UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One)
| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
or
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-27765
SYMYX TECHNOLOGIES, INC.
| Delaware | 77-0397908 | |||
| (State or other jurisdiction of | (I.R.S. Employer | |||
| incorporation or organization) | Identification No.) | |||
| 3100 Central Expressway, | ||||
| Santa Clara, California | 95051 | |||
| (Address of principal executive offices) | (Zip Code) |
(408) 764-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
As of October 31, 2003, Registrant had outstanding 31,498,733 shares of Common Stock, $.001 par value.
TABLE OF CONTENTS
| PAGE | ||||
| Part I: Financial Information | ||||
| Item 1. | Financial Statements: | |||
| Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2003 and 2002 | 2 | |||
| Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 | 3 | |||
| Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2003 and 2002 | 4 | |||
| Notes to Condensed Consolidated Financial Statements | 5 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35 | ||
| Item 4. | Controls and Procedures | 35 | ||
| Part II: Other Information | ||||
| Item 1. | Legal Proceedings | 36 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 36 | ||
| Item 3. | Defaults Upon Senior Securities | 36 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 36 | ||
| Item 5. | Other Information | 36 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 36 | ||
| Signatures | 38 | |||
| Exhibit Index | 39 |
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues: |
||||||||||||||||||
Service revenues from research collaborations |
$ | 9,979 | $ | 8,579 | $ | 27,077 | $ | 26,670 | ||||||||||
Service revenues - related party |
595 | — | 1,030 | — | ||||||||||||||
Product sales |
959 | 3,974 | 9,586 | 12,906 | ||||||||||||||
License fees and royalties |
2,936 | 1,888 | 6,632 | 3,362 | ||||||||||||||
Total revenues |
14,469 | 14,441 | 44,325 | 42,938 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Cost of products sold |
154 | 1,209 | 2,032 | 2,648 | ||||||||||||||
Research and development |
9,816 | 9,617 | 28,909 | 29,478 | ||||||||||||||
Research and development – related party |
595 | — | 1,030 | — | ||||||||||||||
Sales, general and administrative |
3,485 | 3,422 | 10,856 | 10,115 | ||||||||||||||
Total operating expenses |
14,050 | 14,248 | 42,827 | 42,241 | ||||||||||||||
Income from operations |
419 | 193 | 1,498 | 697 | ||||||||||||||
Interest income (expense), net |
439 | 705 | 1,506 | 2,595 | ||||||||||||||
Income before income tax expense |
858 | 898 | 3,004 | 3,292 | ||||||||||||||
Income tax expense |
206 | 54 | 1,021 | 1,155 | ||||||||||||||
Net income |
$ | 652 | $ | 844 | $ | 1,983 | $ | 2,137 | ||||||||||
Basic net income per share |
$ | 0.02 | $ | 0.03 | $ | 0.06 | $ | 0.07 | ||||||||||
Diluted net income per share |
$ | 0.02 | $ | 0.03 | $ | 0.06 | $ | 0.07 | ||||||||||
Shares used in computing basic net income per share |
31,303 | 30,766 | 31,082 | 30,583 | ||||||||||||||
Shares used in computing diluted net income per share |
33,065 | 31,441 | 32,264 | 31,684 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements
2
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
| September 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | (Note 1) | ||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 22,354 | $ | 25,629 | |||||||
Available-for-sale securities |
110,303 | 92,391 | |||||||||
Accounts receivable |
518 | 6,697 | |||||||||
Inventories |
3,614 | 2,240 | |||||||||
Interest receivable and other current assets |
3,073 | 2,832 | |||||||||
Total current assets |
139,862 | 129,789 | |||||||||
Property, plant and equipment, net |
25,114 | 24,196 | |||||||||
Deferred tax assets and other assets |
3,012 | 3,383 | |||||||||
Total assets |
$ | 167,988 | $ | 157,368 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable and other accrued liabilities |
$ | 5,531 | $ | 4,511 | |||||||
Accrued compensation and employee benefits |
1,528 | 1,205 | |||||||||
Income taxes payable |
1,673 | 253 | |||||||||
Deferred rent |
659 | 1,003 | |||||||||
Deferred revenue |
3,284 | 3,014 | |||||||||
Warranty expense accrual |
1,951 | 1,899 | |||||||||
Total current liabilities |
14,626 | 11,885 | |||||||||
Commitments |
|||||||||||
Stockholders’ equity: |
|||||||||||
Preferred stock, $0.001 par value, 10,000,000
shares authorized, issuable in series; no
shares issued and outstanding |
— | — | |||||||||
Common stock, $0.001 par value, 60,000,000
shares authorized and 31,463,794 and
30,920,499 shares issued and outstanding at
September 30, 2003 and December 31, 2002,
respectively |
31 | 31 | |||||||||
Additional paid-in capital |
159,824 | 154,213 | |||||||||
Stockholder notes receivable |
(157 | ) | (404 | ) | |||||||
