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SofTech Announces Q3 FY 2015 Operating Results

ProductCenter Revenue Increases 20.5% in Q3’15 vs Q3’14; New Product Enters Beta Testing

LOWELL, Mass. — (BUSINESS WIRE) — April 14, 2015 — SofTech, Inc. (OTCQB: SOFT), a proven provider of Product Lifecycle Management (“PLM”) solutions today announced its third quarter fiscal year 2015 operating results. Revenue for the three months ended February 28, 2015 was approximately $.925 million as compared to approximately $1.342 million for the same period in the prior fiscal year. The net loss for the current quarter was approximately ($356,000) or ($.40) per share compared to approximately $(339,000) or $(.39) per share for the same period in the prior fiscal year. EBITDA for current quarter was approximately $(171,000) as compared to approximately $(259,000) for the same period in fiscal year 2014.

Revenue for the nine months ended February 28, 2015 was approximately $2.8 million as compared to approximately $4.1 million for the same period in the prior fiscal year. The net loss for the first nine months of the current fiscal year was approximately ($1,307,000) or ($1.47) per share compared to a net loss of approximately $(91,000) or $(.10) per share for the same period in the prior fiscal year. The prior year operating results included a one-time gain from the sale of the CADRA product line of approximately $649,000.

EBITDA for the first nine months of the current fiscal year was $(686,000) as compared to approximately $3,580,000 for the same period in fiscal 2014. The EBITDA generated by the sale of the CADRA product line totaled approximately $3,954,000 (gain of $649,000 which included non-cash expenses of $3,305,000) in the nine months ended February 28, 2014.

The sale of the CADRA product line was completed on October 18, 2013. Because the Company continued to market and support the technology as a reseller in Europe, the sale did not qualify for presentation as discontinued operations. The decline in revenue and profitability for the three and nine month periods ended February 28, 2015 compared to the same periods in the prior fiscal year is almost entirely attributable to the sale of the CADRA product line as depicted in the tables below.

The following summarizes total revenue by product line for each of the periods (in thousands, except %):

           
For three months ended
  2/28/2015     2/28/2014   $ Change   % Change
ProductCenter $ 783 $ 650 $ 133 20.5%
CADRA 80 542 (462) -85.2%
Other   62     150     (88)   -58.7%
Total revenue $ 925   $ 1,342   $ (417)   -31.1%
 
 
For nine months ended
  2/28/2015     2/28/2014   $ Change   % Change
ProductCenter $ 2,301 $ 2,119 $ 182 8.6%
CADRA 366 1,807 (1,441) -79.7%
Other   149     205     (56)   -27.3%
Total revenue $ 2,816   $ 4,131   $ (1,315)   -31.8%
 

The ProductCenter revenue increased 20.5% in the current quarter as compared to the same period in fiscal 2014. For the nine months ended February 28, 2015, ProductCenter’s revenue increased 8.6% as compared to the same period last fiscal year. Two long-time customers of this technology expanded their usage in fiscal 2015 and were responsible for the majority of the revenue increase.

“ProductCenter is showing significant strength in the marketplace in fiscal 2015 as a robust, affordable PLM solution,” said Joe Mullaney, SofTech’s CEO. “ProductCenter’s license revenue year-to-date increased approximately 176% as compared to the same period in the prior year and maintenance renewal rates have improved significantly as compared to the last several fiscal years. Consulting revenue has lagged behind due to a delay in several large projects, however, these projects have begun to ramp up in the fourth quarter,” he added.

“The sale of the CADRA product line in 2014 provided the capital and the flexibility for us to make a significant current year investment in the development of a new PLM-based product aimed at the consumer market. The product was created using our employees’ deep PLM expertise and it is currently in beta testing; we expect to be ready for commercial launch this coming summer. We believe this product has the potential to get SofTech on a revenue growth path, an essential element of shareholder value enhancement,” Mullaney concluded.

FINANCIAL STATEMENTS
The Statements of Operations for the three and nine month periods ended February 28, 2015 compared to the same periods in the prior fiscal year are presented below. A reconciliation of Net loss to EBITDA, a non-GAAP financial measure, is also provided.

During the fourth quarter of fiscal 2014, we changed our accounting policy with regard to certain deferred payments we expect to receive from the sale of the CADRA product line. The effects of this change have been made retrospectively to the prior year three and nine month periods ended February 28, 2014 in accordance with ASC 250, Accounting Changes and Error Corrections.

     
Statements of Operations
(in thousands, except % and per share data)
 
For the three months ended
February 28, February 28, Change
2015   2014   $   %
Product revenue 184 426 (242) -56.8%
Service revenue   741     916     (175)   -19.1%
Total revenue   925     1,342     (417)   -31.1%
 
Cost of sales   430     566     (136)   -24.0%
Gross margin 495 776 (281) -36.2%
Gross margin % 53.5% 57.8%
 
R&D 183 276 (93) -33.7%
SG&A 592 835 (243) -29.1%
Gain on sale of CADRA product line - - - -
Change in fair value of earn-out payments and holdback payment   (10)   -     (10)   -
 
Operating loss (270) (335) 65 -19.4%
Interest expense 31 10 21 210.0%
Other expense (income)   55     (6)     61   -1016.7%
Loss from operations before income taxes (356) (339) (17) 5.0%
Provision for income taxes -   -   -   -
Net loss   (356)     (339)     (17)   5.0%
 
Weighted average shares outstanding   894     875     19   2.2%
Basic and diluted net loss per share: $ (0.40)   $ (0.39)   $ (0.01)   2.6%
 
