company is not issuing full year guidance.

Investor Conference Call

QAD will host an investor conference call today at 2:00 p.m. PT (5.00 p.m. ET) to discuss the company’s financial results and operations for the fiscal 2010 fourth quarter and full year. The call will be accessible through a live webcast at QAD’s web site at www.qad.com. The webcast will be archived and available for approximately one year. Interested parties may participate in the call by dialing 800-230-1059. A replay of this call will be accessible through March 18 by dialing 800-475-6701, access code 128545.

About QAD

QAD is a leading provider of enterprise applications for global manufacturing companies specializing in automotive, consumer products, electronics, food and beverage, industrial and life science 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. 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 2009 ended January 31, 2009.