Business Wire | Mar 24, 2021 04:05PM EDT

QAD Reports Fiscal 2021 Fourth Quarter and Full Year Financial Results

Mar. 24, 2021

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Mar. 24, 2021--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 fourth quarter and full year ended January 31, 2021.

Fiscal 2021 Fourth Quarter Financial Results:

Total revenue for the fiscal 2021 fourth quarter was $83.0 million, compared with $78.6 million for the fiscal 2020 fourth quarter, resulting from an increase in subscription revenue partially offset by anticipated reductions in license, professional services and maintenance revenue. Currency had a $1.5 million positive impact on total revenue compared with last year's fourth quarter and a negligible impact on net income. Fiscal 2021 fourth quarter subscription revenue grew 24 percent from the same quarter last year, and accounted for 43 percent of total revenue, a seven-percentage point increase over last year's fourth quarter.

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

* Subscription revenue of $35.5 million, up from $28.6 million. Currency had a $374,000 positive impact. * Subscription gross margin of 70 percent, versus 67 percent. * License revenue of $5.2 million, compared with $5.3 million. Currency had a $180,000 positive impact. * Professional services revenue of $15.1 million, compared with $15.9 million. Currency had a $275,000 positive impact. * Professional services gross margin of 11 percent, versus 2 percent. * Maintenance revenue of $27.2 million, compared with $28.7 million. Currency had a $641,000 positive impact. * GAAP pre-tax income of $5.9 million versus $764,000. Ongoing subscription revenue growth and improving margins continued to drive bottom-line improvements. * Non-GAAP pre-tax income of $10.1 million, compared with $3.8 million. * GAAP net income of $8.2 million, or $0.39 per diluted Class A and $0.33 per diluted Class B share, versus $410,000, or $0.02 per diluted Class A and Class B share.

"We were pleased to finish the year with solid financial results, capping fiscal 2021 with strong fourth quarter growth in subscription revenue, margins and profitability," said Anton Chilton, QAD's Chief Executive Officer. "With our cloud funnel at a record high, the manufacturing economy improving, and our easy to deploy, adaptive, cloud-based ERP suite, we are optimistic about fiscal 2022, and remain positioned for sustainable, long-term growth."

Fiscal 2021 Full Year Financial Results:

Total revenue for fiscal 2021 was $307.9 million, compared with $310.8 million for fiscal 2020. Currency had a $1.2 million negative impact on total revenue, a $337,000 negative impact on subscription revenue and a $657,000 negative impact on net income. Subscription revenue grew 22 percent to $131.1 million for fiscal 2021, compared with $107.2 million for fiscal 2020. GAAP pre-tax income was $10.8 million for the fiscal year ended January 31, 2021, versus a GAAP pre-tax loss of $3.6 million for the same period last year. GAAP net income was $11.1 million, or $0.53 per diluted Class A share and $0.45 per diluted Class B share, for fiscal 2021, versus a GAAP net loss of $15.9 million for the same period last year, which included an additional valuation allowance of $16.2 million placed on QAD's deferred tax assets, or ($0.82) per Class A share and ($0.69) per Class B share. Non-GAAP pre-tax income was $25.5 million for fiscal 2021, compared with $8.4 million for fiscal 2020.

QAD's cash and equivalents balance at January 31, 2021 was $142.5 million, versus $136.7 million a year earlier. Cash provided by operations for fiscal 2021 was $32.9 million, compared with $17.0 million last year.

Fiscal 2021 Fourth Quarter Operational Highlights:

* Received orders from 53 customers representing more than $500,000 each in combined subscription, license, maintenance and professional services billings, including 18 orders exceeding $1 million; * Received cloud or license orders from companies across QAD's six vertical markets, including: Argon Medical Devices, Caterpillar Inc., Clarios, LLC, Cooper-Standard Auto, Delifrance SA, Denso Corporation, Grands Moulins de Paris S.A., InnoGenerics B.V., Johnson & Johnson, Labeyrie Fine Foods SAS, Laboratorios Menarini S.A., Malvern Panalytical BV, Mark Anthony Group, Nexteer Automotive, Novartis Gene Therapies, Panasonic Energy Belgium N.V., PepsiCo, Inc., PPG Industries, Inc., Raypak Inc., SteriPack Group Ltd., and Thermo Fisher Scientific; * Acquired Allocation Network GmbH, a best-in-class solution provider for strategic sourcing and supplier management; * QAD Adaptive ERP achieved Veracode Verified Standard status, underpinning QAD's ongoing commitment to creating secure software subjected to continuous security testing; and * Planned for QAD Tomorrow Thought Stream taking place on May 19, 2021, where manufacturers can learn about common supply chain challenges, their root causes and best practices for overcoming them.

