Business Wire | Nov 24, 2020 04:05PM EST

QAD Reports Fiscal 2021 Third Quarter and Year-To-Date Financial Results

Nov. 24, 2020

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Nov. 24, 2020--QAD Inc. (Nasdaq: QADA) (Nasdaq: QADB), a leading provider of adaptive, cloud-based enterprise software and services for global manufacturing companies, today reported financial results for the fiscal 2021 third quarter and first nine months ended October 31, 2020.

Fiscal 2021 Third Quarter Financial Results:

Total revenue for the fiscal 2021 third quarter was $76.7 million, compared with $77.8 million for the fiscal 2020 third quarter, reflecting expected reductions in license, professional services and maintenance revenue, partially offset by an increase in subscription revenue. Currency had a $709,000 positive impact on total revenue compared with last year's third quarter. Fiscal 2021 third quarter subscription revenue grew 24 percent from the same period last year, and accounted for 44 percent of total revenue, a nine-percentage point increase over last year's third quarter.

Additional fiscal 2021 third quarter financial results, compared with the same period last year, include:

* Subscription revenue of $33.8 million, up from $27.3 million. Currency had a $224,000 positive impact. * Subscription gross margin of 68 percent, versus 65 percent. * License revenue of $1.7 million, compared with $3.3 million. Currency had a $63,000 positive impact. * Professional services revenue of $14.2 million, compared with $17.5 million. Currency had a $96,000 positive impact. * Professional services gross margin improved to 7 percent from 6 percent. * Maintenance revenue of $27 million, compared with $29.7 million. Currency had a $326,000 positive impact. * GAAP pre-tax income of $3.8 million versus $1.5 million. Subscription growth and higher margins continued to drive bottom-line improvements. * Non-GAAP pre-tax income of $7.6 million, compared with $4.6 million. * GAAP net income of $3.2 million, or $0.16 per diluted Class A and $0.13 per diluted Class B share, versus $125,000, or $0.01 per diluted Class A and Class B share.

"We made significant progress toward our long-term goals this quarter and delivered a strong set of results. Our investment in sales and marketing continues to pay off well and we are seeing sustained improvement in our bottom-line performance," said Anton Chilton, QAD's Chief Executive Officer. "Our ability to provide global manufacturers with next generation ERP and best-in-class cloud deployments are helping us outperform the competition."

Fiscal 2021 Nine-Month Financial Results:

Total revenue for the first nine months of fiscal 2021 was $224.9 million, compared with $232.2 million for the first nine months of fiscal 2020. Currency had a $2.7 million negative impact on total revenue, and a $711,000 negative impact on subscription revenue. Subscription revenue grew 22 percent to $95.6 million for the fiscal 2021 year-to-date period, compared with $78.5 million for the fiscal 2020 year-to-date period. GAAP pre-tax income was $4.9 million for the first nine months of fiscal 2021, versus a GAAP pre-tax loss of $4.4 million for the first nine months of fiscal 2020. GAAP net income was $2.9 million, or $0.14 per diluted Class A share and $0.12 per diluted Class B share, for the fiscal 2021 first nine months. GAAP net loss for the fiscal 2020 first nine months was $16.4 million, which included a $10.8 million valuation allowance on deferred tax assets, or ($0.85) per Class A share and ($0.71) per Class B share. Non-GAAP pre-tax income was $15.4 million, compared with $4.6 million for the same period last year.

QAD's cash and equivalents balance at October 31, 2020 was $143.4 million, versus $136.7 million at January 31, 2020. Cash provided by operations for the first nine months of fiscal 2021 was $19.2 million, compared with $7.9 million for the first nine months of fiscal 2020.

Fiscal 2021 Third Quarter Operational Highlights:

* Received orders from 17 customers representing more than $500,000 each in combined subscription, license, maintenance and professional services billings, including seven orders exceeding $1 million; * Received cloud or license orders from companies across QAD's six vertical markets, including: Automotive Cells Company SE, Canon Inc., Caterpillar Inc., GE Grid Solutions Japan K.K, Imperial Brands PLC, Irvin Automotive Products, Mitek Industries Inc., Nanotherapeutics Inc., Ortho Organizers, Inc., PT Djabesmen, Pura Foods Ltd., Renolit AG, Sage Automotive Interiors, Thermo Fisher Scientific Inc., Twin Lotus Co. Ltd., Viam Manufacturing Inc, and Yamaha Corporation; * Held QAD Tomorrow thought stream online event with 2,100 registrants; * Announced additional enhancements to QAD Adaptive ERP and related solutions to help global manufacturers become more agile, intelligent and innovative; * Launched the Adaptive Manufacturing Enterprise Maturity Model Diagnostic, a complimentary tool designed to help manufacturing companies gauge their ability to recognize and adapt to disruption; and * Expanded partner network with the addition of eNoah iSolutions Inc., a reseller of QAD Adaptive ERP applications in North America.

Business Outlook:

The Company's business outlook assumes current foreign exchange rates for the remainder of the quarter. Consistent with the guidance provided for the fiscal 2021 third quarter, QAD is providing guidance only for subscription and maintenance revenue for the fiscal 2021 fourth quarter as follows:

* Subscription revenue of $35 million. * Maintenance revenue of $26 million.