Deferred stock compensation |
(15 | ) | (92 | ) | |||||||
Accumulated other comprehensive income |
81 | 120 | |||||||||
Accumulated deficit |
(6,402 | ) | (8,385 | ) | |||||||
Total stockholders’ equity |
153,362 | 145,483 | |||||||||
Total liabilities and stockholders’ equity |
$ | 167,988 | $ | 157,368 | |||||||
See accompanying notes to condensed consolidated financial statements
3
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating activities |
||||||||||
Net income |
$ | 1,983 | $ | 2,137 | ||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||
Depreciation and amortization |
8,821 | 8,113 | ||||||||
Deferred compensation amortization |
38 | 128 | ||||||||
Deferred tax benefit |
24 | — | ||||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable |
6,179 | (3,373 | ) | |||||||
Inventories |
(1,374 | ) | (1,118 | ) | ||||||
Interest receivable and other current assets |
(241 | ) | 786 | |||||||
Other long-term assets |
112 | (309 | ) | |||||||
Accounts payable and other accrued liabilities |
1,020 | (27 | ) | |||||||
Accrued compensation and employee benefits |
323 | 206 | ||||||||
Income taxes payable |
1,420 | 386 | ||||||||
Deferred rent |
97 | 133 | ||||||||
Deferred revenue |
270 | 2,112 | ||||||||
Warranty expense accrual |
52 | 21 | ||||||||
Net cash provided by operating activities |
18,724 | 9,195 | ||||||||
Investing activities |
||||||||||
Purchase of property and equipment, net |
(7,329 | ) | (3,392 | ) | ||||||
Purchase of available-for-sale securities |
(97,016 | ) | (16,542 | ) | ||||||
Proceeds from maturities of available-for-sale securities |
76,515 | 70,695 | ||||||||
Acquisition of technology |
(65 | ) | — | |||||||
Net cash provided by (used in) investing activities |
(27,895 | ) | 50,761 | |||||||
Financing activities |
||||||||||
Proceeds from issuance of common stock, net of repurchases |
5,897 | 1,441 | ||||||||
Net cash provided by financing activities |
5,897 | 1,441 | ||||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
(1 | ) | (3 | ) | ||||||
Net increase (decrease) in cash and cash equivalents |
(3,275 | ) | 61,394 | |||||||
Cash and cash equivalents at beginning of period |
25,629 | 15,621 | ||||||||
Cash and cash equivalents at end of period |
$ | 22,354 | $ | 77,015 | ||||||
Supplemental disclosure of cash flow information |
||||||||||
Income taxes paid (refunded) |
$ | (446 | ) | $ | 772 | |||||
See accompanying notes to condensed consolidated financial statements
4
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business and Basis of Presentation
Symyx Technologies, Inc. (the “Company” or “Symyx”) develops and applies high-throughput experimentation to the discovery of innovative materials for the chemical, life science, electronics, consumer goods and automotive industries. Symyx works with companies seeking to transform their search for better products and processes through research collaborations, Discovery Tools® sales, and license of materials, intellectual property, and software.
Symyx® was incorporated in California on September 20, 1994 and completed a reincorporation in the state of Delaware in February 1999. Symyx’ headquarters and mailing address is 3100 Central Expressway, Santa Clara, California, 95051, and the telephone number at that location is (408) 764-2000. Our SEC filings are available free of charge through our website at www.symyx.com. Our Common Stock trades on the Nasdaq National Market under the symbol “SMMX”.
The accompanying unaudited condensed consolidated financial information has been prepared by management, in accordance with generally accepted accounting principles for interim financial information and pursuant to instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 30, 2003 and results of operations and cash flows for all periods presented have been made. The consolidated condensed balance sheet at December 31, 2002 has been derived from the audited financial statements at that date.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as included in the Company’s 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results of operations for the three and nine month periods ended September 30, 2003 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2003.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Symyx Technologies AG, incorporated in Switzerland and Symyx Discovery Tools, Inc., incorporated in California. All significant intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to exercise judgment in making estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from these estimates.
The actual results with regard to warranty expenditures could have a material unfavorable impact on the Company if system failures or the cost to repair a system is greater than what the Company has used in estimating the warranty expense accrual.
