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/C O R R E C T I O N -- QAD Inc./

In the news release, QAD Reports Fiscal 2019 Third Quarter and Year-To-Date Financial Results, issued 20-Nov-2018 by QAD Inc. over PR Newswire, we are advised by the company that in the Business Outlook section, in the 3rd bullet point where it states, "Increased Non-GAAP pre-tax income to approximately $19 to $21.5 million from previous guidance of $16 to $19 million", this should read "Increased Non-GAAP pre-tax income to approximately $19 to $20.5 million from previous guidance of $16 to $19 million". The complete, corrected release follows:

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

--YTD Subscription Revenue Grows 36 Percent and YTD Subscription Gross Margin Improves Nine Percentage Points to 63 Percent--

<!--Begin actual release body-->

SANTA BARBARA, Calif., Nov. 20, 2018 /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 third quarter and first nine months ended October 31, 2018. 

Fiscal 2019 Third Quarter Financial Highlights:

Total revenue for the fiscal 2019 third quarter grew to $79.6 million, from $77 million for the fiscal 2018 third quarter.  Currency had a negative $1.4 million impact on total revenue.  Subscription revenue increased 39 percent year-over-year, and represented 30 percent of total revenue for the third quarter of fiscal 2019, an eight-percentage point improvement over the prior-year third quarter. 

Additional fiscal 2019 third quarter financial highlights, versus the comparable period last year, include:

  • Subscription revenue of $23.9 million, compared with $17.2 million. Currency had a $252,000 negative impact.
  • Subscription gross margin of 64 percent, versus 56 percent.
  • License revenue of $4.6 million, compared with $6.6 million. The currency impact was not meaningful.
  • Professional services revenue remained constant at $20.7 million. Currency had a $492,000 negative impact.
  • Maintenance and other revenue of $30.4 million, compared with $32.4 million. Currency had a $550,000 negative impact.
  • GAAP pre-tax income of $3.6 million, versus $1.1 million. GAAP pre-tax income was higher than the company's prior guidance as a result of improved subscription margins and lower personnel expenses.
  • Non-GAAP pre-tax income of $5.7 million, compared with $3.5 million.
  • GAAP net income of $3 million, or $0.14 per diluted Class A share and $0.12 per diluted Class B share, versus a GAAP net loss of $161,000, or $(0.01) per Class A share and $(0.01) per Class B share.

"Our subscription business continued its revenue and margin growth as increasing numbers of global manufacturers embraced the cloud," said Pam Lopker, President of QAD.  "With QAD's new Channel Islands offering now generally available in the cloud, the competitiveness of our product portfolio uniquely positions us for long term cloud revenue growth."

For the first nine months of fiscal 2019, total revenue was $250.3 million, compared with $224.3 million for the first nine months of the prior fiscal year.  Currency had a $2.5 million positive impact on total revenue.  Subscription revenue grew 36% to $67.8 million for the first nine months of fiscal 2019, compared with $50 million for the first nine months of fiscal 2018.  GAAP net income was $5.5 million, or $0.26 per diluted Class A share and $0.23 per diluted Class B share, for the fiscal 2019 year-to-date period, versus a GAAP net loss of $3.9 million, or $(0.21) per Class A share and $(0.17) per Class B share, for the same period last year.  Non-GAAP pre-tax income was $16.2 million for the first nine months of fiscal 2019, compared with $6.1 million for the same period last year.

QAD's cash and equivalents balance was $138.1 million at October 31, 2018, versus $147 million at January 31, 2018.  Cash provided by operations was $15.1 million for the first nine months of fiscal 2019, compared with $2.8 million for the first nine months of fiscal 2018.