Business Outlook:

For the fiscal 2022 first quarter, QAD is providing guidance as follows:

* Subscription revenue of $36.5 million. * Maintenance revenue of $26 million. * Operating income of breakeven; including stock-based compensation expense of $3.7 million.

For the fiscal 2022 year, QAD is providing guidance as follows:

* Subscription revenue of $160 million. * Maintenance revenue of $102 million. * Operating income of $12 million; including stock-based compensation expense of $17 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 Fourth Quarter Financial Results Conference Call

When: Wednesday, March 24, 2021 Time: 2:00 p.m. PT (5:00 p.m. ET) Phone: 844-739-3990 (domestic); 412-317-5719 (international) Replay: Accessible through midnight March 31, 2021; 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10151649 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 fiscal 2021 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.

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 30 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.

QAD Inc.Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)(in thousands, except per share data)(unaudited) Three Months Ended Twelve Months Ended January 31, January 31, 2021 2020 2021 2020

Revenue:Subscription $ 35,535 $ 28,646 $ 131,133 $ 107,168

License 5,206 5,293 11,152 16,570

Maintenance 27,161 28,712 107,083 117,896

Professional services 15,075 15,901 58,497 69,138

Total revenue 82,977 78,552 307,865 310,772

Cost of revenue:Subscription 10,566 9,591 42,369 38,451

License 893 653 2,300 2,308

Maintenance 6,615 7,349 26,039 29,702

Professional services 13,395 15,633 54,664 69,448

Total cost of revenue 31,469 33,226 125,372 139,909

Gross profit 51,508 45,326 182,493 170,863

Operating expenses:Sales and marketing 18,387 21,262 71,779 82,115

Research and development 14,729 13,247 56,084 54,726

General and administrative 11,046 10,398 41,643 39,442

Amortization of intangible 95 68 289 268 assets from acquisitionsTotal operating expenses 44,257 44,975 169,795 176,551

Operating income (loss) 7,251 351 12,698 (5,688 )

Other (income) expense:Interest income (166 ) (574 ) (923 ) (2,782 )

Interest expense 144 153 591 630

Other expense, net 1,376 8 2,209 68

Total other (income) expense, 1,354 (413 ) 1,877 (2,084 )netIncome (loss) before income 5,897 764 10,821 (3,604 )taxesIncome tax (benefit) expense (2,305 ) 354 (244 ) 12,345

Net income (loss) $ 8,202 $ 410 $ 11,065 $ (15,949 )

Net income (loss) $ 8,202 $ 410 $ 11,065 $ (15,949 )

Other comprehensive income(loss), net of tax:Foreign currency translation 800 (406 ) 157 (684 )adjustmentsTotal comprehensive income $ 9,002 $ 4 $ 11,222 $ (16,633 )(loss) Diluted income (loss) pershareClass A $ 0.39 $ 0.02 $ 0.53 $ (0.82 )

Class B $ 0.33 $ 0.02 $ 0.45 $ (0.69 )

Diluted Weighted SharesClass A 18,105 17,937 18,022 16,709

Class B 3,402 3,405 3,393 3,289

QAD Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited)January 31,January 31,2021

2020

AssetsCurrent assets:Cash and equivalents$142,501

$136,717

Accounts receivable, net82,609

80,968

Prepaid expenses and other current assets, net22,923

24,952

Total current assets248,033

242,637

Property and equipment, net25,598

28,687

Lease right-of-use assets, net21,016

18,329

Capitalized software costs, net7,980

1,922

Goodwill25,336

12,388

Deferred tax assets, net8,526

5,834

Other assets, net14,298

13,007

Total assets$350,787

$322,804

Liabilities and stockholders' equityCurrent liabilities:Current portion of long-term debt$527

$503

Lease liabilities4,904

4,371

Accounts payable and other current liabilities48,329

49,740

Deferred revenue125,724

118,413

Total current liabilities179,484

173,027

Long-term debt11,825

12,341

Long-term lease liabilities17,510

14,612

Other liabilities12,502

6,759

Stockholders' equity:Common stock21

21

Additional paid-in capital205,630

197,824

Treasury stock(3,073

)

