UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2003 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission File Number 0-25871
Informatica Corporation
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Delaware
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77-0333710 | |
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
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2100 Seaport Blvd. Redwood City, California (Address of principal executive offices) |
94063 (Zip Code) |
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(650) 385-5000
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 (the “Exchange Act”) 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. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of October 31, 2003, there were 84,171,606 shares of the registrant’s Common Stock outstanding.
INFORMATICA CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION | ||||||
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Item 1.
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Condensed Consolidated Financial Statements | 2 | ||||
| Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 2 | |||||
| Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2003 and 2002 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||
| Risk Factors | 26 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 37 | ||||
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Item 4.
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Controls and Procedures | 38 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings | 39 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 40 | ||||
| Signature | 41 | |||||
| Exhibit Index | 42 | |||||
1
PART I. FINANCIAL INFORMATION
INFORMATICA CORPORATION
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 160,489 | $ | 122,490 | ||||||
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Short-term investments
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57,800 | 113,385 | ||||||||
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Accounts receivable, net of allowances of $1,251
and $1,349, respectively
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27,093 | 29,982 | ||||||||
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Prepaid expenses and other current assets
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4,683 | 8,680 | ||||||||
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Total current assets
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250,065 | 274,537 | ||||||||
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Restricted cash
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12,166 | 12,166 | ||||||||
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Property and equipment, net
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40,862 | 47,370 | ||||||||
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Goodwill
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81,816 | 30,274 | ||||||||
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Intangible assets, net
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5,878 | 517 | ||||||||
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Other assets
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355 | 330 | ||||||||
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Total assets
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$ | 391,142 | $ | 365,194 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Accounts payable
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$ | 3,523 | $ | 2,269 | ||||||
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Accrued liabilities
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26,885 | 24,384 | ||||||||
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Accrued compensation and related expenses
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12,154 | 12,666 | ||||||||
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Income taxes payable
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1,806 | 2,064 | ||||||||
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Accrued restructuring charges
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4,857 | 4,812 | ||||||||
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Accrued merger costs
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1,431 | — | ||||||||
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Deferred revenue
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48,020 | 51,702 | ||||||||
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Total current liabilities
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98,676 | 97,897 | ||||||||
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Accrued restructuring charges, less current
portion
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11,435 | 14,894 | ||||||||
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Accrued merger costs, less current portion
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603 | — | ||||||||
| Commitments and contingencies | ||||||||||
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Stockholders’ equity
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280,428 | 252,403 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 391,142 | $ | 365,194 | ||||||
See notes to condensed consolidated financial statements.
2
INFORMATICA CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
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Revenues:
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License
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$ | 22,774 | $ | 22,270 | $ | 70,552 | $ | 75,176 | ||||||||||
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Service
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27,903 | 25,375 | 79,220 | 70,142 | ||||||||||||||
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Total revenues
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50,677 | 47,645 | 149,772 | 145,318 | ||||||||||||||
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Cost of revenues:
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License
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974 | 1,377 | 2,198 | 4,483 | ||||||||||||||
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Service
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9,745 | 9,764 | 28,661 | 29,362 | ||||||||||||||
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Total cost of revenues
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10,719 | 11,141 | 30,859 | 33,845 | ||||||||||||||
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Gross profit
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39,958 | 36,504 | 118,913 | 111,473 | ||||||||||||||
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Operating expenses:
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Research and development
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12,071 | 11,278 | 34,750 | 34,884 | ||||||||||||||
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Sales and marketing
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20,350 | 20,981 | 62,272 | 64,851 | ||||||||||||||
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General and administrative
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5,190 | 5,270 | 15,981 | 15,093 | ||||||||||||||
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Amortization of intangible assets
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99 | 285 | 524 | 855 | ||||||||||||||
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Amortization of stock-based compensation
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22 | 52 | 65 | 190 | ||||||||||||||
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Purchased in-process research and development
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4,524 | — | 4,524 | — | ||||||||||||||
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Restructuring charges
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— | 17,030 | — | 17,030 | ||||||||||||||
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Total operating expenses
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42,256 | 54,896 | 118,116 | 132,903 | ||||||||||||||
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Income (loss) from operations
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(2,298 | ) | (18,392 | ) | 797 | (21,430 | ) | |||||||||||
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Interest income and other, net
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1,295 | 1,176 | 3,675 | 4,655 | ||||||||||||||
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Litigation settlement
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1,600 | — | 1,600 | — | ||||||||||||||
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Income (loss) before income taxes
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597 | (17,216 | ) | 6,072 | (16,775 | ) | ||||||||||||
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Income tax provision
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781 | 64 | 1,870 | 325 | ||||||||||||||
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Net income (loss)
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$ | (184 | ) | $ | (17,280 | ) | $ | 4,202 | $ | (17,100 | ) | |||||||
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Net income (loss) per share:
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Basic and diluted
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$ | (0.00 | ) | $ | (0.22 | ) | $ | 0.05 | $ | (0.21 | ) | |||||||
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Weighted shares used in calculation of net income
(loss) per share:
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Basic
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80,380 | 79,999 | 80,381 | 79,659 | ||||||||||||||
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Diluted
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80,380 | 79,999 | 83,097 | 79,659 | ||||||||||||||
See notes to condensed consolidated financial statements.
