Neoware Reports First Quarter FY07 Results


KING OF PRUSSIA, Pa., Oct. 30, 2006 (PRIMEZONE) -- Neoware, Inc. (Nasdaq NWRE), the leading supplier of thin client software and devices, today reported financial results for its first quarter of fiscal year 2007.

Q1 Financial Highlights:



 --   Revenues were $21,560,000 in the September 2006 quarter, compared
      to $26,543,000 in the prior year first quarter. The September
      2005 quarter included revenue of $9.0 million from two large
      enterprise customers who contributed $1.5 million of revenue in
      the September 2006 quarter.

 --   Gross profit was 34% of revenue, compared to 40% of revenue in
      the prior year first quarter. Non-GAAP gross profit was 36% of
      revenue, compared to 41% of revenue in the prior year first
      quarter. Cost of sales in the September 2006 quarter include a
      $1.5 million write off of unfinished goods inventory for certain
      acquired products and a $350,000 charge related to purchase
      commitments for third party software products. The gross profit
      margin in the Sept 2005 quarter was impacted by $5.8 million of
      sales of the Neoware e900 product which has lower gross margin as
      a percentage of revenue.

 --   Operating expenses were $9,425,000, or 44% of revenue, compared
      to $8,066,000, or 30% of revenue, in the prior year first
      quarter. Non-GAAP operating expenses were $7,929,000, or 37% of
      revenue, compared to $7,050,000, or 27% of revenue, in the prior
      year first quarter. Operating expenses in the September 2006
      quarter included $260,000 of severance charges due to staff
      changes.

 --   Non-GAAP net income for the quarter was $.03 per fully diluted
      share, compared to $.17 per fully diluted share in the prior year
      first quarter.

 --   GAAP net loss for the quarter was ($.05) per diluted share,
      compared to a GAAP net income of $.11 per diluted share in the
      prior year first quarter.

 --   The Company ended the quarter with $110 million of cash and
      short-term investments.

 --   Non-GAAP results exclude amortization of acquisition-related
      intangibles and stock-based compensation and apply an effective
      tax rate of 16% and 33% in the first quarters of fiscal 2007 and
      2006, respectively, for the purpose of showing a comparable view
      of the Company's performance from period to period. The effective
      tax rate has declined due to the favorable impact of tax free
      investment income generated in fiscal 2007.

"Since joining Neoware as President three months ago, I have developed an appreciation of our strengths, and of what we need to do to move our business forward aggressively," commented Klaus Besier, Neoware's CEO. "And we have seen some positives this quarter in the growth of our EMEA revenue base as well as growth in our SMB business.

"Our strategy for rebuilding growth will involve strong marketing, sales, and product development efforts. Some of this will require a refocusing of priorities and resources that will have a near term financial impact, as experienced this quarter.

"Our focus on large enterprises has shown success for the Company, and we are continuing with that strategy, but enterprise accounts require time to develop. To improve our ability to achieve growth objectives, we also need to expand our business partnerships to include additional channels, such as systems integrators and independent software vendors.

"We firmly believe the thin client market is a very attractive area, and we are continuing our investments in both people and programs to regain our growth. We see more potential today, in more verticals than ever before in areas like retail, healthcare, transportation, financial services and the Federal Government. The good news is that we have talented people and financial resources to help us fully exploit this potential.

"I'm excited to be here and to work with an outstanding group of dedicated employees to take the company forward to its next level."

Fiscal Year 2007 Guidance

Based upon currently available information, the Company believes its revenues to be approximately $100 million for our fiscal 2007. Gross profit margin is expected to be in the 40% range and fluctuate based on product mix and competitive pricing strategies. The Company is revising its operating model for the remainder of fiscal 2007 including hiring and spending plans and expects to provide full guidance updates before the end of the December 2006 quarter.

CONFERENCE CALL INFORMATION

Neoware will host a conference call at 5:00 PM ET on October 30, 2006. The conference call will be available live at www.vcall.com and on the Neoware website at www.neoware.com. To participate, please go to the website 10 minutes prior to the call to register, download and install any necessary audio software. If you are unable to attend the live conference call, an Internet replay of the call will be archived and available after the call through December 31, 2006.

The call will also be accessible by dialing 1-800-974-9436 for domestic U.S. calls and +1-641-297-7617 for international calls. The conference ID will be NEOWARE. A replay of the call will be available through December 31, 2006, by dialing 1-800-645-7959 in the U.S. and +1- 973-854-1361 internationally. A copy of the press release announcing the Company's earnings and other financial and statistical information about the period to be presented in the conference call will be available on the Company's website at www.neoware.com/events.