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 2021 Third Quarter Financial Results Conference Call

When: Tuesday, November 24, 2020 Time: 2:00 p.m. PT (5:00 p.m. ET) Phone: 844-739-3990 (domestic); 412-317-5719 (international) Replay: Accessible through midnight December 1, 2020; 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10149179 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 and non-GAAP pre-tax income in this press release for the third quarter and first nine months of fiscal 2021. 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.

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 and customer relationships, 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 - Enabling the Adaptive Manufacturing Enterprise

QAD Inc. is a leading provider of adaptive, cloud-based enterprise software and services for global manufacturing companies. Global manufacturers face ever-increasing disruption caused by technology-driven innovation and changing consumer preferences. In order to survive and thrive, manufacturers must be able to innovate and change business models at unprecedented rates of speed. QAD calls these companies Adaptive Manufacturing Enterprises. QAD solutions help customers in the automotive, life sciences, consumer products, food and beverage, high tech and industrial manufacturing industries rapidly adapt to change and innovate for competitive advantage.

Founded in 1979 and headquartered in Santa Barbara, California, QAD has 29 offices globally. Over 2,000 manufacturing companies have deployed QAD solutions including enterprise resource planning (ERP), demand and supply chain planning (DSCP), global trade and transportation execution (GTTE) and quality management system (QMS) to become an Adaptive Manufacturing Enterprise. To learn more, visit www.qad.com or call +1 805-566-6100. Find us on Twitter, LinkedIn, Facebook, Instagram and Pinterest.

"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 the COVID-19 (novel coronavirus) pandemic or other catastrophic events that may harm our business; adverse economic, market or geo-political conditions that may disrupt our business; 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.

(financial tables follow)

QAD Inc.Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)(in thousands, except per share data)(unaudited) Three Months Ended Nine Months Ended October 31, October 31,

2020 2019 2020 2019

Revenue:Subscription $ 33,761 $ 27,328 $ 95,598 $ 78,522

License 1,682 3,295 5,946 11,277

Maintenance 27,028 29,699 79,922 89,184

Professional services 14,189 17,485 43,422 53,237

Total revenue 76,660 77,807 224,888 232,220

Cost of revenue:

Subscription 10,716 9,540 31,803 28,860

License 441 510 1,407 1,655

Maintenance 6,267 7,291 19,424 22,353

Professional services 13,231 16,376 41,269 53,815

Total cost of revenue 30,655 33,717 93,903 106,683

Gross profit 46,005 44,090 130,985 125,537

Operating expenses:

Sales and marketing 17,415 19,771 53,392 60,853

Research and development 14,177 13,622 41,355 41,479

General and administrative 10,281 9,234 30,597 29,044

Amortization of 65 67 194 200 intangibles fromacquisitionsTotal operating expenses 41,938 42,694 125,538 131,576

Operating income (loss) 4,067 1,396 5,447 (6,039 )

Other (income) expense:

Interest income (108 ) (695 ) (757 ) (2,208 )

Interest expense 142 176 447 477

Other expense, net 194 386 833 60

Total other (income) 228 (133 ) 523 (1,671 )expense, netIncome (loss) before 3,839 1,529 4,924 (4,368 )income taxesIncome tax expense 626 1,404 2,061 11,991

Net income (loss) $ 3,213 $ 125 $ 2,863 $ (16,359 )



Net income (loss) $ 3,213 $ 125 $ 2,863 $ (16,359 )

Other comprehensive income (loss), net of tax:Foreign currency 405 (313 ) (643 ) (278 )translation adjustmentsTotal comprehensive income $ 3,618 $ (188 ) $ 2,220 $ (16,637 )(loss)

Diluted income (loss) per shareClass A $ 0.16 $ 0.01 $ 0.14 $ (0.85 )

Class B $ 0.13 $ 0.01 $ 0.12 $ (0.71 )



Diluted Weighted Shares

Class A 17,864 17,795 17,837 16,586

Class B 3,387 3,398 3,389 3,279

QAD Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited)October 31,January 31,2020

2020

AssetsCurrent assets:Cash and equivalents$

143,392

$

136,717

Accounts receivable, net39,187

80,968

Other current assets23,261

24,952

Total current assets205,840

242,637

Property and equipment, net26,692

28,687

Lease right-of-use assets, net18,764

18,329

Capitalized software costs, net2,129

1,922

Goodwill12,348

12,388

Long-term deferred tax assets, net7,354

5,834

Other assets, net11,799

13,007

Total assets$

284,926

$

322,804

Liabilities and stockholders' equityCurrent liabilities:Current portion of long-term debt$

521

$

503

Lease liabilities3,893

4,371

Accounts payable and other current liabilities40,991

49,740

Deferred revenue85,842

118,413

Total current liabilities131,247

173,027

Long-term debt11,955

12,341

Long-term lease liabilities16,026

14,612

Other liabilities7,582

6,759

Stockholders' equity:Common stock21

21

Additional paid-in capital201,832

197,824

Treasury stock(3,073

)

