QAD Reports Record Revenue for Fiscal 2015 Fourth Quarter and Full Year

SANTA BARBARA, Calif.--()--QAD Inc. (NASDAQ: QADA) (NASDAQ: QADB), a leading provider of enterprise business software and services for global manufacturing companies, today reported record revenue for the fiscal 2015 fourth quarter and full year ended January 31, 2015.

Total revenue increased 8 percent to a record $79.6 million for the fourth quarter of fiscal 2015, up from $73.5 million for the fiscal 2014 fourth quarter.

Additional fiscal 2015 fourth quarter financial results, compared with the fourth quarter of fiscal 2014 include:

  • License revenue growth of 14 percent to $16.7 million, up from $14.6 million.
  • Subscription revenue growth of 36 percent to $7.9 million, up from $5.8 million.
  • Professional services revenue growth of 12 percent to $20.9 million, up from $18.7 million.
  • Maintenance and other revenue of $34.1 million, compared with $34.5 million.
  • GAAP net income of $6.9 million, or $0.42 per diluted Class A share and $0.36 per diluted Class B share, compared with $4.3 million, or $0.27 per diluted Class A share and $0.23 per diluted Class B share.
  • Non-GAAP net income (defined as GAAP net income before stock-based compensation, amortization of purchased intangible assets, gain/loss adjustments on the company’s interest rate swap and certain income tax adjustments) of $8.7 million, or $0.52 per diluted Class A share and $0.46 per diluted Class B share, compared with $5.5 million, or $0.35 per diluted Class A share and $0.30 per diluted Class B share.

“Fiscal 2015 was a productive and successful year on a number of fronts,” said Karl Lopker, Chief Executive Officer of QAD Inc. “We finished the year with record revenue, including 45% cloud subscription revenue growth, and solid profits for our shareholders. QAD is in a strong position to execute on its growth strategies as we proceed into fiscal 2016.”

Gross profit for the fiscal 2015 fourth quarter was $45.7 million, or 57 percent of total revenue, compared with $42.8 million, or 58 percent of total revenue, for the fiscal 2014 fourth quarter.

Total operating expenses amounted to $37.9 million, or 47 percent of total revenue, for the fiscal 2015 fourth quarter, versus $37.0 million, or 50 percent of total revenue, for the similar quarter last year.

Operating income for the fourth quarter of fiscal 2015 grew to $7.7 million, which included $1.2 million in stock compensation expense. For the fourth quarter of fiscal 2014, operating income was $5.8 million, which included $1.0 million in stock compensation expense.

Cash provided by operations for the fourth quarter of fiscal 2015 grew to $18.7 million, versus $12.6 million for the fourth quarter of fiscal 2014.

Fiscal 2015 Full Year Results

Total revenue rose 11 percent for fiscal 2015 to a record $295.1 million, up from $266.3 million last year.

Additional fiscal 2015 full year financial results, compared with fiscal 2014 full year financial results include:

  • License revenue growth of 13 percent to $40.9 million, up from $36.2 million.
  • Subscription revenue growth of 45 percent to $28.2 million, up from $19.4 million.
  • Professional services revenue growth of 19 percent to $84.7 million, up from $71.2 million.
  • Maintenance and other revenue of $141.3 million, compared with $139.6 million.
  • Annualized subscription revenue run rate of approximately $34 million.
  • GAAP net income increased to $12.9 million, or $0.79 per diluted Class A share and $0.68 per diluted Class B share, for fiscal 2015, up from $6.4 million, or $0.41 per diluted Class A share and $0.34 per diluted Class B share, for fiscal 2014.
  • Non-GAAP net income of $19.9 million, or $1.21 per diluted Class A share and $1.04 per diluted Class B share, compared with $12.3 million, or $0.78 per diluted Class A share and $0.66 per diluted Class B share.

