United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
| ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended October 31, 2002. |
o |
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 0-24201 |
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Carreker Corporation
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
75-1622836 (IRS Employer Identification No.) |
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4055 Valley View Lane, #1000 Dallas, Texas (Address of principal executive office) |
75244 (Zip Code) |
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(972) 458-1981 (Registrant's telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
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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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Common Stock, $.01 par value—23,547,326 shares as of April 11, 2003.
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| PART 1: | FINANCIAL INFORMATION | |||
Item 1. |
Financial Statements (unaudited) |
3 |
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Condensed Consolidated Balance Sheets at October 31, 2002 and January 31, 2002 |
3 |
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Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2002 and 2001 |
4 |
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Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended October 31, 2002 |
5 |
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Condensed Consolidated Statements of Cash Flows for the three and nine months ended October 31, 2002 and 2001 |
6 |
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Notes to Condensed Consolidated Unaudited Financial Statements |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
30 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
51 |
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Item 4. |
Controls and Procedures |
52 |
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PART II: |
OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
53 |
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Item 2. |
Changes in Securities and Use of Proceeds |
53 |
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Item 3. |
Defaults Upon Senior Securities |
53 |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
53 |
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Item 5. |
Other Information |
53 |
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Item 6. |
Exhibits and Reports on Form 8-K |
53 |
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SIGNATURES |
54 |
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CERTIFICATIONS |
55 |
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2
CARREKER CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share amounts)
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October 31, 2002 |
January 31, 2002 |
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(Restated) See Note 3 |
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| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 25,639 | $ | 25,674 | ||||
| Accounts receivable, net of allowance of $1,711 and $2,367 at October 31, 2002 and January 31, 2002, respectively | 36,713 | 37,552 | ||||||
| Federal income tax receivable | — | 4,823 | ||||||
| Prepaid software royalties | 1,177 | 1,408 | ||||||
| Prepaid expenses and other current assets | 3,881 | 3,508 | ||||||
| Total current assets | 67,410 | 72,965 | ||||||
| Property and equipment, net of accumulated depreciation of $13,799 and $10,682 at October 31, 2002 and January 31, 2002, respectively | 9,704 | 10,384 | ||||||
| Capitalized software costs, net of accumulated amortization of $8,978 and $7,676 at October 31, 2002 and January 31, 2002, respectively | 3,057 | 4,254 | ||||||
| Acquired developed technology, net of accumulated amortization of $5,837 and $2,746 at October 31, 2002 and January 31, 2002, respectively | 18,363 | 21,454 | ||||||
| Goodwill, net of accumulated amortization of $3,405 at October 31, 2002 and January 31, 2002 | 67,193 | 67,193 | ||||||
| Customer relationships, net of accumulated amortization of $1,983 and $933 at October 31, 2002 and January 31, 2002, respectively | 6,417 | 7,467 | ||||||
| Deferred loan costs, net of accumulated amortization of $568 and $244 at October 31, 2002 and January 31, 2002, respectively | 684 | 1,008 | ||||||
| Other assets | 357 | 174 | ||||||
| Total assets | $ | 173,185 | $ | 184,899 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,028 | $ | 4,281 | ||||
| Accrued compensation and benefits | 7,729 | 19,775 | ||||||
| Other accrued expenses | 4,029 | 6,218 | ||||||
| Federal income tax payable | 652 | — | ||||||
| Deferred revenue | 25,504 | 27,311 | ||||||
| Accrued Merger and restructuring costs | 3,367 | 11,250 | ||||||
| Total current liabilities | 43,309 | 68,835 | ||||||
| Long-term debt | 28,000 | 44,000 | ||||||
| Deferred revenue | 1,051 | 1,436 | ||||||
| Total liabilities | 72,360 | 114,271 | ||||||
| Contingencies | ||||||||
Stockholders' equity |
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| Preferred stock, $.01 par value: 2,000 shares authorized; no shares issued or outstanding | — | — | ||||||
| Common stock, $.01 par value: 100,000 shares authorized; 23,574 and 21,924 shares issued at October 31, 2002 and January 31, 2002, respectively | 236 | 219 | ||||||
| Additional paid-in capital | 105,263 | 93,680 | ||||||
| Accumulated deficit | (4,159 | ) | (22,756 | ) | ||||
| Less treasury stock, at cost: 27 common shares at October 31, 2002 and January 31, 2002 | (515 | ) | (515 | ) | ||||
| Total stockholders' equity | 100,825 | 70,628 | ||||||
| Total liabilities and stockholders' equity | $ | 173,185 | $ | 184,899 | ||||
See accompanying notes.