3
INFORMATICA CORPORATION
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
| (In thousands) | |||||||||||
| (Unaudited) | |||||||||||
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Operating activities
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Net income (loss)
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$ | 4,202 | $ | (17,100 | ) | ||||||
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Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
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Depreciation and amortization
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8,406 | 7,265 | |||||||||
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Provision for doubtful accounts
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177 | 1,433 | |||||||||
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Amortization of stock-based compensation
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65 | 190 | |||||||||
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Amortization of intangible assets
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524 | 855 | |||||||||
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Purchased in-process research and development
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4,524 | — | |||||||||
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Non-cash restructuring charges
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— | 1,887 | |||||||||
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Gain on the sale of investments
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(121 | ) | (154 | ) | |||||||
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Loss on disposal of property and equipment
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4 | 357 | |||||||||
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Other
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76 | 181 | |||||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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4,109 | (2,475 | ) | ||||||||
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Prepaid expenses and other current assets
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4,509 | 719 | |||||||||
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Other assets
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(18 | ) | 546 | ||||||||
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Accounts payable
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1,001 | (1,391 | ) | ||||||||
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Accrued liabilities
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856 | 6,693 | |||||||||
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Accrued compensation and related expenses
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(538 | ) | (4,077 | ) | |||||||
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Income taxes payable
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(258 | ) | (397 | ) | |||||||
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Accrued restructuring charges
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(3,414 | ) | 11,752 | ||||||||
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Deferred revenue
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(4,611 | ) | 7,237 | ||||||||
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Net cash provided by operating activities
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19,493 | 13,521 | |||||||||
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Investing activities
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Purchase of property and equipment, net
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(1,758 | ) | (5,365 | ) | |||||||
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Purchases of investments
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(92,745 | ) | (218,350 | ) | |||||||
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Sales and maturities of investments
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147,889 | 153,013 | |||||||||
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Acquisitions, net of cash acquired
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(30,279 | ) | — | ||||||||
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Net cash provided by (used in) investing
activities
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23,107 | (70,702 | ) | ||||||||
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Financing activities
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Proceeds from issuances of common stock, net of
payments for repurchases
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6,532 | 7,531 | |||||||||
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Repurchases and retirements of common stock
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(11,448 | ) | — | ||||||||
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Net cash provided by (used in) financing
activities
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(4,916 | ) | 7,531 | ||||||||
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Effect of foreign currency translation on cash
and cash equivalents
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315 | 388 | |||||||||
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Increase (decrease) in cash and cash
equivalents
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37,999 | (49,262 | ) | ||||||||
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Cash and cash equivalents at beginning of period
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122,490 | 131,264 | |||||||||
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Cash and cash equivalents at end of period
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$ | 160,489 | $ | 82,002 | |||||||
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Supplemental disclosures:
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Income taxes paid
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$ | 2,063 | $ | 954 | |||||||
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Supplemental disclosures of noncash investing
and financing activities:
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Unrealized gain (loss) on available-for-sale
securities
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$ | (562 | ) | $ | 241 | ||||||
See notes to condensed consolidated financial statements.
4
INFORMATICA CORPORATION
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Informatica Corporation (“the Company”) have been prepared in conformity with accounting principles generally accepted in the United States. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. All of the amounts included in this report related to the condensed consolidated financial statements as of September 30, 2003 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ended December 31, 2003 or any future period.
These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K, as amended, filed with the SEC. The condensed consolidated balance sheet as of December 31, 2002 has been derived from the audited consolidated financial statements of the Company.
