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QAD Reports Fiscal 2019 Fourth Quarter and Full Year Financial Results

--Full Year Subscription Revenue Grows 32 Percent; Subscription Margins Improve to 63 Percent--

SANTA BARBARA, Calif., March 20, 2019 /PRNewswire/ -- QAD Inc. (QADA) (QADB), a leading provider of flexible, cloud-based enterprise software and services for global manufacturing companies, today reported financial results for the fiscal 2019 fourth quarter and full year ended January 31, 2019. 

Fiscal 2019 Fourth Quarter Financial Highlights:

Total revenue for the fiscal 2019 fourth quarter improved to $82.7 million, from $80.8 million for the fiscal 2018 fourth quarter.  Currency had a negative $2.1 million impact on total revenue.  Subscription revenue grew 22 percent from the fiscal 2018 fourth quarter and was 29 percent of total revenue for the fourth quarter of fiscal 2019, a five-percentage point improvement over last year's fourth quarter. 

Additional fiscal 2019 fourth quarter financial highlights, versus the same period last year, include:

  • Subscription revenue of $24 million, compared with $19.7 million.  Currency had a $424,000 negative impact.
  • Subscription gross margin of 63 percent, versus 60 percent.
  • License revenue of $9.1 million, compared with $7.2 million.  Currency had a $181,000 negative impact.
  • Professional services revenue of $19.1 million, versus $22.1 million.  Currency had a $715,000 negative impact.
  • Maintenance and other revenue of $30.5 million, compared with $31.9 million.  Currency had a $737,000 negative impact.
  • GAAP pre-tax income of $3.2 million, versus a GAAP pre-tax loss of $3 million
  • Non-GAAP pre-tax income of $6 million, compared with a non-GAAP pre-tax loss of $927,000.
  • GAAP pre-tax income and non-GAAP pre-tax income were higher than the company's guidance as a result of higher than expected license revenue.
  • GAAP net income of $4.9 million, or $0.24 per diluted Class A share and $0.21 per diluted Class B share, versus a GAAP net loss of $5.2 million, or $(0.28) per Class A share and $(0.23) per Class B share.

"During fiscal 2019 we continued to drive growth in our cloud business and delivered substantial improvement to subscription margins," said Anton Chilton, Chief Executive Officer of QAD.  "Our focus on digital transformation brought several new solutions to the market with more to come in the near future.  Additionally, our Channel Islands offering strengthens QAD's leadership position in adaptable cloud-based ERP and enhances our long-term growth prospects."

Fiscal 2019 Full Year Results:

Total revenue for fiscal 2019 reached a record $333 million, compared with $305 million for fiscal 2018.  Currency had no meaningful impact on total revenue.  Subscription revenue grew 32% to $91.9 million for fiscal 2019, compared with $69.6 million last year.  GAAP pre-tax income was $11.9 million for fiscal 2019, compared with a GAAP pre-tax loss of $4.2 million for fiscal 2018.  GAAP net income was $10.4 million, or $0.50 per diluted Class A share and $0.44 per diluted Class B share, for fiscal 2019, versus a GAAP net loss of $9.1 million, or $(0.49) per Class A share and $(0.41) per Class B share, for fiscal 2018.  Non-GAAP pre-tax income for fiscal 2019 was $22.2 million, compared with $5.2 million last year.

QAD's cash and equivalents balance was $139.4 million at January 31, 2019, versus $147 million at January 31, 2018.  Cash provided by operations was $19 million for fiscal 2019, compared with $10.4 million for fiscal 2018.

Fiscal 2019 Fourth Quarter Operational Highlights:

  • Received orders from 47 customers representing more than $500,000 each in combined license, subscription, maintenance and professional services billings, including 21 orders exceeding $1 million, five of which exceeded $2 million;
  • Received license or cloud orders from companies across QAD's six vertical markets, including: Amcor Ltd, Argon Medical Devices, Bundaberg Brewed Drinks P/L, Caterpillar Inc., Hendrickson USA L.L.C., Japan Cash Machine Co., LF Beauty Management Limited, Mayne Pharma Group Ltd., Omron Corporation, San Luis Rassini SA de CV, Solvay SA, Stryker Corporation, Thermo Fisher Scientific, Valmont Industries, Inc., VIP Petfoods, Visteon Corporation, W.L. Gore & Associates, Inc., WireCo WorldGroup and Yanfeng Global Automotive;
  • Named to Food Logistics 2018 FL100+ Top Software and Technology Providers.  Food Logistics is the only publication exclusively dedicated to covering the movement of product through the global food supply chain; and
  • Opened registration for its Explore user conference being held May 6-9 in New Orleans, with special guest speaker, innovation expert, Bob Moesta.