3
CARREKER CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended October 31, |
Nine Months Ended October 31, |
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2002 |
2001 |
2002 |
2001 |
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(Restated) See Note 3 |
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(Restated) See Note 3 |
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| Revenues: | |||||||||||||||
| Consulting fees | $ | 8,136 | $ | 7,066 | $ | 30,677 | $ | 32,566 | |||||||
| Software license fees | 6,330 | 6,919 | 32,430 | 15,521 | |||||||||||
| Software maintenance fees | 11,624 | 8,336 | 33,381 | 17,272 | |||||||||||
| Software implementation fees | 6,589 | 7,164 | 19,481 | 13,857 | |||||||||||
| Out-of-pocket expense reimbursements | 1,498 | 2,612 | 5,356 | 7,904 | |||||||||||
| Total revenues | 34,177 | 32,097 | 121,325 | 87,120 | |||||||||||
Cost of revenues: |
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| Consulting fees | 5,650 | 8,090 | 19,623 | 27,159 | |||||||||||
| Software license fees | 1,864 | 1,910 | 5,625 | 4,612 | |||||||||||
| Write-off of capitalized software costs and prepaid software royalties | — | 12,212 | — | 15,031 | |||||||||||
| Software maintenance fees | 2,486 | 2,473 | 7,730 | 5,676 | |||||||||||
| Software implementation fees | 4,651 | 5,539 | 14,480 | 11,012 | |||||||||||
| Out-of-pocket expenses | 1,582 | 3,027 | 5,858 | 9,136 | |||||||||||
| Total cost of revenues | 16,233 | 33,251 | 53,316 | 72,626 | |||||||||||
| Gross profit (loss) | 17,944 | (1,154 | ) | 68,009 | 14,494 | ||||||||||
Operating costs and expenses: |
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| Selling, general and administrative | 12,573 | 13,186 | 37,977 | 35,339 | |||||||||||
| Research and development | 3,226 | 3,742 | 9,387 | 7,001 | |||||||||||
| Amortization of goodwill and intangible assets | 350 | 1,627 | 1,050 | 2,712 | |||||||||||
| Merger, restructuring and other charges | — | 4,239 | — | 18,707 | |||||||||||
| Total operating costs and expenses | 16,149 | 22,794 | 48,414 | 63,759 | |||||||||||
| Income (loss) from operations | 1,795 | (23,948 | ) | 19,595 | (49,265 | ) | |||||||||
Other income (expense): |
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| Interest income | 138 | 175 | 331 | 1,513 | |||||||||||
| Interest expense | (605 | ) | (815 | ) | (2,086 | ) | (1,441 | ) | |||||||
| Other income (expense): | 53 | (24 | ) | 91 | (86 | ) | |||||||||
| Total other income (expense) | (414 | ) | (664 | ) | (1,664 | ) | (14 | ) | |||||||
| Income (loss) before provision (benefit) for income taxes | 1,381 | (24,612 | ) | 17,931 | (49,279 | ) | |||||||||
| Provision (benefit) for income taxes | 392 | (284 | ) | (666 | ) | (1,710 | ) | ||||||||
| Net income (loss) | $ | 989 | $ | (24,328 | ) | $ | 18,597 | $ | (47,569 | ) | |||||
| Basic earnings (loss) per share | $ | 0.04 | $ | (1.11 | ) | $ | 0.81 | $ | (2.18 | ) | |||||
| Diluted earnings (loss) per share | $ | 0.04 | $ | (1.11 | ) | $ | 0.79 | $ | (2.18 | ) | |||||
| Shares used in computing basic earnings (loss) per share | 23,544 | 21,890 | 23,081 | 21,839 | |||||||||||
| Shares used in computing diluted earnings (loss) per share | 23,907 | 21,890 | 23,674 | 21,839 | |||||||||||
See accompanying notes.