5
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentations. Revenue reported in previous quarters as product and license revenue is now reported separately as revenue from product sales and revenue from license fees and royalties. Segment revenues for prior periods have been reclassified to conform to the current period presentations.
Revenue Recognition
Service Revenues
The Company recognizes service revenues from research collaboration agreements and government grants as earned based upon the performance requirements of the agreements. Payments received prior to performance are deferred and recognized as revenue when earned over future performance periods. Collaboration agreements generally specify minimum levels of research effort required to be performed by the Company. Payments received under research collaboration agreements are not refundable if the research effort is not successful. Direct costs associated with these contracts and grants are reported as research and development expense.
Non-refundable up-front payments received in connection with research and development collaboration agreements, including technology access fees, are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term. Revenue from milestone payments, which are substantially at risk until the milestones are completed, is recognized upon completion of these milestone events. Milestone payments to date have been immaterial.
Product Sales
Product sales revenues include sales of Discovery Tools hardware and associated software licenses. Revenue from the sale of Discovery Tools systems is recognized when earned. Revenue is earned when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. This is generally upon shipment, transfer of title to and acceptance by the customer of the hardware and associated software and licenses to intellectual property, unless there are extended payment terms. The Company considers all arrangements with payment terms extending beyond 12 months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. In multiple element arrangements, the Company uses the residual method to allocate revenue to delivered elements once it has established fair value for all undelivered elements. Payments received in advance under these arrangements are recorded as deferred revenue until the elements are delivered.
The Company’s product related software licenses may provide for technical support, bug fixes and rights to unspecified upgrades on a when-and-if-available basis for periods defined within the contract. Revenue related to this post contract customer support is deferred and recognized over the term of the contracted support.
An accrual is established for warranty expenses at the time the associated revenue is recognized. Shipping and insurance costs associated with the sale of Discovery Tools systems are not material and are included in sales, general and administrative costs.
6
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
License Fees and Royalties
Amounts received from third parties for licenses to the Company’s intellectual property are recognized when earned under the terms of the agreements. Generally revenue is recognized upon transfer of the license unless the Company has continuing obligations for which fair value cannot be established, in which case the revenue is recognized over the period of the obligation. If there are extended payment terms, license fee revenue is recognized as these payments become due. The Company considers all arrangements with payment terms extending beyond 12 months not to be fixed or determinable. If there is a provision in the licensing agreement for a variable fee in addition to a non-refundable minimum amount, the amount of the non-refundable minimum guarantee is recognized upon transfer of the license unless the Company has continuing obligations for which fair value cannot be established and the amount of the variable fee in excess of the guaranteed minimum is recognized as revenue when it is fixed and determinable.
Royalty revenues are recorded based on reported sales by third party licensees of products containing the Company’s software and intellectual property. If there are extended payment terms, royalty revenues are recognized as these payments become due. Non-refundable royalties, for which there are no further performance obligations, are recognized when due under the terms of the agreements.
Amounts received from third parties for options to license certain technology or enter collaborative arrangements upon specified terms are deferred until either the option is exercised or the option right expires.
Concentration of Revenue
For the three or nine months ended September 30, 2003, the following customers contributed more than 10% of the Company’s total revenue (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
ExxonMobil |
$ | 6,350 | $ | 3,363 | $ | 14,079 | $ | 9,024 | |||||||||
Merck |
983 | 440 | 5,871 | 3,207 | |||||||||||||
Undisclosed Partner |
1,955 | 875 | 5,538 | 4,125 | |||||||||||||
Total |
$ | 9,288 | $ | 4,678 | $ | 25,488 | $ | 16,356 | |||||||||
The revenue from the above customers has been included in the following reportable segments for the three and nine month periods ended September 30, 2003 and 2002 (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Industry Collaborations |
$ | 6,480 | $ | 3,150 | $ | 15,810 | $ | 10,559 | |||||||||
Discovery Tools |
1,558 | 1,528 | 7,678 | 5,797 | |||||||||||||
Licensing |
1,250 | — | 2,000 | — | |||||||||||||
Total |
$ | 9,288 | $ | 4,678 | $ | 25,488 | $ | 16,356 | |||||||||
7
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
We classify the majority of our inventory as work in process which comprises customized Discovery Tools systems in the process of being built. Finished goods inventory comprises customized Discovery Tools systems that have been finished but are pending shipment to customers. Inventories are carried at the lower of cost or market, determined on a specific identification basis. The following table summarizes the components of our inventory balance (in thousands):