SANTA BARBARA, Calif. -- May 30, 2018 -- QAD Inc. (Nasdaq: QADA) (Nasdaq: QADB), a leading provider of flexible, cloud-based enterprise software and services for global manufacturing companies, today reported financial results for the fiscal 2019 first quarter ended April 30, 2018.
Fiscal 2019 First Quarter Financial Highlights:
Total revenue for the fiscal 2019 first quarter increased 21 percent to $86.2 million, from $71.4 million for the fiscal 2018 first quarter. QAD adopted the new revenue recognition standard, ASC Topic 606, effective February 1, 2018. The adoption of the new standard resulted in an additional $3.2 million of revenue recognized versus what would have been recognized under the previous standard. Subscription revenue, which grew 40 percent year-over-year, increased to 25 percent of total revenue for the first quarter of fiscal 2019.
Additional fiscal 2019 first quarter financial highlights, versus the fiscal 2018 first quarter, include:
- Subscription revenue of $21.5 million, compared with $15.3 million.
- Subscription gross margin of 62 percent, a 12 percentage point increase from 50 percent.
- License revenue of $6.3 million, compared with $5.3 million.
- Professional services revenue of $26.9 million, compared with $18.9 million. $1.8 million in the fiscal 2019 first quarter related to additional revenue recognized in compliance with ASC Topic 606 versus the previous standard.
- Maintenance and other revenue of $31.5 million, compared with $31.9 million.
- GAAP pre-tax income of $2.6 million, versus a GAAP pre-tax loss of $2.0 million.
- Non-GAAP pre-tax income of $4.6 million, versus $146,000.
- GAAP net income of $1.4 million, or $0.07 per diluted Class A share and $0.06 per diluted Class B share, compared with a GAAP net loss of $2.6 million, or $0.14 per Class A share and $0.12 per Class B share.
"As we continue to add new cloud customers and expand within our existing base, our subscription revenue grew 40 percent and now accounts for one-quarter of total revenue," said Karl Lopker, Chief Executive Officer. "Our outlook for the remainder of the year remains positive as we drive innovation through our offerings, and our customers continue to benefit from a positive manufacturing economy."
QAD's cash and equivalents balance was $144.4 million at April 30, 2018, compared with $147.0 million at January 31, 2018. Cash provided by operations was $3.8 million for the fiscal 2019 first quarter, compared with $7.9 million for same period last year.
Fiscal 2019 First Quarter Operational Highlights:
- Received orders from 22 customers representing more than $500,000 each in combined license, subscription, maintenance and professional services billings, including eight orders exceeding $1 million;
- Received license or cloud orders from companies across QAD's six vertical markets, including: Accelerate Diagnostics Inc., Formfactor, Inc., Freedom Foods, Furukawa Electric Co. Ltd., Johnson Controls, Lemo SA, MiMedx Group Inc., Minth Group Limited, Oerlemans Foods, Panasonic Corporation, Samvardhana Motherson, SEMILAB Zrt., Sonoco Products Company, and Steel Partners Holdings L.P.;
- Held QAD's Explore customer conference in Dallas, May 7-10. The conference focused on the exponential pace of change in manufacturing and QAD's flexible solutions to meet the challenges facing global manufacturers; and
- At Explore, announced the general availability of QAD's Channel Islands User Experience, which improves the usability and efficiency of the company's ERP products.
For the fiscal 2019 second quarter, QAD expects:
- Total revenue of $82 to $83 million, including approximately $21.8 to $22.3 million of subscription revenue.
- GAAP pre-tax loss of $1.5 to $2.0 million.
- Non-GAAP pre-tax income of approximately $1.3 to $2.0 million.
For the fiscal 2019 full year, QAD expects:
- Total revenue of $328 to $332 million, including $90 to $92 million of subscription revenue.
- GAAP pre-tax income of breakeven to $3 million.
- Non-GAAP pre-tax income of $11 to $15 million.
The following is a forward-looking reconciliation of GAAP pre-tax income to non-GAAP pre-tax income for the fiscal 2019 second quarter and full year:
Fiscal 2019 First Quarter Financial Results Conference Call
When: Wednesday, May 30, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Phone: 800-230-1059 (domestic); 612-234-9960 (international)
Replay: Accessible through midnight June 6, 2018; 800-475-6701(domestic); 320-365-3844 (international); passcode 448106
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 first quarter. These are non-GAAP financial measures as defined by SEC Regulation G. QAD defines the non-GAAP measures as follows:
- Non-GAAP adjusted EBITDA - EBITDA is GAAP net income before net interest expense, income tax expense, depreciation and amortization. Non-GAAP adjusted EBITDA is EBITDA less stock-based compensation expense and the change in the fair value of the interest rate swap.
- Non-GAAP adjusted EBITDA margins - Calculated by dividing non-GAAP adjusted EBITDA by total revenue.
- Non-GAAP pre-tax income - GAAP income before income taxes not including the effects of stock-based compensation expense, amortization of purchased intangible assets and the change in fair value of the interest rate swap.
- Estimated income tax expense on GAAP earnings - Defined as GAAP total tax expense excluding changes in reserves for unrecognized tax benefits.
QAD's management uses non-GAAP measures internally to evaluate the business and believes that presenting non-GAAP measures provides useful information to investors regarding the company's underlying business trends and performance of the company's ongoing operations as well as useful metrics for monitoring the company's performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the company's consolidated financial statements in their entirety and to not rely on any single financial measure in evaluating the company.
Tables providing a reconciliation of the non-GAAP measures to their most comparable GAAP measures are included at the end of this press release.
QAD non-GAAP measures reflect adjustments based on the following items:
Stock-based compensation expense: The company has excluded the effect of stock-based compensation expense from its non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by QAD, and therefore is not used by the company to assess the profitability of its operations. The company also believes the exclusion of stock-based compensation expense provides a more useful comparison of its operating results to the operating results of its peers.
Amortization of purchased intangible assets: The company amortizes purchased intangible assets in connection with its acquisitions. QAD has excluded the effect of amortization of purchased intangible assets, which include purchased technology, customer relationships, trade names and other intangible assets, from its non-GAAP pre-tax income calculation, because doing so makes internal comparisons to the company's historical operating results more consistent. In addition, the company believes excluding amortization of purchased intangible assets provides a more useful comparison of its operating results to the operating results of its peers.
Change in fair value of the interest rate swap: The company entered into an interest rate swap to mitigate its exposure to the variability of one-month LIBOR for its floating rate debt related to the mortgage of its headquarters. QAD has excluded the gain/loss adjustments to record the interest rate swap at fair value from its non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. The company believes that these fluctuations are not indicative of its operational costs or meaningful in evaluating comparative period results because the company currently has no intention of exiting the debt agreement early; and therefore over the life of the debt the sum of the fair value adjustments will be $0.
About QAD – The Effective Enterprise
QAD Inc. (Nasdaq: QADA) (Nasdaq: QADB) is a leading provider of flexible, cloud-based enterprise software and services for global manufacturing companies. QAD Cloud ERP for manufacturing supports operational requirements in the areas of financials, customer management, supply chain, manufacturing, service and support, analytics, business process management and integration. QAD's portfolio includes related solutions for quality management software, supply chain management software, transportation and global trade management software and B2B interoperability. Since 1979, QAD solutions have enabled customers in the automotive, consumer products, food and beverage, high tech, industrial manufacturing and life sciences industries to better align operations with their strategic goals to become Effective Enterprises.
To learn more, visit www.qad.com or call +1 805-566-6000.
"QAD" is a registered trademark of QAD Inc. All other products or company names herein may be trademarks of their respective owners.