Fiscal 2019 Third Quarter Operational Highlights:

  • Received orders from 18 customers representing more than $500,000 each in combined license, subscription, maintenance and professional services billings, including seven orders exceeding $1 million, three of which exceeded $2 million;
  • Received license or cloud orders from companies across QAD's six vertical markets, including: Adient Limited, Amtico Holdings Ltd., Argon Medical Devices, Avnet, Inc., Bakkersland B.V., Block & Company Inc., Danyang UPC Auto Parts Co., LTD, Exactech, Inc., Koninklijke Sanders B.V., Changchun Engley Automotive Industry Co. Ltd., LGC Group Limited, and Renolit SE;
  • Announced availability of the latest version of QAD Cloud ERP and related solutions, including the general availability of its Channel Islands offering for use with QAD Cloud ERP 2018;
  • Announced availability of Production Orders 3.0 with QAD Cloud ERP, which is compatible with the company's Channel Islands offering and includes enhancements to QAD Master Planning and Scheduling Workbenches;
  • Signed system integrator agreements with Tata Consultancy Services and YASH Technologies to provide global consulting and implementation services; and
  • Won the Frost & Sullivan 2018 North American ERP for Automotive Customer Value Leadership Award.

Business Outlook

QAD updated its fiscal 2019 full year guidance as follows:

  • In the range of previous guidance, total revenue of approximately $332 million, including approximately $92 million of subscription revenue;
  • Increased GAAP pre-tax income to approximately $9 to $10 million from previous guidance of $5 to $7 million; and
  • Increased Non-GAAP pre-tax income to approximately $19 to $20.5 million from previous guidance of $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 full year:

QAD Inc.

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

(in thousands)

(unaudited)




Twelve Months Ended



January 31, 2019



Low


High

Non-GAAP pre-tax income reconciliation














GAAP income before income taxes


$

9,000


$

10,000

Add back








          Stock-based compensation expense



10,000



10,400


          Amortization of purchased intangible assets



67



67


          Change in fair value of interest rate swap



-



-

Non-GAAP income before income taxes


$

19,067


$

20,467








Estimated income tax expense on GAAP earnings


$

3,600


$

4,000








Weighted average basic shares outstanding








          Class A



16,200



16,600


          Class B



3,200



3,300


Weighted average diluted shares outstanding








          Class A



17,800



18,200


          Class B



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 Third Quarter Financial Results Conference Call

When: Tuesday, November 20, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9959 (international)
Replay: Accessible through midnight November 27, 2018; 800-475-6701 (domestic); 320-365-3844 (international); passcode 455726
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 third quarter and first nine 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. (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
October 31,


Nine Months Ended
October 31,



2018


2017


2018


2017

Revenue:














     Subscription


$

23,863


$

17,190


$

67,813


$

49,953


     License



4,631



6,628



16,458



18,636


     Maintenance and other



30,401



32,407



92,458



96,284


     Professional services



20,682



20,700



73,581



59,392



          Total revenue



79,577



76,925



250,310



224,265

Cost of revenue:














     Subscription



8,686



7,605



25,248



22,753


     License



534



690



1,772



2,203


     Maintenance and other



7,716



7,840



23,355



23,374


     Professional services



20,425



21,911



68,489



61,276


           Total cost of revenue



37,361



38,046



118,864



109,606

Gross profit



42,216



38,879



131,446



114,659

Operating expenses:














     Sales and marketing



18,447



17,697



57,895



52,981


     Research and development



13,155



12,111



40,674



35,332


     General and administrative



8,095



8,556



26,823



26,373


     Amortization of intangibles from acquisitions



45



85



45



359


          Total operating expenses



39,742



38,449



125,437



115,045

Operating income (loss) 



2,474



430



6,009



(386)

Other (income) expense:














     Interest income



(646)



(440)



(1,913)



(1,101)


     Interest expense



177



195



488



508


     Other (income) expense, net



(636)



(413)



(1,309)



1,399


          Total other (income) expense, net



(1,105)



(658)



(2,734)



806

Income (loss) before income taxes 



3,579



1,088



8,743



(1,192)


     Income tax expense



597



1,249



3,251



2,701

Net income (loss)


$

2,982


$

(161)


$

5,492


$

(3,893)














Net income (loss)


$

2,982


$

(161)


$

5,492


$

(3,893)


     Other comprehensive income, net of tax:














     Foreign currency translation adjustments



(1,174)



(743)



(2,010)



1,029

Total comprehensive income (loss)


