Market Overview

QAD Reports Fiscal 2019 Second Quarter and Year-To-Date Financial Results

Share:

QAD Reports Fiscal 2019 Second Quarter and Year-To-Date Financial Results

--Year-to-Date Subscription Revenue Grows 34 Percent--

--Leslie Stretch Rejoins QAD Board of Directors--

PR Newswire

SANTA BARBARA, Calif., Aug. 22, 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 second quarter and first six months ended July 31, 2018.  

Fiscal 2019 Second Quarter Financial Highlights:

Total revenue for the fiscal 2019 second quarter increased 11 percent to $84.5 million, from $76 million for the fiscal 2018 second quarter.  Subscription revenue, which grew 29 percent year-over-year, was 27 percent of total revenue for the second quarter of fiscal 2019, a two-percentage point improvement over the first quarter of fiscal 2019.

Additional fiscal 2019 second quarter financial highlights, versus the fiscal 2018 second quarter, include:

  • Subscription revenue of $22.4 million, compared with $17.4 million.
  • Subscription gross margin of 63 percent, versus 57 percent.
  • License revenue of $5.6 million, compared with $6.7 million.
  • Professional services revenue of $26 million, versus $19.8 million.
  • Maintenance and other revenue of $30.6 million, compared with $32 million.
  • GAAP pre-tax income of $2.6 million, versus a GAAP pre-tax loss of $329,000.
  • Non-GAAP pre-tax income of $5.9 million, compared with $2.5 million.
  • GAAP net income of $1.1 million, or $0.05 per diluted Class A share and $0.05 per diluted Class B share, versus a GAAP net loss of $1.2 million, or $0.06 per Class A share and $0.05 per Class B share.

"We continued to generate robust cloud growth and margin improvement during the first half of the year," said Pam Lopker, President of QAD.  "Looking ahead, our proven ability to deliver customer success provides a firm foundation for QAD's future growth."

For the first six months of fiscal 2019, total revenue increased to $170.7 million from $147.3 million for the first six months of last year.  Subscription revenue grew 34% to $44.0 million for the first six months of fiscal 2019 compared to $32.8 million in the prior year period.  GAAP net income was $2.5 million, or $0.12 per diluted Class A share and $0.11 per diluted Class B share, for the fiscal 2019 year-to-date period, versus a GAAP net loss of $3.7 million, or $0.20 per Class A share and $0.17 per Class B share, for the same period last year.  Non-GAAP pre-tax income was $10.5 million for the fiscal 2019 year-to-date period, compared with $2.7 million for the same period last year.

QAD's cash and equivalents balance was $139.5 million at July 31, 2018, versus $147 million at January 31, 2018.  Cash provided by operations was $9.1 million for the first six months of fiscal 2019, compared with $7.6 million for the first six months of fiscal 2018.

Fiscal 2019 Second Quarter Operational Highlights:

  • Received orders from 20 customers representing more than $500,000 each in combined license, subscription, maintenance and professional services billings, including seven orders exceeding $1 million;
  • Received license or cloud orders from companies across QAD's six vertical markets, including: Adient Limited, Amcor Ltd., ARC France SAS, Argon Medical Devices, Caterpillar Inc., CoorsTek, Inc., Essilor International, GKN Plc, Harada Industry Co. Ltd., Haulotte Groupe SA, Irvin Automotive Products, Koninklijke A-ware Food Group B.V., and Visteon Corporation;
  • Inbound Logistics named Precision Software, QAD's global trade management and transportation execution solution division, as a Top 100 Logistics IT Provider for 2018;
  • Received Frost & Sullivan's 2018 Customer Value Leadership Award for the Automotive Industry; and
  • Subsequent to the end of the quarter, announced the opening of an Indonesian subsidiary, and that it will acquire the assets of long-term QAD distributor, PT Iris, a 40-person business consulting group supporting local and multinational companies in Indonesia and the ASEAN region. Terms of the transaction were not disclosed, and QAD does not expect a material impact to fiscal 2019 operating results.

QAD Adds Leslie J. Stretch to Board of Directors

QAD also today announced that Leslie Stretch has rejoined QAD's Board of Directors.  Stretch previously served on QAD's Board from June 2014 to February 2018. 

"I am excited to be able to rejoin QAD's Board, and I believe the company is uniquely positioned to continue growing its cloud business by delivering best-in-class solutions to global manufacturing companies," said Stretch. 