Non-GAAP Financial Measures

Neoware presents the following non-GAAP financial measures: non-GAAP gross profit and margin; non-GAAP operating expenses; non-GAAP operating income and margin; non-GAAP effective income tax rate; non-GAAP income taxes; non-GAAP net income; and non-GAAP earnings per share. We exclude the following items in the development of the non-GAAP financial measures presented:

Stock-based compensation expenses. Our non-GAAP financial measures exclude stock-based compensation expenses, which consist of expenses for stock-based compensation that we began recording under SFAS 123(R) in the first quarter of fiscal 2006. We exclude these expenses from our non-GAAP financial measures primarily because (i) they are expenses that we exclude when assessing the performance of our business, and (ii) exclusion of these expenses allows more meaningful comparisons against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis. In addition, stock-based compensation amounts are difficult to forecast, because the magnitude of the charges depends upon the volume and timing of stock option and other equity-based compensation grants, which can vary dramatically from period to period, and external factors such as interest rates and the trading price and volatility of our common stock. Excluding these stock-based compensation amounts improves comparability of the performance of the business across periods.

Amortization of acquired intangible assets. In accordance with GAAP, cost of sales and operating expenses include amortization of acquired intangible assets such as intellectual property, customer lists and covenants not to compete. We exclude these items from our non-GAAP financial measures because (i) they are expenses that we exclude when assessing the performance of our business, as the timing and amount of the expenses vary from period to period as we have a history of acquiring businesses which result in continued additions to amortization expense, and (ii) exclusion of these expenses better allows comparison against financial models prepared by our investors and securities analysts that also present information on a GAAP and non-GAAP basis.

Income taxes. We use the effective tax rate applied to income before taxes adjusted to exclude the stock-based compensation expense and amortization of acquired intangible assets.

The Company believes that its non-GAAP financial measures provide meaningful supplemental information regarding the Company's operating results because they exclude amounts that the Company excludes as part of its monitoring of operating results and assessing the performance of the business. For example, the Company uses non-GAAP measures, including gross profit, operating expense and operating income excluding amortization and stock-based compensation expense, in its financial and operational decision making, including decisions regarding staffing, future management priorities and how the Company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, the Company has established incentive compensation programs utilizing, in part, such non-GAAP financial measures, including non-GAAP operating income. For the same reasons, management also uses this information in its budgeting and forecasting activities and in quarterly reports to its Board of Directors.

Non-GAAP financial measures should not be considered as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Neoware's non-GAAP financial measures do not reflect a comprehensive system of accounting, and they differ from GAAP measures with similar names and from non-GAAP financial measures with the same or similar names that are used by other companies. We strongly urge investors and potential investors in our securities to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures that are included in this release, and our consolidated financial statements, including the notes thereto, and the other financial information contained in our periodic filings with the SEC and not to rely on any single financial measure to evaluate our business. The principal limitation of Neoware's non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded. In addition, non-GAAP financial measures are subject to inherent limitations because they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. To mitigate this limitation, Neoware presents its non-GAAP financial measures in connection with its GAAP results, and recommends that investors do not give undue weight to its non-GAAP financial measures.

A reconciliation between non-GAAP and GAAP measures can be found in the accompanying schedule and in the News section of our web site at www.neoware.com.

About Neoware

Neoware, Inc. (Nasdaq:NWRE) provides enterprises throughout the world with thin client computing devices, software that turns PCs into thin clients, and services that adapt thin client technology to virtually any enterprise computing environment. Neoware's software powers, manages and secures thin client devices and traditional personal computers, enabling them to run Windows(r) and Web applications across a network, stream operating systems on demand, and connect to mainframes, mid-range, UNIX and Linux systems. Headquartered in King of Prussia, PA, USA, Neoware has offices in Australia, Austria, China, France, Germany, and the United Kingdom. Neoware's products are available worldwide from select, knowledgeable resellers, as well as via its partnerships with IBM, Lenovo and ClearCube. Neoware can be reached by email at info@neoware.com.

Neoware is a registered trademark of Neoware, Inc. All other names, products and services are trademarks or registered trademarks of their respective holders.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding: our strategy for rebuilding growth based on marketing, sales and product development efforts; our refocusing of our priorities and resources having a near-term financial impact; our belief in our market; continuing our investments in people and programs to regain growth; our focus on large enterprise accounts and our planned expansion of our business partnerships to include additional channels; our talented people; increased interest in our solutions from more vertical markets; our expectations as to revenues and gross profit for fiscal 2007; and our revision of our operating model for the balance of fiscal 2007. Factors that could cause actual results to differ materially from those predicted in such forward-looking statements include: our success in implementing our expanded marketing, sales and product development initiatives within our planned timeframe; higher than expected severance payments; additional write offs of inventory; our success in increasing sales to the targeted customers and our continued dependence on enterprise customers; our inability to manage our expanded organization; our inability to successfully integrate our recent acquisitions; the timing and receipt of future orders; our timely development and customers' acceptance of our products; pricing pressures; rapid technological changes in the industry; growth of overall thin client sales; our ability to maintain our partnerships; our dependence on our suppliers and distributors; increased competition; our continued ability to sell our products through Lenovo to IBM's customers; our ability to attract and retain qualified personnel; adverse changes in customer order patterns; our ability to identify and successfully consummate and integrate future acquisitions; adverse changes in general economic conditions in the U. S. and internationally; risks associated with foreign operations; and political and economic uncertainties associated with current world events. These and other risks are detailed from time to time in Neoware's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, our annual report on Form 10-K for the year ended June 30, 2006.



