EL SEGUNDO, Calif., Dec. 11 /PRNewswire-FirstCall/ -- Peerless Systems Corporation , a licensor of imaging and networking technologies to the digital document market, today reported financial results for its third fiscal quarter ended October 31, 2008.
Third Quarter Results
Third quarter revenues were $1.6 million versus $7.4 million in the third quarter a year ago, and $3.3 million in the second quarter of fiscal 2009. Product licensing revenue was $1.3 million compared with last year's third quarter of $4.9 million and $3.1 million in the second quarter of fiscal 2009. Engineering services and maintenance revenue was $0.3 million versus $2.5 million in the third quarter a year ago and $0.2 million in the second fiscal quarter of 2009. The third quarter of fiscal 2008 included $2.2 million of services revenue from Kyocera Mita Corporation ("KMC") which ended with the sale of assets and transfer of 38 engineers and support staff to KMC at the end of the first quarter this fiscal year.
Peerless signed one block license agreement valued at $0.6 million in the third quarter, all of which was recognized as revenue during the quarter.
Third quarter gross margin was 57.4% compared with 60.1% in the third quarter last year and gross margin of 50.4% in this year's second fiscal quarter. The decrease from last fiscal year's third quarter is primarily attributable to lower margin licensing sales due to a higher ratio of third-party technology sales to Peerless technology sales.
Research and development expenses for the third quarter were $0.1 million, or 7.6% of revenue, a reduction of approximately $1.2 million compared with last year's third quarter R&D expenses of $1.3 million, or 17.2% of revenue. The year-over-year decline in R&D expenses resulted from a reduction earlier this year in workforce. R&D expenses in this year's second quarter were $0.4 million, or 11.0% of revenue. Sales and marketing expenses were $0.3 million, or 16.8% of revenue, versus $0.6 million, or 8.4% of revenue, in last year's third quarter, and $0.4 million, or 12.3% of revenue, in the second quarter of fiscal 2009.
General and administrative expenses were $0.9 million, or 55.8% of revenue, compared with $1.5 million, or 20.0% of revenue, in the third quarter last year and $2.0 million, or 59.5% of revenue, in the 2009 second fiscal quarter. G&A expenses in this year's third quarter were lower compared to last year as a result of the reduction in executive staffing made during the third quarter of this fiscal year and the lower utilization of professional services. Second quarter of fiscal 2009 general and administrative expenses included professional fees associated with the KMC transaction and restructuring efforts.
Peerless reported a third quarter fiscal 2009 net loss of $1.2 million, or $0.06 per basic share, versus net income of $1.3 million, or $0.07 per basic and diluted share, in fiscal 2008's third quarter. As a result of the recent change in California tax code limiting the current use of research and development tax credits that have been carried forward, the Company incurred an additional $0.7 million expense for the fiscal year to date profits. The Company reported during the second quarter of fiscal year 2009 a loss of $0.5 million or $0.03 per basic share.
Peerless ended the quarter with cash and cash equivalents of $48.9 million compared with $55.1 million at the end of the previous quarter and $23.1 million at the end of fiscal 2008. The decline in cash and cash equivalents from the last quarter was primarily due to the payment of taxes on the gain associated with the KMC transaction recorded in the first quarter and the share buyback program implemented at the end of this fiscal year's second quarter. Through the end of the third quarter the Company has purchased 1,021,471 shares of Peerless common stock for approximately $1,930,580 under its previously announced stock repurchase plan.
Management Commentary
"The third quarter results reflect the efforts of our restructuring," said William Neil, Acting Chief Executive Officer and Chief Financial Officer. "Excluding restructuring expenses, which were primarily severance costs and the expense associated with the change in the California tax code the net loss would have been approximately $12,000 even though there was a 52% decrease in sales from the previous quarter. During the quarter we made a 40% reduction in staffing, but as a result of the timing of the reductions the impact is not fully reflected in this quarter's performance. We are continuing to evaluate our requirements to properly support our existing customer base and to meet the requirements of a publicly traded company."