2. Revenue Recognition
The Company generates revenues from sales of software licenses and services, which consist of maintenance, consulting and training. The Company’s license revenues are derived from its data integration and business intelligence software and are also derived from analytic application suites and data warehouse modules, which the Company ceased selling directly in July 2003. The Company receives software license revenues from licensing its products directly to end users and indirectly through resellers, distributors and OEMs. The Company receives service revenues from maintenance contracts, consulting services and training that it performs for customers that license its products either directly from the Company or indirectly through resellers, distributors and OEMs.
The Company recognizes revenue in accordance with AICPA Statement of Position (“SOP”) 97-2 (“SOP 97-2”), “Software Revenue Recognition,” as amended and modified by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” The Company recognizes license revenues when a noncancelable license agreement has been signed, the product has been shipped, the fees are fixed or determinable, collectibility is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement. Vendor-specific objective evidence is based on the price charged when an element is sold separately. In the case of an element not yet sold separately, the price is established by the Company’s authorized management. If an acceptance period is required, the Company recognizes revenue upon customer acceptance or the expiration of the acceptance period. Credit-worthiness and collectibility for end users are first assessed on a country level and then, for those customers in countries deemed to have sufficient timely payment history, customers are assessed based on payment history and credit profile. For the data integration and business intelligence software sold directly to end users, the Company recognizes revenue upon shipment when collectibility is probable. The Company ceased selling data warehouse modules in July 2003. When a customer is not deemed credit-worthy, revenue is recognized upon cash receipt. For the Company’s analytic application suites, it recognized both the license and maintenance revenue ratably over the maintenance period, generally one year. Support for the analytic application suites for the first year was never sold separately and in consideration of the complexities of the implementation the customer was entitled to receive support services that were different than the standard annual support services of the Company’s other products. The Company’s standard agreements do not contain product return rights.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company also enters into reseller and distributor arrangements that typically provide for sublicense or end user license fees based on a percentage of list prices. Revenue arrangements with resellers and distributors require evidence of sell-through, that is, persuasive evidence that the products have been sold to an identified end user. For data integration and business intelligence software sold indirectly through the Company’s resellers and distributors, the Company recognizes revenue upon shipment and receipt of evidence of sell-through if the reseller or distributor has been deemed credit-worthy. The Company ceased selling data warehouse modules in July 2003. Credit-worthiness and collectibility for resellers and distributors are first assessed on a country level and then, for those resellers and distributors in countries deemed to have sufficient timely payment history, resellers and distributors are assessed based on established credit history consisting of sales of at least $1.0 million and with timely payment history, generally for the last twelve months. When resellers and distributors are not deemed credit-worthy, revenue is recognized upon cash receipt.
The Company also enters into OEM arrangements that provide for license fees based on inclusion of the Company’s products in the OEMs’ products. These arrangements provide for fixed, irrevocable royalty payments. Credit-worthiness and collectibility for OEMs are first assessed on a country level and then, for those OEMs in countries deemed to have sufficient timely payment history, OEMs are assessed based on established credit history consisting of sales of at least $1.0 million and with timely payment history, generally for the last twelve months. For credit-worthy OEMs, royalty payments are recognized when due. When OEMs are not deemed credit-worthy, revenue is recognized upon cash receipt.
The Company recognizes maintenance revenues, which consist of fees for ongoing support and product updates, ratably over the term of the contract, typically one year. Consulting revenues are primarily related to implementation services and product enhancements performed on a time-and-materials basis or, on a very infrequent basis, a fixed fee arrangement under separate service arrangements related to the installation and implementation of the Company’s software products. Training revenues are generated from classes offered at the Company’s headquarters, sales offices and customer locations. Revenues from consulting and training services are recognized as the services are performed. When a contract includes both license and service elements, the license fee is recognized on delivery of the software or cash collections, provided services do not include significant customization or modification of the base product, and are not otherwise essential to the functionality of the software and the payment terms for licenses are not dependent on additional acceptance criteria.
Deferred revenue includes deferred license, maintenance, consulting and training revenue. Deferred revenue amounts do not include items that are both deferred and unbilled. The Company’s practice is to net unpaid deferred items against the related receivables balances from those OEMs, specific resellers, distributors and specific international customers for which the Company defers revenue until payment is received.
3. Intangible Assets
Intangible assets consist of the following (in thousands):
| September 30, 2003 | December 31, 2002 | |||||||||||||||||||||||
| Gross | Net | Gross | ||||||||||||||||||||||