Stretch, 57, was recently appointed President and CEO of Medallia, a leading customer experience management cloud company.  Previously, Stretch was President and CEO of CallidusCloud, leading the transition from an on-premises vendor to the cloud that delivered strong returns for shareholders.  Prior to joining Callidus, Stretch worked for Sun Microsystems for nearly a decade.  At Sun, he held the position of senior vice president of global channel sales, and was the managing director of Sun Microsystems U.K. Ltd.  Before joining Sun, Stretch held various sales positions at Oracle Corporation.

"We are very pleased to have Leslie rejoin our Board.  Leslie's knowledge and experience delivering cloud solutions in the enterprise software space is a perfect fit for us.  Leslie will be able to add value immediately as he is already very familiar with our business," said Pam Lopker.

QAD's board now totals six members, four of whom are independent directors.  Stretch will also be appointed to QAD's Audit and Governance Committees.

Business Outlook

For the fiscal 2019 third quarter, QAD expects:

  • Total revenue of approximately $80 to $82 million, including approximately $22.9 to $23.4 million of subscription revenue;
  • GAAP pretax income of approximately breakeven; and
  • Non-GAAP pretax income of approximately $2.5 to $3.7 million.

QAD raised fiscal 2019 full year guidance and now expects:

  • Total revenue of approximately $332 to $336 million, including approximately $91 to $93 million of subscription revenue;
  • GAAP pretax income of approximately $5 to $7 million; and
  • Non-GAAP pretax income of approximately $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 third quarter and full year:

QAD Inc.

Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance Measures

(in thousands)

(unaudited)



Three Months Ended


Twelve Months Ended


October 31, 2018


January 31, 2019


Low


High


Low


High

Non-GAAP pre-tax income reconciliation
























GAAP (loss) income before income taxes

$

(500)


$

500


$

5,000


$

7,000

Add back













Stock-based compensation expense


3,000



3,200



11,000



12,000


Change in fair value of interest rate swap


-



-



-



-

Non-GAAP income before income taxes

$

2,500


$

3,700


$

16,000


$

19,000













Estimated income tax (benefit) expense on GAAP earnings


(250)


$

250


$

3,200


$

3,700













Weighted average basic shares outstanding













Class A


16,300



16,600



16,200



16,600


Class B


3,200



3,300



3,200



3,300













Weighted average diluted shares outstanding













Class A


17,900



18,200



17,900



18,300


Class B


3,400



3,500



3,400



3,500

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 Second Quarter Financial Results Conference Call

When: Wednesday, August 22, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9960 (international)
Replay: Accessible through midnight August 29, 2018; 800-475-6701(domestic); 320-365-3844 (international); passcode 451877
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 second quarter and first six 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 and global trade 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
July 31,


Six Months Ended
July 31,




2018


2017


2018


2017

Revenue:













Subscription

$

22,439


$

17,420


$

43,950


$

32,763


License


5,561



6,743



11,827



12,008


Maintenance and other


30,574



31,971



62,057



63,877


Professional services


25,969



19,824



52,899



38,692



Total revenue


84,543



75,958



170,733



147,340

Cost of revenue:













Subscription


8,334



7,428



16,562



15,148


License


574



828



1,238



1,513


Maintenance and other


7,774



7,840



15,639



15,534


Professional services


23,754



20,598



48,064



39,365



Total cost of revenue


40,436



36,694



81,503



71,560

Gross profit


44,107



39,264



89,230



75,780

Operating expenses:













Sales and marketing


19,502



17,697



39,448



35,284


Research and development


13,513



11,689



27,519



23,221


General and administrative


9,366



9,224



18,728



17,817


Amortization of intangibles from acquisitions


-



111



-



274



Total operating expenses


42,381



38,721



85,695



76,596

Operating income (loss) 


1,726



543



3,535



(816)

Other (income) expense:













Interest income


(743)



(493)



(1,267)



(661)


Interest expense


154



157



311



313


Other (income) expense, net


(269)



1,208



(673)



1,812



Total other (income) expense, net


(858)



872



(1,629)



1,464

Income (loss) before income taxes 


2,584



(329)



5,164



(2,280)


Income tax expense


1,471



832



2,654



1,452

Net income (loss)

$

1,113


$

(1,161)


$

2,510


$

(3,732)















Net income (loss)