Gross profit for fiscal 2015 was $163.5 million, or 55 percent of total revenue, compared with $149.3 million, or 56 percent of total revenue, for fiscal 2014. Subscription gross profit was 39 percent for fiscal 2015, versus 36 percent last year.

QAD’s cash and equivalents balance was $120.5 million at January 31, 2015, up from $76.0 million at January 31, 2014, primarily related to the company’s common stock offering completed in January 2015. Cash provided by operations for fiscal 2015 was $23.7 million, compared with $24.1 million for fiscal 2014.

Fiscal 2015 Fourth Quarter Operational Highlights:

  • Received orders from 47 customers representing more than $500,000 each in combined license, maintenance, subscription and professional services billings, including 19 orders in excess of $1.0 million, of which six orders were in excess of $2.0 million;
  • Received license or cloud orders from companies across QAD’s six vertical markets, including: AEP Industries Inc., Akebono Brake Industry Co., Apotex Nederland B.V., Baxter Healthcare Corporation, Eaton Corporation, FN America LLC, Lear Corporation, Lem International S.A., Oras Oy, Thermo Fisher Scientific Inc., TRW Automotive, Visteon Corporation and Youngs Seafood Limited;
  • Launched the latest version of QAD’s demand and supply chain planning solution, DynaSys DSCP 2015, a next generation planning solution featuring an enhanced user interface, web portal and cloud accessibility;
  • Completed a successful secondary offering of 2 million shares of Class A common stock, generating proceeds of approximately $37 million after deducting underwriting discounts, commissions and offering expenses; and
  • On February 18, 2015 the offering underwriters exercised in full an option to purchase additional shares. As a result, 450,000 shares of Class A common stock were issued generating approximately $8.4 million in additional proceeds.

Business Outlook

For the first quarter of fiscal 2016, QAD expects:

  • Total revenue of approximately $69 million, including approximately $8.6 million of subscription revenue.
  • GAAP earnings per share of approximately breakeven.
  • Non-GAAP earnings per share of approximately $0.11 per diluted Class A share and $0.09 per diluted Class B share.

For the fiscal 2016 year, QAD expects:

  • Total revenue of approximately $302 million, including approximately $39 million of subscription revenue.
  • GAAP earnings per share of approximately $0.49 per diluted Class A share and $0.41 per diluted Class B share.
  • Non-GAAP earnings per share of approximately $0.91 per diluted Class A share and $0.76 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 2015 Fourth Quarter and Full Year Investor Conference Call

When:

  Thursday, March 12, 2015

Time:

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

Phone:

800-230-1085 (domestic); 612-288-0337 (international)

Replay:

Accessible through midnight March 19, 2015
800-475-6701 (domestic); 320-365-3844 (international); passcode 349246

Webcast:

Accessible at www.qad.com; archive available for approximately one year

Note about Non-GAAP Financial Measures

QAD has disclosed adjusted EBITDA, adjusted EBITDA margins, non-GAAP net income and non-GAAP earnings per diluted share in this press release for the fiscal 2015 and fiscal 2014 fourth quarter and twelve-month periods. 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, amortization of purchased intangible assets, gain/loss adjustments on the company’s 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 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 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 useful comparison of its operating results to the operating results of its peers.

Amortization of purchased intangibles: The company amortizes purchased intangibles in connection with its acquisitions. QAD has excluded the effect of amortization of purchased intangibles which includes purchased technology, customer relationships, trade names and other intangibles 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 intangibles provides a more useful comparison of its operating results to the operating results of its peers.

Change in fair value of 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 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: Excluding the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effective tax rate related to its ongoing operations.