(3,226

)

Accumulated deficit(64,924

)

(70,209

)

Accumulated other comprehensive loss(8,188

)

(8,345

)

Total stockholders' equity129,466

116,065

Total liabilities and stockholders' equity$350,787

$322,804

QAD Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited) January 31, January 31, 2021 2020

Assets Current assets: Cash and equivalents $ 142,501 $ 136,717

Accounts receivable, net 82,609 80,968

Prepaid expenses and other current assets, net 22,923 24,952

Total current assets 248,033 242,637

Property and equipment, net 25,598 28,687

Lease right-of-use assets, net 21,016 18,329

Capitalized software costs, net 7,980 1,922

Goodwill 25,336 12,388

Deferred tax assets, net 8,526 5,834

Other assets, net 14,298 13,007

Total assets $ 350,787 $ 322,804

Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 527 $ 503

Lease liabilities 4,904 4,371

Accounts payable and other current liabilities 48,329 49,740

Deferred revenue 125,724 118,413

Total current liabilities 179,484 173,027

Long-term debt 11,825 12,341

Long-term lease liabilities 17,510 14,612

Other liabilities 12,502 6,759

Stockholders' equity: Common stock 21 21

Additional paid-in capital 205,630 197,824

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

Accumulated deficit (64,924 ) (70,209 )

Accumulated other comprehensive loss (8,188 ) (8,345 )

Total stockholders' equity 129,466 116,065

Total liabilities and stockholders' equity $ 350,787 $ 322,804

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

January 31,

2021

2020

Net cash provided by operating activities$32,872

$16,997

Cash flows from investing activities:Purchase of property and equipment(1,931

)

(5,669

)

Acquisition of businesses, net of cash acquired(14,203

)

-

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(1,268

)

(1,243

)

Net cash used in investing activities(15,906

)

(5,712

)

Cash flows from financing activities:Repayments of debt(624

)

(530

)

Tax payments related to stock awards(6,233

)

(6,128

)

Dividends paid(5,780

)

(5,617

)

Net cash used in financing activities(12,637

)

(12,275

)

Effect of exchange rates on cash and equivalents1,455

(1,706

)

Net increase (decrease) in cash and equivalents5,784

(2,696

)

Cash and equivalents at beginning of period136,717

139,413

Cash and equivalents at end of period$142,501

$136,717

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

January 31,

2021 2020

Net cash provided by operating activities $ 32,872 $ 16,997

Cash flows from investing activities: Purchase of property and equipment (1,931 ) (5,669 )

Acquisition of businesses, net of cash acquired (14,203 ) -

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 (1,268 ) (1,243 )

Net cash used in investing activities (15,906 ) (5,712 )

Cash flows from financing activities: Repayments of debt (624 ) (530 )

Tax payments related to stock awards (6,233 ) (6,128 )

Dividends paid (5,780 ) (5,617 )

Net cash used in financing activities (12,637 ) (12,275 )

Effect of exchange rates on cash and equivalents 1,455 (1,706 )

Net increase (decrease) in cash and equivalents 5,784 (2,696 )

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

Cash and equivalents at end of period $ 142,501 $ 136,717

QAD Inc.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands)(unaudited)Three Months EndedJanuary 31,Twelve Months EndedJanuary 31,2021

2020

2021

2020

Total revenue$82,977

$78,552

$307,865

$310,772

Net income (loss)8,202

410

11,065

(15,949

)

Add back:Net interest income(22

)

(421

)

(332

)

(2,152

)

Depreciation1,284

1,281

5,334

5,198

Amortization404

382

1,485

1,316

Income tax (benefit) expense(2,305

)

354

(244

)

12,345

EBITDA$7,563

$2,006

$17,308

$758

Add back:Stock-based compensation expense4,066

2,958

14,192

11,354

Change in fair value of interest rate swap(56

)

16

93

368

Adjusted EBITDA$11,573

$4,980

$31,593

$12,480

Adjusted EBITDA margin14

%

6

%

10

%

4

%

Non-GAAP pre-tax income reconciliationIncome (loss) before income taxes$5,897

$764

$10,821

$(3,604

)

Add backStock-based compensation expense4,066

2,958

14,192

11,354

Amortization of purchased intangible assets204

74

418

295

Change in fair value of interest rate swap(56

)

16

93

368

Non-GAAP income before income taxes$10,111

$3,812

$25,524

$8,413

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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