QADI Qad Inc. (MM)

QAD Inc. (Nasdaq: QADI), a global provider of enterprise software and services, today reported financial results for the fiscal 2011 third quarter ended October 31, 2010.

Total revenue was $55.4 million for the third quarter of fiscal 2011, versus $56.2 million for the same period last year. License revenue was $6.8 million, compared with $8.4 million for the fiscal 2010 third quarter. Maintenance and other revenue totaled $33.2 million, versus $33.8 million for the third quarter of fiscal 2010. Services revenue was $15.4 million, versus $14.1 million for last year’s fiscal third quarter.

Net income for the fiscal 2011 third quarter was $1.7 million, or $0.05 per diluted share, compared with $4.8 million, or $0.15 per diluted share, for the fiscal 2010 third quarter.

“Our revenue was driven by solid performance in our services and maintenance business. This performance, combined with cost controls, created profitability in the third fiscal quarter. We continue to see improvement in the manufacturing sector, our sales pipeline is expanding and our global On Demand offerings showed impressive year over year growth," said Karl Lopker, chief executive officer of QAD.

Gross margin for the fiscal 2011 third quarter totaled 59 percent, versus 60 percent for the fiscal 2010 third quarter, mainly reflecting changes in the company’s revenue mix.

Total operating expenses were $28.6 million, or 52 percent of total revenue, for the fiscal 2011 third quarter, compared with $28.1 million, or 50 percent of total revenue, for the third quarter of fiscal 2010.

Operating income for the fiscal 2011 third quarter was $3.8 million, which included $1.4 million in stock compensation expense, compared with $5.6 million, which included $1.2 million in stock compensation expense, for the third quarter of the prior fiscal year.

For the first nine months of fiscal 2011, revenue totaled $157.6 million, versus $162.5 million for the first nine months of fiscal 2010. Net income for the year-to-date period of fiscal 2011 was $0.8 million, or $0.02 per diluted share, versus $0.7 million, or $0.02 per diluted share, for the fiscal 2010 nine-month period.

QAD’s cash and equivalents balance grew to $57.7 million at October 31, 2010 from $44.7 million at January 31, 2010. Cash provided by operations was $2.4 million for the third quarter of fiscal 2011, versus $3.3 million for the third quarter of fiscal 2010. For the first nine months of fiscal 2011, cash provided by operations was $16.1 million, compared with $15.6 million in the prior-year nine-month period.

Fiscal 2011 Third Quarter Highlights:

• Received orders from 13 customers representing more than $500,000 each in combined license, support and services billings, including one order in excess of $1.0 million;
• Received license orders from companies across QAD’s six vertical markets, including, among others: Advanced Engineering Company, C.R. Bard, Fujikura Electronics, Genzyme, Tower Automotive, Visteon Automotive Systems and Xomox Corporation;
• Hosted our annual China user conference to discuss QAD’s strategy and direction for the Asia-Pacific region;
• Launched QAD Enterprise Applications 2010.1 Enterprise Edition, the latest release of the company’s enterprise resource planning suite; and,
• Reinstated the annual EXPLORE user conference to be held in San Antonio, Texas in May 2011 where we will unveil QAD Enterprise Applications 2011.

Business Outlook

For the fourth quarter of fiscal 2011, QAD currently expects total revenue of approximately $56 million and earnings per diluted share of approximately $0.06.

Investor Conference Call

QAD management will host an investor conference call today at 2:00 p.m. PT (5:00 p.m. ET) to review the company’s financial results and operations for the fiscal 2011 third quarter. The conference call will be webcast live and is accessible through the investor relations section of QAD’s Web site at www.qad.com, where it will be available for approximately one year. Interested parties may participate in the call by dialing 800-230-1096. A replay of the call will be accessible through December 1 by dialing 800-475-6701, access code 173607.

About QAD

QAD is a leading provider of enterprise applications for global manufacturing companies. QAD applications provide critical functionality for managing manufacturing resources and operations within and beyond the enterprise, enabling global manufacturers to collaborate with their customers, suppliers and partners to make and deliver the right product, at the right cost and at the right time. Manufacturers of automotive, consumer products, electronics, food and beverage, industrial and life science products use QAD applications in more than 90 countries and in as many as 27 languages. For more information about QAD, telephone +1 805-566-6000, or visit the QAD Web site at www.qad.com.

"QAD" is a registered trademark of QAD Inc. All other products or company names herein may be trademarks of their respective owners.