(3,226

)

Accumulated deficit(71,676

)

(70,209

)

Accumulated other comprehensive loss(8,988

)

(8,345

)

Total stockholders' equity118,116

116,065

Total liabilities and stockholders' equity$

284,926

$

322,804

QAD Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited) October 31, January 31, 2020 2020

AssetsCurrent assets:Cash and equivalents $ 143,392 $ 136,717

Accounts receivable, net 39,187 80,968

Other current assets 23,261 24,952

Total current assets 205,840 242,637



Property and equipment, net 26,692 28,687

Lease right-of-use assets, net 18,764 18,329

Capitalized software costs, net 2,129 1,922

Goodwill 12,348 12,388

Long-term deferred tax assets, net 7,354 5,834

Other assets, net 11,799 13,007



Total assets $ 284,926 $ 322,804





Liabilities and stockholders' equity

Current liabilities:

Current portion of long-term debt $ 521 $ 503

Lease liabilities 3,893 4,371

Accounts payable and other current liabilities 40,991 49,740

Deferred revenue 85,842 118,413

Total current liabilities 131,247 173,027



Long-term debt 11,955 12,341

Long-term lease liabilities 16,026 14,612

Other liabilities 7,582 6,759



Stockholders' equity:

Common stock 21 21

Additional paid-in capital 201,832 197,824

Treasury stock (3,073 ) (3,226 )

Accumulated deficit (71,676 ) (70,209 )

Accumulated other comprehensive loss (8,988 ) (8,345 )

Total stockholders' equity 118,116 116,065



Total liabilities and stockholders' equity $ 284,926 $ 322,804

QAD Inc.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited)Nine Months Ended

October 31,

2020

2019

Net cash provided by operating activities$

19,226

$

7,853

Cash flows from investing activities:Purchase of property and equipment(1,733

)

(4,251

)

Purchase of short-term investments-

(1,200

)

Proceeds from sale of short-term investments-

2,400

Proceeds from sale of building1,496

-

Capitalized software costs(1,071

)

(963

)

Net cash used in investing activities(1,308

)

(4,014

)

Cash flows from financing activities:Repayments of debt(462

)

(389

)

Tax payments related to stock awards(5,965

)

(3,572

)

Cash dividends paid(4,330

)

(4,187

)

Net cash used in financing activities(10,757

)

(8,148

)

Effect of exchange rates on cash and equivalents(486

)

(1,289

)

Net increase (decrease) in cash and equivalents6,675

(5,598

)

Cash and equivalents at beginning of period136,717

139,413

Cash and equivalents at end of period$

143,392

$

133,815

QAD Inc.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited) Nine Months Ended

October 31,

2020 2019

Net cash provided by operating activities $ 19,226 $ 7,853



Cash flows from investing activities:

Purchase of property and equipment (1,733 ) (4,251 )

Purchase of short-term investments - (1,200 )

Proceeds from sale of short-term investments - 2,400

Proceeds from sale of building 1,496 -

Capitalized software costs (1,071 ) (963 )

Net cash used in investing activities (1,308 ) (4,014 )



Cash flows from financing activities:

Repayments of debt (462 ) (389 )

Tax payments related to stock awards (5,965 ) (3,572 )

Cash dividends paid (4,330 ) (4,187 )

Net cash used in financing activities (10,757 ) (8,148 )



Effect of exchange rates on cash and equivalents (486 ) (1,289 )

Net increase (decrease) in cash and equivalents 6,675 (5,598 )

Cash and equivalents at beginning of period 136,717 139,413

Cash and equivalents at end of period $ 143,392 $ 133,815

QAD Inc.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands)(unaudited)Three Months Ended

October 31,

Nine Months Ended

October 31,

2020

2019

2020

2019

Total revenue$

76,660

$

77,807

$

224,888

$

232,220

Net income (loss)3,213

125

2,863

(16,359

)

Add back:Net interest income34

(519

)

(310

)

(1,731

)

Depreciation1,280

1,314

4,050

3,917

Amortization361

360

1,081

934

Income tax expense626

1,404

2,061

11,991

EBITDA$

5,514

$

2,684

$

9,745

$

(1,248

)

Add back:Stock-based compensation expense3,770

2,904

10,126

8,396

Change in fair value of interest rate swap(70

)

101

149

352

Adjusted EBITDA$

9,214

$

5,689

$

20,020

$

7,500

Adjusted EBITDA margin12

%

7

%

9

%

3

%

Non-GAAP pre-tax income reconciliationIncome (loss) before income taxes$

3,839

$

1,529

$

4,924

$

(4,368

)

Add backStock-based compensation expense3,770

2,904

10,126

8,396

Amortization of purchased intangible assets71

74

214

221

Change in fair value of interest rate swap(70

)

101

149

352

Non-GAAP income before income taxes$

7,610

$

4,608

$

15,413

$

4,601

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CONTACT: Kara Bellamy Chief Accounting Officer 805.566.6100 investor@qad.com

CONTACT: Laurie Berman PondelWilkinson Inc. 310.279.5980 lberman@pondel.com