Business Outlook:

As previously disclosed, the company anticipates that the subscription revenue growth rate will slow at the beginning of fiscal 2020, and re-accelerate toward the end of the year.  With an expected decline in professional services revenue, and the ongoing shift of the company's business from licenses to subscription, QAD expects relatively flat total revenue growth for fiscal 2020 despite continued growth of its cloud business.

For the fiscal 2020 first quarter, QAD expects:

  • Total revenue of $78 to $79 million, including $25 to $25.5 million of subscription revenue. 
  • GAAP pre-tax loss of $4 to $5 million.
  • Non-GAAP pre-tax loss of $1 to $2 million.

For the fiscal 2020 full year, QAD expects:

  • Total revenue of $330 to $335 million, including $110 to $112 million of subscription revenue. 
  • GAAP pre-tax income of breakeven.
  • Non-GAAP pre-tax income of $10 to $13 million.

The following is a forward-looking reconciliation of GAAP pre-tax income to non-GAAP pre-tax income for the fiscal 2020 first 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







April 30, 2019


January 31, 2020







Low


High


Low


High

Non-GAAP pre-tax (loss) income reconciliation































GAAP (loss) income before income taxes


$

(4,000)


$

(5,000)


$

(1,000)


$

1,000


Add back
















Stock-based compensation expense



2,500



2,700



11,000



12,000



Amortization of purchased intangible assets



75



75



300



300



Change in fair value of interest rate swap



-



-



-



-


Non-GAAP (loss) income before income taxes


$

(1,425)


$

(2,225)


$

10,300


$

13,300



















Estimated income tax expense on GAAP earnings


$

650


$

750


$

2,600


$

3,000



















Weighted average basic shares outstanding















Class A




16,400



16,800



16,900



17,300



Class B




3,300



3,400



3,300



3,400



















Weighted average diluted shares outstanding















Class A




17,700



18,100



17,800



18,200



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 Fourth Quarter and Full Year Financial Results Conference Call

When: Wednesday, March 20, 2019
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9959 (international)
Replay: Accessible through midnight March 27, 2019; 800-475-6701 (domestic); 320-365-3844 (international); passcode 462707
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 fiscal 2019 fourth quarter and full year.  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. (QADA) (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 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
January 31,


Twelve Months Ended
January 31,






2019


2018


2019


2018

Revenue:















Subscription



$

24,048


$

19,662


$

91,861


$

69,615


License




9,110



7,171



25,568



25,807


Maintenance and other



30,478



31,858



122,936



128,142


Professional services



19,070



22,062



92,651



81,454



Total revenue



82,706



80,753



333,016



305,018

Cost of revenue:














Subscription




8,880



7,810



34,128



30,563


License




942



743



2,714



2,946


Maintenance and other



7,952



7,872



31,307



31,246


Professional services



19,246



23,394



87,735



84,670



Total cost of revenue



37,020



39,819



155,884



149,425

Gross profit




45,686



40,934



177,132



155,593

Operating expenses:














Sales and marketing



20,312



22,387



78,207



75,368


Research and development



13,319



12,329



53,993



47,661


General and administrative



8,425



8,849



35,248



35,222


Amortization of intangibles from acquisitions



66



57



111



416



Total operating expenses



42,122



43,622



167,559



158,667

Operating income (loss) 



3,564



(2,688)



9,573



(3,074)

Other expense (income):














Interest income



(687)



(446)



(2,600)



(1,547)


Interest expense



155



161



643



669


Other (income) expense, net



922



613



(387)



2,012



Total other expense (income), net



390



328



(2,344)



1,134

Income (loss) before income taxes 



3,174



(3,016)



11,917



(4,208)


Income tax (benefit) expense



(1,762)



2,156



1,489



4,857

Net income (loss)


$

4,936


$

(5,172)


$

10,428


$

(9,065)

















Net income (loss)


$

4,936


$

(5,172)


$

10,428


$

(9,065)