$

1,808


$

(904)


$

3,482


$

(2,864)














Diluted income (loss) per share














     Class A


$

0.14


$

(0.01)


$

0.26


$

(0.21)


     Class B


$

0.12


$

(0.01)


$

0.23


$

(0.17)














Diluted Weighted Shares














     Class A



17,948



16,011



17,911



15,913


     Class B



3,433



3,214



3,429



3,212

 

QAD Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)




October 31,


January 31,


2018


2018

Assets






Current assets:







     Cash and equivalents

$

138,080


$

147,023


     Accounts receivable, net


46,420



83,518


     Other current assets


19,493



15,856


          Total current assets


203,993



246,397







Property and equipment, net


29,600



30,408

Capitalized software costs, net


1,486



990

Goodwill


12,284



11,023

Long-term deferred tax assets, net


11,363



7,944

Other assets, net


11,784



3,055








          Total assets

$

270,510


$

299,817













Liabilities and stockholders' equity






Current liabilities:







     Current portion of long-term debt

$

481


$

466


     Accounts payable and other current liabilities


45,719



58,278


     Deferred revenue 


80,537



116,693


          Total current liabilities


126,737



175,437







Long-term debt


12,957



13,313

Other liabilities


4,773



5,439







Stockholders' equity:







     Common stock


20



20


     Additional paid-in capital


194,292



200,456


     Treasury stock


(7,384)



(12,461)


     Accumulated deficit


(52,047)



(75,559)


     Accumulated other comprehensive loss


(8,838)



(6,828)


          Total stockholders' equity


126,043



105,628








     Total liabilities and stockholders' equity

$

270,510


$

299,817

 

 QAD Inc. 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)





 Nine Months Ended 


October 31, 


2018


2017






Net cash provided by operating activities

$

15,117


$

2,844


Cash flows from investing activities:







     Purchase of property and equipment


(3,225)



(2,587)


     Acquisition of businesses, net of cash acquired


(2,655)



-


     Capitalized software costs


(778)



(809)

Net cash used in investing activities


(6,658)



(3,396)


Cash flows from financing activities:







     Repayments of debt


(350)



(333)


     Tax payments related to stock awards


(8,705)



(3,243)


     Cash dividends paid


(4,105)



(4,021)

Net cash used in financing activities


(13,160)



(7,597)







Effect of exchange rates on cash and equivalents


(4,242)



3,094


     Net decrease in cash and equivalents


(8,943)



(5,055)


     Cash and equivalents at beginning of period


147,023



145,082


     Cash and equivalents at end of period

$

138,080


$

140,027

 

QAD Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands)

(unaudited)





Three Months Ended
October 31,


Nine Months Ended
October 31,



2018


2017


2018


2017














Total revenue


$

79,577


$

76,925


$

250,310


$

224,265














Net income (loss)



2,982



(161)



5,492



(3,893)

Add back:














     Net interest income



(469)



(245)



(1,425)



(593)


     Depreciation



1,183



1,153



3,571



3,396


     Amortization



216



274



521



997


     Income tax expense 



597



1,249



3,251



2,701

EBITDA


$

4,509


$

2,270


$

11,410


$

2,608

Add back:














     Stock-based compensation expense



2,148



2,311



7,618



6,671


     Change in fair value of interest rate swap



(46)



(106)



(198)



(103)

Adjusted EBITDA


$

6,611


$

4,475


$

18,830


$

9,176

Adjusted EBITDA margin



8%



6%



8%



4%








































Non-GAAP pre-tax income reconciliation


























Income (loss) before income taxes


$

3,579


$

1,088


$

8,743


$

(1,192)

Add back














     Stock-based compensation expense



2,148



2,311



7,618



6,671


     Amortization of purchased intangible assets



52



165



52



732


     Change in fair value of interest rate swap



(46)



(106)



(198)



(103)

Non-GAAP income before income taxes


$

5,733


$

3,458


$

16,215


$

6,108














Estimated income tax expense on GAAP earnings


$

588


$

1,244


$

3,322


$

2,741

 

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