Reconciliation of Net loss to EBITDA:
 
Net loss $ (356) $ (339) (17) 5.0%
Plus tax expense - - - -
Plus interest expense 31 10 21 210.0%
Plus non-cash expense related to product line sale - - - -
Plus other non-cash expenses   154     70     84   120.0%
EBITDA $ (171)   $ (259)     88   -34.0%
 
     
Statements of Operations
(in thousands, except % and per share data)
 
For the nine months ended
February 28, February 28, Change
2015   2014   $   %
Product revenue 454 1,042 (588) -56.4%
Service revenue   2,362     3,089     (727)   -23.5%
Total revenue   2,816     4,131     (1,315)   -31.8%
 
Cost of sales   1,307     1,199     108   9.0%
Gross margin 1,509 2,932 (1,423) -48.5%
Gross margin % 53.6% 71.0%
 
R&D 677 915 (238) -26.0%
SG&A 1,953 2,582 (629) -24.4%
Gain on sale of CADRA product line - (649) 649 -100.0%
Change in fair value of earn-out payments and holdback payment   (70)   -     (70)   -
 
Operating (loss) income (1,051) 84 (1,135) -1351.2%
Interest expense 158 203 (45) -22.2%
Other expense (income)   98     (28)     126   450.0%
Loss from operations before income taxes (1,307) (91) (1,216) 1336.3%
Provision for income taxes -   -   -   -
Net loss   (1,307)     (91)     (1,216)   1336.3%
 
Weighted average shares outstanding   889     884     5   0.6%
Basic and diluted net loss per share: $ (1.47)   $ (0.10)   $ (1.37)   1370.0%
 
Reconciliation of Net loss to EBITDA:
 
Net loss $ (1,307) $ (91) (1,216) 1336.3%
Plus tax expense - - - -
Plus interest expense 158 203 (45) -22.2%
Plus non-cash expense related to product line sale - 3,305 (3,305) -100.0%
Plus other non-cash expenses   463     163     300   184.0%
EBITDA $ (686)   $ 3,580     (4,266)   -119.2%
 

The Balance Sheet as of February 28, 2015 compared to the audited fiscal year-end Balance Sheet as of May 31, 2014 is presented below.

 

 

Balance Sheets

 

(in thousands)

 
As of
February 28, May 31,
ASSETS 2015   2014
Cash $ 538 $ 1,209
Accounts receivable 541 666
Receivable due from sale of CADRA product line 283 547
Other current assets   235     343
Total current assets   1,597     2,765
 
Property and equipment, net 65 95
Goodwill and other intangible assets, net 1,392 1,373
Other non-current assets   505     491
Total assets $ 3,559   $ 4,724
 
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Accounts payable $ 132 $ 483
Accrued expenses 325 607
Deferred maintenance revenue 1,690 1,462
Current portion of long term debt 583 973
Capital lease, current   19     19
Total current liabilities   2,749     3,544
 
Other non-current liabilities 48 47
Long term debt   147   -
Total liabilities   2,944     3,591
 
Redeemable common stock   1,190     275
 
Shareholders' (deficit) equity   (575)     858
Total liabilities and shareholders' (deficit) equity $ 3,559   $ 4,724
 

About SofTech

SofTech, Inc. (OTCQB: SOFT) is a proven provider of product lifecycle management (PLM) solutions, including its ProductCenter® PLM solution.

SofTech’s solutions accelerate productivity and profitability by fostering innovation, extended enterprise collaboration, product quality improvements, and compressed time-to-market cycles. SofTech excels in its sensible approach to delivering enterprise PLM solutions, with comprehensive out-of-the-box capabilities, to meet the needs of manufacturers of all sizes quickly and cost-effectively.

Over 100,000 users benefit from SofTech software solutions and services, including General Electric Company, Goodrich, Honeywell, AgustaWestland and the U.S. Army. Headquartered in Lowell, Massachusetts, SofTech ( www.softech.com) has locations and distribution partners in North America, Europe, and Asia.

SofTech and ProductCenter are registered trademarks of SofTech, Inc. All other products or company references are the property of their respective holders.

Forward Looking Statements

This press release contains forward-looking statements relating to, among other matters, our outlook for fiscal year 2015 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) generate sufficient cash flow from our operations or other sources to fund our working capital needs and growth initiatives; (2) maintain good relationships with our lenders; (3) comply with the covenant requirements of the loan agreement; (4) successfully introduce and attain market acceptance of any new products and/or enhancements of existing products; (5) attract and retain qualified personnel; (6) prevent obsolescence of our technologies; (7) maintain agreements with our critical software vendors; (8) secure renewals of existing software maintenance contracts, as well as contracts with new maintenance customers; and (9) secure new business, both from existing and new customers.

These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release also contains non-GAAP financial measures. Specifically, the Company has presented EBITDA, which is defined as Net income (loss) plus interest expense, tax expense, non-cash expenses such as depreciation, amortization and the goodwill write-off related to the sale of our CADRA product line, non-cash loss (gain) and stock based compensation expense. The Company believes that the inclusion of EBITDA helps investors gain a meaningful understanding of the Company’s core operating results and enhances comparing such performance with prior periods, without the effect of non-operating expenses and non-cash expenditures. Management uses EBITDA, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods. EBITDA is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Reconciliations of EBITDA to the most directly comparable GAAP financial measures are set forth in the text of, and the accompanying tables to, this press release.


Contact:

SofTech, Inc.
Joseph P. Mullaney, 978-513-2700
President & Chief Executive Officer