Other comprehensive income, net of tax:














Foreign currency translation adjustments



1,177



774



(833)



1,803

Total comprehensive income (loss)


$

6,113


$

(4,398)


$

9,595


$

(7,262)

















Diluted income (loss) per share














Class A



$

0.24


$

(0.28)


$

0.50


$

(0.49)


Class B



$

0.21


$

(0.23)


$

0.44


$

(0.41)

















Diluted Weighted Shares














Class A




17,675



16,029



17,852



15,942


Class B




3,398



3,217



3,422



3,213

 

QAD Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)























January 31,


January 31,





2019


2018

Assets






  Current assets:








Cash and equivalents

$

139,413


$

147,023


Marketable securities


1,200



-


Accounts receivable, net


81,577



83,518


Other current assets


22,150



15,856



Total current assets


244,340



246,397










  Property and equipment, net


29,621



30,408

  Capitalized software costs, net


1,598



990

  Goodwill




12,423



11,023

  Long-term deferred tax assets, net


16,172



7,944

  Other assets, net



13,020



3,055











Total assets


$

317,174


$

299,817



















Liabilities and stockholders' equity






  Current liabilities:








Current portion of long-term debt

$

487


$

466


Accounts payable and other current liabilities


50,250



58,278


Deferred revenue 


115,253



116,693



Total current liabilities


165,990



175,437










  Long-term debt



12,836



13,313

  Other liabilities



5,101



5,439










  Stockholders' equity:








Common stock



20



20


Additional paid-in capital


196,723



200,456


Treasury stock



(7,350)



(12,461)


Accumulated deficit


(48,485)



(75,559)


Accumulated other comprehensive loss


(7,661)



(6,828)



Total stockholders' equity


133,247



105,628











Total liabilities and stockholders' equity

$

317,174


$

299,817

 

 QAD Inc. 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


















 Twelve Months Ended 




 January 31, 



2019


2018







Net cash provided by operating activities

$

19,007


$

10,418








Cash flows from investing activities:







Purchase of property and equipment


(4,336)



(3,650)


Purchase of marketable securities


(1,200)



-


Acquisition of businesses, net of cash acquired


(2,655)



-


Capitalized software costs


(1,067)



(1,019)

Net cash used in investing activities


(9,258)



(4,669)








Cash flows from financing activities:







Repayments of debt


(468)



(445)


Tax payments related to stock awards


(8,744)



(3,353)


Cash dividends paid


(5,479)



(5,367)

Net cash used in financing activities


(14,691)



(9,165)








Effect of exchange rates on cash and equivalents


(2,668)



5,357


Net (decrease) increase in cash and equivalents


(7,610)



1,941


Cash and equivalents at beginning of period


147,023



145,082


Cash and equivalents at end of period

$

139,413


$

147,023

 

QAD Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands)

(unaudited)






































Three Months Ended
January 31,


Twelve Months Ended
January 31,






2019


2018


2019


2018

















Total revenue



$

82,706


$

80,753


$

333,016


$

305,018

















Net income (loss)



4,936



(5,172)



10,428



(9,065)

Add back:















Net interest income



(532)



(285)



(1,957)



(878)


Depreciation



1,163



1,166



4,734



4,562


Amortization



251



202



772



1,199


Income tax (benefit) expense 



(1,762)



2,156



1,489



4,857

EBITDA



$

4,056


$

(1,933)


$

15,466


$

675

Add back:















Stock-based compensation expense



2,504



2,253



10,122



8,924


Change in fair value of interest rate swap



249



(274)



51



(377)

Adjusted EBITDA


$

6,809


$

46


$

25,639


$

9,222

Adjusted EBITDA margin



8%



0%



8%



3%

















































Non-GAAP pre-tax income reconciliation





























Income (loss) before income taxes


$

3,174


$

(3,016)


$

11,917


$

(4,208)

Add back















Stock-based compensation expense



2,504



2,253



10,122



8,924


Amortization of purchased intangible assets



73



110



125



842


Change in fair value of interest rate swap



249



(274)



51



(377)

Non-GAAP income (loss) before income taxes


$

6,000


$

(927)


$

22,215


$

5,181

















Estimated income tax (benefit) expense on GAAP earnings


$

(52)


$

71


$

3,270


$

2,812

 

QAD Logo (PRNewsfoto/QAD Inc.)

 

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