                            NEOWARE, INC.
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                            (in thousands)


                                              September 30,   June 30,
                   ASSETS                         2006          2006
                                              -----------    ---------

 Current assets:
   Cash and cash equivalents                    $  21,657    $  19,328
   Short-term investments                          88,756       94,798
   Accounts receivable, net                        15,145       16,877
   Inventories                                      9,405        7,734
   Prepaid expenses and other                       5,319        3,231
   Deferred income taxes                            1,866        1,866
                                                ---------    ---------

      Total current assets                        142,148      143,834

 Goodwill                                          38,093       37,761
 Intangibles, net                                  11,312       12,175
 Deferred income taxes                              4,093        4,156
 Property and equipment, net                        1,559        1,586
 Other                                                 80           61
                                                ---------    ---------
                                                $ 197,285    $ 199,573
                                                =========    =========

       LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable                             $   4,827    $   8,989
   Accrued compensation and benefits                1,768        2,021
   Restructuring Reserve                              545          600
   Income taxes payable                               150          158
   Other accrued expenses                           5,059        4,159
   Deferred revenue                                 1,038          973
                                                ---------    ---------

      Total current liabilities                    13,387       16,900

 Deferred income taxes                                773          755
 Deferred revenue                                     316          316
                                                ---------    ---------
      Total liabilities                            14,476       17,971
                                                ---------    ---------


 Stockholders' equity: 
    Preferred stock                                    --           --
   Common stock                                        20           20
   Additional paid-in capital                     160,337      158,671
   Treasury stock, 100,000 shares at cost            (100)       (100)
   Accumulated other comprehensive income           1,053          556
   Retained earnings                               21,499       22,455
                                                ---------    ---------
      Total stockholders' equity                  182,809      181,602
                                                ---------    ---------
                                                $ 197,285    $ 199,573
                                                =========    =========


                            NEOWARE, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share data)

                                                    Three Months Ended
                                                       September 30,
                                                   -------------------
                                                     2006       2005
                                                   --------   --------


 Net revenues                                      $ 21,560   $ 26,543
                                                   --------   --------

 Cost of revenues

    Cost of products (a)                             13,923     15,569
    Amortization of intangibles                         336        273
                                                   --------   --------
       Total cost of revenues                        14,259     15,842
                                                   --------   --------
         Gross profit                                 7,301     10,701
                                                   --------   --------

 Operating expenses

    Sales and marketing                               4,412      4,169
    Research and development                          1,774      1,284
    General and administrative                        2,650      2,298
    Amortization of intangibles                         589        315
                                                   --------   --------

     Total operating expenses (b)                     9,425      8,066
                                                   --------   --------

        Operating income   (loss)                    (2,124)     2,635

 Foreign exchange gain (loss)                           (27)         9
 Interest income, net                                   981        244
 Other                                                   33         --
                                                   --------   --------

       Income before income taxes                    (1,137)     2,888

 Income tax expense (benefit)                          (182)     1,047
                                                   --------   --------

 Net income (loss)                                 $   (955)  $  1,841
                                                   ========   ========

 Earnings (loss) per share:
   Basic                                           $   (.05)  $    .11
                                                   ========   ========
   Diluted                                         $   (.05)  $    .11
                                                   ========   ========


 Weighted average number of
  common shares outstanding:

   Basic                                             19,943     16,271
                                                   ========   ========

   Diluted                                           19,943     16,434
                                                   ========   ========

 (a) includes stock-based compensation expense of $25 and $19 for the
     three months ended September 30.

 (b) includes stock-based compensation expense of $907 and $701 for
     the three months ended September 30.