About QAD

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 as on-premise software, in the cloud with QAD Cloud ERP 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: evolving demand for the company's products and companion products; the ability to sustain license and service demand; fluctuation in revenue and earnings in the software industry; the ability to leverage changes in technology; the ability to sustain customer renewal rates at current levels; third party opinions about the company; the reliability of estimates of transaction and integration costs and benefits; competition in our industry; delays in localizing the company's products for new or existing markets; the ability to recruit and retain key personnel; delays in sales; 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. For a more detailed description of the risk factors associated with the company, 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

January 31,

Twelve Months Ended

January 31,

2015   2014   2015   2014  
Revenue:
License fees $ 16,686 $ 14,593 $ 40,917 $ 36,176
Subscription fees 7,873 5,805 28,217 19,406
Maintenance and other 34,070 34,473 141,295 139,557
Professional services   20,933     18,659     84,672     71,172  
Total revenue 79,562 73,530 295,101 266,311
Cost of revenue:
License 1,746 1,807 5,016 4,978
Subscription 5,017 3,639 17,149 12,462
Maintenance and other 8,167 7,800 32,511 32,485
Professional services   18,979     17,453     76,954     67,081  
Total cost of revenue   33,909     30,699     131,630     117,006  
Gross profit   45,653     42,831     163,471     149,305  
Operating expenses:
Sales and marketing 19,466 18,920 69,785 66,009
Research and development 10,066 10,106 42,315 41,237
General and administrative 8,216 7,793 34,680 31,946
Amortization of intangibles from acquisitions   171     179     706     710  
Total operating expenses   37,919     36,998     147,486     139,902  
Operating income   7,734     5,833     15,985     9,403  
Other (income) expense:
Interest income (73 ) (59 ) (242 ) (284 )
Interest expense 213 199 811 829
Other (income), net   (113 )   (421 )   (169 )   (1,294 )
Total other expense (income), net   27     (281 )   400     (749 )
Income before income taxes 7,707 6,114 15,585 10,152
Income tax expense   760     1,768     2,639     3,766  
Net income $ 6,947   $ 4,346   $ 12,946   $ 6,386  
 
Diluted net income per share
Class A $ 0.42 $ 0.27 $ 0.79 $ 0.41
Class B $ 0.36 $ 0.23 $ 0.68 $ 0.34
 
Diluted Weighted Shares
Class A 13,790 13,224 13,553 12,985
Class B 3,271 3,249 3,271 3,238
 
QAD Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
   
 
January 31, January 31,
2015   2014  
Assets
Current assets:
Cash and equivalents $ 120,526 $ 75,984
Accounts receivable, net 78,887 71,337
Deferred tax assets, net 9,313 8,133
Other current assets   14,799     14,980  
Total current assets 223,525 170,434
 
Property and equipment, net 33,154 33,085
Capitalized software costs, net 2,485 3,315
Goodwill 10,911 11,377
Long-term deferred tax assets, net 9,680 11,788
Other assets, net   3,614     4,814  
 
Total assets $ 283,369   $ 234,813  
 
 
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 406 $ 389
Accounts payable and other current liabilities 48,637 45,241
Deferred revenue   102,721     104,160  
Total current liabilities 151,764 149,790
 
Long-term debt 14,680 15,085
Other liabilities 5,219 5,733
 
Stockholders' equity:
Common stock 20 18
Additional paid-in capital 185,546 150,837
Treasury stock (22,977 ) (28,220 )
Accumulated deficit (43,465 ) (51,472 )
Accumulated other comprehensive loss   (7,418 )   (6,958 )
Total stockholders' equity   111,706     64,205  
 
Total liabilities and stockholders' equity $ 283,369   $ 234,813  
 
QAD Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
   
 
Twelve Months Ended
  January 31,
2015 2014
 
Net cash provided by operating activities $ 23,697 $ 24,140
 
Cash flows from investing activities:
Purchase of property and equipment (4,568) (4,746)
Capitalized software costs   (311)   (366)
Net cash used in investing activities   (4,879)   (5,112)
 