$

1,113


$

(1,161)


$

2,510


$

(3,732)


Other comprehensive income, net of tax:













Foreign currency translation adjustments


(326)



1,132



(836)



1,772

Total comprehensive income (loss)

$

787


$

(29)



1,674



(1,960)















Diluted income (loss) per share













Class A

$

0.05


$

(0.06)


$

0.12


$

(0.20)


Class B

$

0.05


$

(0.05)


$

0.11


$

(0.17)















Diluted Weighted Shares













Class A


17,927



15,914



17,886



15,863


Class B


3,434



3,212



3,425



3,211

 

QAD Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)




















July 31,


January 31,




2018


2018

Assets






  Current assets:







Cash and equivalents

$

139,528


$

147,023


Accounts receivable, net


54,258



83,518


Other current assets


21,116



15,856



Total current assets


214,902



246,397









  Property and equipment, net


29,741



30,408

  Capitalized software costs, net


1,405



990

  Goodwill



11,095



11,023

  Long-term deferred tax assets, net


11,869



7,944

  Other assets, net


10,931



3,055










Total assets

$

279,943


$

299,817

















Liabilities and stockholders' equity






  Current liabilities:







Current portion of long-term debt

$

476


$

466


Accounts payable and other current liabilities


46,664



58,278


Deferred revenue 


91,195



116,693



Total current liabilities


138,335



175,437









  Long-term debt


13,075



13,313

  Other liabilities


4,943



5,439









  Stockholders' equity:







Common stock


20



20


Additional paid-in capital


192,421



200,456


Treasury stock


(7,532)



(12,461)


Accumulated deficit


(53,655)



(75,559)


Accumulated other comprehensive loss


(7,664)



(6,828)



Total stockholders' equity


123,590



105,628










Total liabilities and stockholders' equity

$

279,943


$

299,817

 

 QAD Inc. 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

















 Six Months Ended 



 July 31, 



2018


2017







Net cash provided by operating activities

$

9,146


$

7,638








Cash flows from investing activities:







Purchase of property and equipment


(2,004)



(1,571)


Acquisition of businesses, net of cash acquired


(450)



-


Capitalized software costs


(536)



(480)

Net cash used in investing activities


(2,990)



(2,051)








Cash flows from financing activities:







Repayments of debt


(234)



(222)


Tax payments related to stock awards


(8,576)



(2,781)


Cash dividends paid


(2,731)



(2,675)

Net cash used in financing activities


(11,541)



(5,678)








Effect of exchange rates on cash and equivalents


(2,110)



4,211


Net (decrease) increase in cash and equivalents


(7,495)



4,120


Cash and equivalents at beginning of period


147,023



145,082


Cash and equivalents at end of period

$

139,528


$

149,202

 

QAD Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands)

(unaudited)





























Three Months Ended
July 31,


Six Months Ended
July 31,



2018


2017


2018


2017














Total revenue

$

84,543


$

75,958


$

170,733


$

147,340














Net income (loss)


1,113



(1,161)



2,510



(3,732)

Add back:













Net interest income


(589)



(336)



(956)



(348)


Depreciation


1,188



1,139



2,388



2,243


Amortization


146



307



305



723


Income tax expense 


1,471



832



2,654



1,452

EBITDA

$

3,329


$

781


$

6,901


$

338

Add back:













Stock-based compensation expense


3,364



2,592



5,470



4,360


Change in fair value of interest rate swap


(35)



16



(152)



3

Adjusted EBITDA

$

6,658


$

3,389


$

12,219


$

4,701

Adjusted EBITDA margin


8%



4%



7%



3%








































Non-GAAP pre-tax income reconciliation

























Income (loss) before income taxes

$

2,584


$

(329)


$

5,164


$

(2,280)

Add back













Stock-based compensation expense


3,364



2,592



5,470



4,360


Amortization of purchased intangible assets


-



225



-



567


Change in fair value of interest rate swap


(35)



16



(152)



3

Non-GAAP income before income taxes

$

5,913


$

2,504


$

10,482


$

2,650














Estimated income tax expense on GAAP earnings

$

1,622


$

849


$

2,734


$

1,497

 

QAD Logo (PRNewsfoto/QAD Inc.)

 

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/qad-reports-fiscal-2019-second-quarter-and-year-to-date-financial-results-300701188.html

SOURCE QAD Inc.

View Comments and Join the Discussion!