                            NEOWARE, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands)



                                                    Three Months Ended
                                                       September 30,
                                                   -------------------
                                                     2006       2005
                                                   --------   --------
 Cash flows from operating activities:

    Net income (loss)                              $   (955)  $  1,841
    Adjustments to reconcile net
     income to net cash provided by
     operating activities -
        Amortization of intangibles                     925        588
        Depreciation                                    138         89
        Non-cash share-based compensation               933        720
        Deferred income taxes                            65         --
    Changes in operating assets and
     liabilities - net of effect from
     acquisition -
        Accounts receivable                           1,813       (410)
        Inventories                                  (1,671)      (587)
        Prepaid expenses and other                   (2,104)       605
        Accrued compensation and benefits              (255)      (953)
        Accounts payable                             (4,164)      (130)
        Other accrued expenses                          834         25
        Income taxes payable                             (8)    (1,271)
        Deferred revenue                                 59          5
                                                   --------   --------
 Net cash provided by (used in)
  operating activities                               (4,390)       522
                                                   --------   --------
 Cash flows from investing activities:

    Purchase of short-term investments              (34,455)      (900)
    Sales of short-term investments                  40,496      4,250
    Purchases of property
     and equipment                                     (110)      (174)
                                                   --------   --------
 Net cash provided by investing
  activities                                          5,931      3,176
                                                   --------   --------

 Cash flows from financing activities:
    Repayments of capital leases                         --         (2)
    Proceeds from issuance of common
     stock, net of expenses                              (3)        --
    Exercise of stock options
     and warrants                                        36        161
    Tax benefit from share-based
     payment arrangements                               699        446
                                                   --------   --------
 Net cash provided by financing
   activities                                           732        605
                                                   --------   --------

 Effect of foreign exchange
  rate changes on cash                                   56        (38)
                                                   --------   --------

    Increase in cash equivalents                      2,329      4,265
 Cash and cash equivalents,
  beginning of period                                19,328      8,285
                                                   --------   --------
    Cash and cash equivalents,
     end of period                                 $ 21,657   $ 12,550
                                                   ========   ========

 Supplemental disclosures:
    Cash paid for income taxes                    $     309   $  2,647



 NEOWARE, INC.
              RECONCILIATION OF GAAP TO NON GAAP AMOUNTS
                 (in thousands, except per share data)

                              (unaudited)

                                               Three Months Ended
                                               September 30, 2006
                                        ------------------------------
                                         GAAP   Adjustments     Non-
                                                                GAAP
                                        ------------------------------

 Gross profit                            7,301       361(a)(b)   7,662
                                        ================        ======
    Gross profit percentage                 34%                     36%

 Operating expenses

   Sales and marketing                   4,412      (355)(a)     4,057
   Research and development              1,774       (95)(a)     1,679
   General and administrative            2,650      (457)(a)     2,193
   Amortization of intangibles             589      (589)(b)        --
                                        ----------------        ------
          Operating expenses             9,425    (1,496)        7,929
                                        ================        ======

 Operating income
  (loss)                                (2,124)    1,857(a)(b)    (267)
                                        ================        ======

 Income tax expense
  (benefit)                               (182)      297(c)        115
                                        ================        ======


 Net income (loss)                      $ (955)                 $  605
                                        ======                  ======



 Earnings (loss) per
  share - diluted                       $(0.05)                 $ 0.03
                                        ======                  ======

 Weighted average shares
  outstanding - diluted                 19,943                  19,943
                                        ======                  ======


 (a)  To exclude the effect of stock-based compensation expense.

 (b)  To exclude the effects of the amortization of intangible assets
      related to business combinations.

 (c)  To adjust to an effective tax rate of 16% and 33% for the three
      months ended September 30, 2006 and 2005 respectively.




                                              Three Months Ended
                                              September 30, 2005
                                        ------------------------------
                                         GAAP   Adjustments      Non-
                                                                 GAAP
                                        ------------------------------

 Gross profit                           10,701       292(a)(b)  10,993
                                        ================        ======

    Gross profit percentage                 40%                     41%

 Operating expenses

   Sales and marketing                   4,169      (250)(a)     3,919
   Research and development              1,284      (105)(a)     1,179
   General and administrative            2,298      (346)(a)     1,952
   Amortization of intangibles             315      (315)(b)        --

          Operating expenses             8,066    (1,016)        7,050
                                        ================        ======

 Operating income
  (loss)                                 2,635     1,308(a)(b)   3,943
                                        ================        ======

 Income tax expense
  (benefit)                              1,047       338(c)      1,385
                                        ================        ======


 Net income (loss)                      $1,841                  $2,811
                                        ======                  ======



 Earnings (loss) per
  share - diluted                         0.11                    0.17
                                        ======                  ======

 Weighted average shares
  outstanding - diluted                 16,434                  16,434
                                        ======                  ======


 (a)  To exclude the effect of stock-based compensation expense.

 (b)  To exclude the effects of the amortization of intangible assets
      related to business combinations.

 (c)  To adjust to an effective tax rate of 16% and 33% for the three
      months ended September 30, 2006 and 2005 respectively.


            

Mot-clé


Coordonnées