4
CARREKER CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands)
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Common Stock |
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Treasury Stock |
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Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders' Equity |
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Shares |
Amount |
Shares |
Amount |
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| Balance at January 31, 2002 (as reported) | 21,924 | $ | 219 | $ | 93,680 | $ | (1,165 | ) | 27 | $ | (515 | ) | $ | 92,219 | |||||||
| Cumulative affect of restatement | — | — | — | (21,591 | ) | — | — | (21,591 | ) | ||||||||||||
| Balance at January 31, 2002 (restated) | 21,924 | 219 | 93,680 | (22,756 | ) | 27 | (515 | ) | 70,628 | ||||||||||||
Issuance of shares of common stock upon exercises of stock options |
99 |
1 |
653 |
— |
— |
— |
654 |
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| Sale of common stock | 1,282 | 13 | 9,310 | — | — | — | 9,323 | ||||||||||||||
| Other | — | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||
| Net income (restated) | — | — | — | 9,691 | — | — | 9,691 | ||||||||||||||
| Balance at April 30, 2002 | 23,305 | 233 | 103,643 | (13,065 | ) | 27 | (519 | ) | 90,292 | ||||||||||||
Issuance of shares of common stock upon exercises of stock options |
263 |
3 |
1,584 |
— |
— |
— |
1,587 |
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| Other | — | — | — | — | — | 4 | 4 | ||||||||||||||
| Net income (restated) | — | — | — | 7,917 | — | — | 7,917 | ||||||||||||||
| Balance at July 31, 2002 | 23,568 | 236 | 105,227 | (5,148 | ) | 27 | (515 | ) | 99,800 | ||||||||||||
Issuance of shares of common stock upon exercises of stock options |
6 |
— |
36 |
— |
— |
— |
36 |
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| Net income | — | — | — | 989 | — | — | 989 | ||||||||||||||
| Balance at October 31, 2002 | 23,574 | $ | 236 | $ | 105,263 | $ | (4,159 | ) | 27 | $ | (515 | ) | $ | 100,825 | |||||||
See accompanying notes.
5
CARREKER CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Three Months Ended October 31, |
Nine Months Ended October 31, |
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2002 |
2001 |
2002 |
2001 |
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(Restated) See Note 3 |
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(Restated) See Note 3 |
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| Operating Activities: | |||||||||||||||
Net income (loss) |
$ |
989 |
$ |
(24,328 |
) |
$ |
18,597 |
$ |
(47,569 |
) |
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| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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| Depreciation and amortization of property and equipment |
1,115 | 1,055 | 3,456 | 2,657 | |||||||||||
| Amortization of capitalized software costs and acquired developed technology |
1,513 | 1,461 | 4,391 | 3,954 | |||||||||||
| Amortization of goodwill and customer relationships | 350 | 1,626 | 1,050 | 2,711 | |||||||||||
| Compensation earned under employee/director stock option plan |
— | 10 | — | 47 | |||||||||||
| Tax benefit from exercises of stock options | — | 57 | — | 1,502 | |||||||||||
| Deferred income taxes | — | — | — | 48 | |||||||||||
| Non-cash portion of merger-related costs | — | 2,954 | — | 14,500 | |||||||||||
| Write-off capitalized software costs and prepaid software royalties |
— | 12,212 | — | 15,031 | |||||||||||
| Provision for doubtful accounts | 72 | 202 | 588 | 1,028 | |||||||||||
| Amortization of deferred loan costs | 108 | 93 | 324 | 136 | |||||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: |
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| Accounts receivable | (1,716 | ) | 2,042 | (280 | ) | 6,174 | |||||||||
| Prepaid expenses and other assets | (457 | ) | (794 | ) | 102 | (2,952 | ) | ||||||||
| Prepayment of software royalties | — | (1,400 | ) | — | (10,400 | ) | |||||||||
| Accounts payable and accrued expenses | (3,228 | ) | (152 | ) | (23,695 | ) | (262 | ) | |||||||
| Income taxes payable/receivable | 7,189 | (378 | ) | 5,475 | (3,728 | ) | |||||||||
| Deferred revenue | (5,772 | ) | (2,941 | ) | (2,192 | ) | 2,642 | ||||||||
| Net cash provided by (used in) operating activities | 163 | (8,281 | ) | 7,816 | (13,957 | ) | |||||||||
| Investing Activities: | |||||||||||||||
| Sales and maturities of short-term investments | — | — | — | 15,407 | |||||||||||
| Acquisitions, net of cash acquired | — | (202 | ) | — | (78,051 | ) | |||||||||
| Purchases of property and equipment | (1,553 | ) | (198 | ) | (3,351 | ) | (2,342 | ) | |||||||
| Computer software costs capitalized | — | (589 | ) | (103 | ) | (3,753 | ) | ||||||||
| Proceeds from disposition of assets | 3 | — | 3 | 32 | |||||||||||
| Net cash used in investing activities | (1,550 | ) | (989 | ) | (3,451 | ) | (68,707 | ) | |||||||
| Financing Activities: | |||||||||||||||
| Purchases of treasury stock | — | (22 | ) | — | (23 | ) | |||||||||
| Proceeds from issuance of long-term debt | — | — | — | 45,000 | |||||||||||
| Payments on long-term debt | (7,000 | ) | — | (16,000 | ) | — | |||||||||
| Payment of deferred loan costs | — | (140 | ) | — | (978 | ) | |||||||||
| Proceeds from exercises of stock options | 36 | 75 | 2,277 | 1,154 | |||||||||||
| Proceeds from sale of common stock | — | — | 9,323 | — | |||||||||||
| Payments on notes payable | — | ||||||||||||||