Cash flows from financing activities:
Repayments of debt (388) (372)
Tax payments, net of proceeds, related to stock awards (2,557) (1,286)
Excess tax benefits from share-based payment arrangements 266 72
Payment of contingent liability associated with acquisitions (471) -
Repurchase of stock - (686)
Proceeds from issuance of common stock, net of issuance costs 37,046 -
Dividends paid in cash   (4,452)   (5,304)
Net cash provided by (used in) financing activities 29,444 (7,576)
 
Effect of exchange rates on cash and equivalents   (3,720)   (477)
Net increase in cash and equivalents 44,542 10,975
Cash and equivalents at beginning of period   75,984   65,009
Cash and equivalents at end of period $ 120,526 $ 75,984
 
QAD Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(unaudited)
           
 
Three Months Ended

January 31,

Twelve Months Ended

January 31,

2015   2014   2015   2014  
 
Total revenue $ 79,562 $ 73,530 $ 295,101 $ 266,311
 
Net Income 6,947 4,346 12,946 6,386
Add back:
Net interest expense 140 140 569 545
Depreciation 1,007 1,119 3,816 4,080
Amortization 468 491 1,935 1,979
Income taxes   760     1,768     2,639     3,766  
EBITDA $ 9,322   $ 7,864   $ 21,905   $ 16,756  
Add back:
Non-cash stock comp expense 1,199 966 4,993 4,680
Change in fair value of interest rate swap   556     (85 )   877     (634 )
Adjusted EBITDA $ 11,077   $ 8,745   $ 27,775   $ 20,802  
Adjusted EBITDA margin 14 % 12 % 9 % 8 %
 
 
Non-GAAP net income reconciliation
 
Net income $ 6,947 $ 4,346 $ 12,946 $ 6,386
Add back:
Non-cash stock-based compensation 1,199 966 4,993 4,680
Amortization of purchased intangible assets 363 377 1,493 1,505
Change in fair value of interest rate swap 556 (85 ) 877 (634 )
Income tax adjustments   (344 )   (84 )   (459 )   330  
Non-GAAP net income $ 8,721   $ 5,520   $ 19,850   $ 12,267  
 
 
Non-GAAP earnings per diluted Class A share reconciliation
 
Earnings per diluted Class A share $ 0.42 $ 0.27 $ 0.79 $ 0.41
Add back:
Non-cash stock-based compensation 0.07 0.06 0.31 0.30
Amortization of purchased intangible assets 0.02 0.02 0.09 0.09
Change in fair value of interest rate swap 0.03 (0.00 ) 0.05 (0.04 )
Income tax adjustments   (0.02 )   (0.00 )   (0.03 )   0.02  
Non-GAAP earnings per diluted Class A share $ 0.52   $ 0.35   $ 1.21   $ 0.78  
 
Shares used in computing earnings per diluted Class A share 13,790 13,224 13,553 12,985
 
 
Non-GAAP earnings per diluted Class B share reconciliation
 
Earnings per diluted Class B share $ 0.36 $ 0.23 $ 0.68 $ 0.34
Add back:
Non-cash stock-based compensation 0.07 0.05 0.26 0.25
Amortization of purchased intangible assets 0.02 0.02 0.08 0.08
Change in fair value of interest rate swap 0.03 (0.00 ) 0.04 (0.03 )
Income tax adjustments   (0.02 )   (0.00 )   (0.02 )   0.02  
Non-GAAP earnings per diluted Class B share $ 0.46   $ 0.30   $ 1.04   $ 0.66  
 
Shares used in computing earnings per diluted Class B share 3,271 3,249 3,271 3,238
 

Contacts

QAD Inc.
John Neale
QAD Senior Vice President and Treasurer
805.566.5117
investor@qad.com
or
PondelWilkinson Inc.
Laurie Berman/Matt Sheldon, 310.279.5980
pwinvestor@pondel.com

Contacts

QAD Inc.
John Neale
QAD Senior Vice President and Treasurer
805.566.5117
investor@qad.com
or
PondelWilkinson Inc.
Laurie Berman/Matt Sheldon, 310.279.5980
pwinvestor@pondel.com