Neil added, "We continue the efforts to identify investment opportunities that offer compelling prospects for growth and profitability. With the expanded parameters of our acquisition strategy a number of candidates have been and are currently being evaluated. A consultant has been retained to assist the Board in the identification of investment opportunities. I believe that the consultant will be valuable in narrowing the field of opportunities that exist in the current market."
About Peerless Systems Corporation
Founded in 1982, Peerless Systems Corporation historically licensed imaging and networking technologies to the digital document markets, which include manufacturers of color, monochrome and multifunction office products and digital appliances. Effective April 30, 2008, Peerless sold its imaging and networking technologies and certain other assets to KMC. Peerless retained the rights to continue licensing these technologies to customers in the digital document markets. As a result of the sale, Peerless intends to use its cash on hand to actively pursue investment opportunities that result in enhanced shareholder value.
Safe Harbor Statement Under The U.S. Private Securities Litigation Reform Act Of 1995
Statements included herein may constitute "forward-looking statements," which relate to future events, future performance or financial condition. These statements are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Peerless Systems Corporation's filings with the Securities and Exchange Commission. All information in this release is as of December 11, 2008. Peerless Systems Corporation undertakes no duty to update any forward-looking statements made herein.
- Financial tables follow - PEERLESS SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Three Months Ended October 31, 2008 2007 Revenues: Product licensing $1,299 79.6% $4,914 66.1% Engineering services and maintenance 333 20.4% 2,515 33.9% Total revenues 1,632 100.0% 7,429 100.0% Cost of revenues: Product licensing 526 32.2% 1,683 22.7% Engineering services and maintenance 170 10.4% 1,278 17.2% Total cost of revenues 696 42.6% 2,961 39.9% Gross margin 936 57.4% 4,468 60.1% Operating expenses: Research and development 124 7.6% 1,281 17.2% Sales and marketing 274 16.8% 623 8.4% General and administrative 911 55.8% 1,483 20.0% Restructuring 744 45.6% - 0.0% Total operating expenses 2,053 125.8% 3,387 45.6% Income (loss) from operations (1,117) (68.4)% 1,081 14.5% Other income (expense) 352 21.5% 203 2.7% Income (loss) before income taxes (765) (46.9)% 1,284 17.2% Provision for income taxes 398 24.3% 5 0.0% Net income (loss) $(1,163) (71.3)% 1,279 17.2% Basic earnings per share $(0.06) $0.07 Diluted earnings per share $(0.06) $0.07 Weighted average common shares outstanding - basic 18,115 17,371 Weighted average common shares outstanding - diluted 18,115 18,134 PEERLESS SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Nine Months Ended October 31, 2008 2007 Revenues: Product licensing $5,148 62.7% $11,422 59.8% Engineering services and maintenance 3,059 37.3% 7,696 40.2% Total revenues 8,207 100.0% 19,118 100.0% Cost of revenues: Product licensing 4,769 58.1% 2,764 14.5% Engineering services and maintenance 1,675 20.4% 4,896 25.6% Total cost of revenues 6,444 78.5% 7,660 40.1% Gross margin 1,763 21.5% 11,458 59.9% Operating expenses: Research and development 1,430 17.5% 3,649 19.1% Sales and marketing 1,330 16.2% 1,910 10.0% General and administrative 6,551 79.8% 4,818 25.2% (Gain) Loss on sale of operating assets (32,912) (401.0)% - 0.0% Restructuring 1,941 23.6% - 0.0% Total operating expenses (21,660) (263.9)% 10,377 54.3% Income from operations 23,423 285.4% 1,081 5.7% Other income (expense) 848 10.3% 595 3.1% Income before income taxes 24,271 295.7% 1,676 8.8% Provision for income taxes 10,593 129.1% 13 0.1% Net income $13,678 166.7% 1,663 8.7% Basic earnings per share $0.76 $.10 Diluted earnings per share $0.74 $.09 Weighted average common shares outstanding - basic 17,925 17,274 Weighted average common shares outstanding - diluted 18,367 18,150
