UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 March 31, 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: 000-26130
LEGATO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
94-3077394 | |
| (State incorporation) |
(I.R.S. Employer | |
| Identification No.) |
2350 West El Camino Real, Mountain View, CA 94040
(Address of principal executive offices)
Registrant’s telephone number, including area code: (650) 210-7000
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.
Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
The number of shares outstanding of the registrant’s Common Stock as of April 29, 2003 was 116,303,683.
INDEX
PART I — FINANCIAL INFORMATION
| Page No | ||||
| Item 1 |
Financial Statements: |
|||
| Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 – (unaudited) |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Condensed Consolidated Financial Statements – (unaudited) |
6 | |||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3 |
26 | |||
| Item 4 |
26 | |||
| PART II — OTHER INFORMATION |
||||
| Item 1 |
27 | |||
| Items 2 – 5 |
27 | |||
| Item 6 |
27 | |||
| 28 |
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
(in thousands, except per share data)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (unaudited) |
||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
65,803 |
|
$ |
54,726 |
| ||
| Short-term investments |
|
9,402 |
|
|
15,318 |
| ||
| Accounts receivable, net |
|
43,140 |
|
|
51,501 |
| ||
| Other current assets |
|
8,823 |
|
|
7,487 |
| ||
| Total current assets |
|
127,168 |
|
|
129,032 |
| ||
| Property and equipment, net |
|
41,141 |
|
|
43,906 |
| ||
| Intangible assets, net |
|
27,891 |
|
|
30,586 |
| ||
| Goodwill |
|
270,709 |
|
|
270,709 |
| ||
| Other assets |
|
5,209 |
|
|
5,483 |
| ||
| $ |
472,118 |
|
$ |
479,716 |
| |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Line of credit |
$ |
14,620 |
|
$ |
10,550 |
| ||
| Accounts payable |
|
11,688 |
|
|
12,294 |
| ||
| Accrued liabilities |
|
47,027 |
|
|
58,314 |
| ||
| Deferred revenue |
|
69,675 |
|
|
67,956 |
| ||
| Total current liabilities |
|
143,010 |
|
|
149,114 |
| ||
| Deferred revenue – net of current portion |
|
2,919 |
|
|
2,808 |
| ||
|
|
145,929 |
|
|
151,922 |
| |||
| Stockholders’ equity: |
||||||||
| Common stock and capital in excess of par, $0.0001 par value; 116,205 and 116,136 issued and outstanding, respectively |
|
627,312 |
|
|
627,067 |
| ||
| Deferred stock compensation |
|
(332 |
) |
|
(416 |
) | ||
| Accumulated other comprehensive income |
|
1,253 |
|
|
582 |
| ||
| Accumulated deficit |
|
(302,044 |
) |
|
(299,439 |
) | ||
| Total stockholders’ equity |
|
326,189 |
|
|
327,794 |
| ||
| $ |
472,118 |
|
$ |
479,716 |
| |||
See accompanying notes to these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| (unaudited) |
||||||||
| Revenue: |
||||||||
| License |
$ |
34,388 |
|
$ |
28,750 |
| ||
| Service and support |
|
39,623 |
|
|
26,881 |
| ||
| Total revenue |
|
74,011 |
|
|
55,631 |
| ||
| Cost of revenue: |
||||||||
| License |
|
1,995 |
|
|
1,711 |
| ||
| Service and support |
|
11,587 |
|
|
10,595 |
| ||
| Cost of revenue |
|
13,582 |
|
|
12,306 |
| ||
| Gross profit |
|
60,429 |
|
|
43,325 |
| ||
| Operating expenses: |
||||||||
| Sales and marketing |
|
33,314 |
|
|
31,719 |
| ||
| Research and development |
|
18,510 |
|
|
14,520 |
| ||
| General and administrative |
|
8,154 |
|
|
7,069 |
| ||
| Amortization of intangibles |
|
2,695 |
|
|
1,432 |
| ||
| Litigation settlement charge |
|
— |
|
|
67,000 |
| ||
| Total operating expenses |
|
62,673 |
|
|
121,740 |
| ||
| Loss from operations |
|
(2,244 |
) |
|
(78,415 |
) | ||
| Interest and other income (expense), net |
|
(361 |
) |
|
514 |
| ||
| Loss before benefit from income taxes |
|
(2,605 |
) |
|
(77,901 |
) | ||
| Benefit from income taxes |
|
— |
|
|
(31,160 |
) | ||
| Net loss |
$ |
(2,605 |
) |
$ |
(46,741 |
) | ||
| Net loss per share: |
||||||||
| Basic and diluted |
$ |
(0.02 |
) |
$ |
(0.52 |
) | ||
| Weighted average common shares outstanding |
|
116,173 |
|
|
90,312 |
| ||
See accompanying notes to these condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(in thousands)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| (unaudited) |
||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(2,605 |
) |
$ |
(46,741 |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Deferred taxes |
|
— |
|
|
(30,084 |
) | ||
| Depreciation and amortization |
|
7,382 |
|
|
5,225 |
| ||
| Provision for doubtful accounts and product returns |
|
1,100 |
|
|
31 |
| ||
| Amortization of deferred stock compensation |
|
67 |
|
|
— |
| ||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
|
7,261 |
|
|
5,626 |
| ||
| Other assets |
|
(1,062 |
) |
|
749 |
| ||
| Accounts payable |
|
(606 |
) |
|
(1,455 |
) | ||
| Accrued liabilities |
|
(11,182 |
) |
|
57,701 |
| ||
| Deferred revenue |
|
1,830 |
|
|
(1,058 |
) | ||
| Net cash provided by (used in) operating activities |
|
2,185 |
|
|
(10,006 |
) | ||
| Cash flows from investing activities: |
||||||||
| Purchases of available-for-sale securities |
|
— |
|
|
(17,036 |
) | ||
| Maturities and sales of available-for-sale securities |
|
6,436 |
|
|
10,530 |
| ||
| Acquisition of property and equipment |
|
(2,027 |
) |
|
(6,345 |
) | ||
| Net cash provided by (used in) investing activities |
|
4,409 |
|
|
(12,851 |
) | ||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
|
262 |
|
|
||||