This press release contains certain forward-looking statements made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. 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, evolving demand for the company's software products and products that operate with the company's products; the company's ability to sustain license and service demand; the company's ability to leverage changes in technology; the company's ability to sustain customer renewal rates at current levels; the publication of opinions by industry and financial analysts about the company, its products and technology; the reliability of estimates of transaction and integration costs and benefits; the entry of new competitors or new offerings by existing competitors and the associated announcement of new products and technological advances by them; delays in localizing the company's products for new or existing markets; the ability to recruit and retain key personnel; delays in sales as a result of lengthy sales cycles; changes in operating expenses, pricing, timing of new product releases, the method of product distribution or product mix; timely and effective integration of newly acquired businesses; general economic conditions; exchange rate fluctuations; and, the global political environment. In addition, revenue and earnings in the enterprise resource planning (ERP) software industry are subject to fluctuations. Software license revenue, in particular, is subject to variability with a significant proportion of revenue earned in the last month of each quarter. Given the high margins associated with license revenue, modest fluctuations can have a substantial impact on net income. Investors should not use any one quarter's results as a benchmark for future performance. For a more detailed description of the risk factors associated with the company and the industries in which it operates, please refer to the company's Annual Report on Form 10-K for fiscal 2010 ended January 31, 2010.

  QAD Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited)                 Three Months Ended

October 31,

  Nine Months Ended

October 31,

2010 2009 2010 2009 Revenue: License fees $ 6,761 $ 8,409 $ 19,719 $ 21,318 Maintenance and other 33,221 33,779 97,306 98,732 Services   15,427     14,052     40,530     42,498   Total revenue 55,409 56,240 157,555 162,548 Cost of revenue: Cost of license fees 932 1,813 3,952 5,351 Cost of maintenance, service and other revenue   21,989     20,719     63,109     65,179   Total cost of revenue   22,921     22,532     67,061     70,530   Gross profit 32,488 33,708 90,494 92,018 Operating expenses: Sales and marketing 13,024 12,168 38,713 38,731 Research and development 8,134 8,678 26,280 28,349 General and administrative 7,472 7,101 22,613 23,492 Amortization of intangibles from acquisitions   14     121     41     468   Total operating expenses   28,644     28,068     87,647     91,040   Operating income 3,844 5,640 2,847 978 Other (income) expense: Interest income (140 ) (132 ) (384 ) (440 ) Interest expense 317 321 924 948 Other (income) expense, net   139     (511 )   17     (609 ) Total other (income) expense   316     (322 )   557     (101 ) Income before income taxes 3,528 5,962 2,290 1,079 Income tax expense   1,855     1,208     1,522     415   Net income $ 1,673   $ 4,754   $ 768   $ 664     Basic net income per share $ 0.05 $ 0.15 $ 0.02 $ 0.02 Diluted net income per share $ 0.05 $ 0.15 $ 0.02 $ 0.02   Basic weighted shares 31,581 31,120 31,473 30,925 Diluted weighted shares 33,568 32,429 33,477 31,901       QAD Inc. Condensed Consolidated Balance Sheets (In thousands) (unaudited)     October 31, January 31, 2010 2010 Assets Current assets: Cash and equivalents $ 57,734 $ 44,678 Accounts receivable, net 41,090 61,089 Deferred tax assets, net 3,549 3,548 Other current assets   13,419     13,680   Total current assets 115,792 122,995   Property and equipment, net 34,576 37,219 Capitalized software costs, net 904 2,446 Goodwill 6,486 6,348 Long-term deferred tax assets, net 19,427 19,411 Other assets, net   2,528     2,755     Total assets $ 179,713   $ 191,174       Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 299 $ 285 Accounts payable and other current liabilities 32,515 32,787 Deferred revenue   73,881     85,745   Total current liabilities 106,695 118,817   Long-term debt 16,214 16,443 Other liabilities 4,457 6,363   Stockholders' equity: Common stock 35 35 Additional paid-in capital 145,514 143,121 Treasury stock (29,685 ) (32,275 ) Accumulated deficit (54,773 ) (52,480 ) Accumulated other comprehensive loss   (8,744 )   (8,850 ) Total stockholders' equity   52,347     49,551     Total liabilities and stockholders' equity $ 179,713   $ 191,174         QAD Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited)     Nine Months Ended October 31, 2010 2009   Net cash provided by operating activities $ 16,057 $ 15,604   Cash flows from investing activities: Purchase of property and equipment (1,004 ) (645 ) Capitalized software costs (297 ) (314 ) Other, net   (7 )   27   Net cash used in investing activities (1,308 ) (932 )   Cash flows from financing activities: Repayments of debt (215 ) (192 ) Proceeds from issuance of common stock 122 56 Tax payments related to net share settlements of restricted stock (457 ) - Changes in book overdraft - (2,476 ) Dividends paid in cash   (1,934 )   (1,227 ) Net cash used in financing activities (2,484 ) (3,839 )   Effect of exchange rates on cash and equivalents   791     1,427   Net increase in cash and equivalents 13,056 12,260 Cash and equivalents at beginning of period   44,678     31,467     Cash and equivalents at end of period $ 57,734   $ 43,727