UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
Commission File Number: 000-24983
NetSolve, Incorporated
(Exact name of the registrant as specified in its charter)
| Delaware | 75-2094811-2 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
9500 Amberglen Boulevard
Austin, Texas 78729
(Address of principal executive offices, including zip code)
(512) 340-3000
(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. 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 ¨ No x
Number of shares outstanding of the issuer’s common stock, $.01 par value, as of February 6, 2004: 11,606,649
INDEX
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| 3/31/2003 |
12/31/2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 28,073 | $ | 19,161 | ||||
| Short-term investments |
15,431 | 21,228 | ||||||
| Restricted cash |
354 | 356 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $130 at March 31, 2003 and $182 at December 31, 2003 |
6,061 | 3,658 | ||||||
| Prepaid expenses and other assets |
1,883 | 4,118 | ||||||
| Deferred tax assets |
1,487 | 1,487 | ||||||
| Total current assets |
53,289 | 50,008 | ||||||
| Property and Equipment: |
||||||||
| Computer equipment and software |
11,466 | 12,682 | ||||||
| Furniture, fixtures and leasehold improvements |
5,073 | 5,116 | ||||||
| Other equipment |
373 | 446 | ||||||
| 16,912 | 18,244 | |||||||
| Less accumulated depreciation and amortization |
(10,690 | ) | (11,457 | ) | ||||
| Net property and equipment |
6,222 | 6,787 | ||||||
| Deferred tax assets, net of current portion |
1,375 | 1,385 | ||||||
| Other assets |
104 | — | ||||||
| Total assets |
$ | 60,990 | $ | 58,180 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,839 | $ | 1,064 | ||||
| Accrued liabilities |
3,098 | 3,256 | ||||||
| Future obligations for idle facility |
1,138 | 87 | ||||||
| Deferred revenue |
1,055 | 801 | ||||||
| Total current liabilities |
7,130 | 5,208 | ||||||
| Deferred revenue, net of current portion |
247 | — | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.01 par value; 25,000,000 shares authorized at March 31, 2003 and December 31, 2003; 15,613,690 issued and 11,455,204 outstanding at March 31, 2003 and 15,970,916 issued and 11,513,430 outstanding at December 31, 2003 |
156 | 159 | ||||||
| Additional paid-in capital |
81,732 | 83,554 | ||||||
| Treasury stock |
(28,891 | ) | (30,888 | ) | ||||
| Retained earnings |
616 | 147 | ||||||
| Total stockholders’ equity |
53,613 | 52,972 | ||||||
| Total liabilities and stockholders’ equity |
$ | 60,990 | $ | 58,180 | ||||
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Three Months Ended |
Nine Months Ended |
||||||||||||||
| 12/31/2002 |
12/31/2003 |
12/31/2002 |
12/31/2003 |
||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||
| Revenues: |
|||||||||||||||
| IT infrastructure management services |
$ | 10,434 | $ | 9,278 | $ | 30,606 | $ | 29,087 | |||||||
| Maintenance and equipment |
2,607 | 1,823 | 7,126 | 6,422 | |||||||||||
| Total revenues |
13,041 | 11,101 | 37,732 | 35,509 | |||||||||||
| Costs of revenues: |
|||||||||||||||
| IT infrastructure management services |
6,089 | 5,703 | 18,110 | 17,506 | |||||||||||
| Maintenance and equipment |
1,859 | 1,117 | 4,877 | 4,435 | |||||||||||
| Total costs of revenues |
7,948 | 6,820 | 22,987 | 21,941 | |||||||||||
| Gross profits: |
|||||||||||||||
| IT infrastructure management services |
4,345 | 3,575 | 12,496 | 11,581 | |||||||||||
| Maintenance and equipment |
748 | 706 | 2,249 | 1,987 | |||||||||||
| 5,093 | 4,281 | 14,745 | 13,568 | ||||||||||||
| Operating expenses: |
|||||||||||||||
| Development |
1,050 | 1,231 | 2,801 | 3,995 | |||||||||||
| Selling and marketing |
1,867 | 2,196 | 5,386 | 6,634 | |||||||||||
| General and administrative |
1,457 | 1,149 | 3,605 | 4,009 | |||||||||||
| Total operating expenses |
4,374 | 4,576 | 11,792 | 14,638 | |||||||||||
| Operating income (loss) |
719 | (295 | ) | 2,953 | (1,070 | ) | |||||||||
| Other income (expense): |
|||||||||||||||
| Interest income |
186 | 133 | 604 | 363 | |||||||||||
| Interest expense |
— | (1 | ) | (1 | ) | (1 | ) | ||||||||
| Other, net |
5 | (2 | ) | 20 | (2 | ) | |||||||||
| Total other income |
191 | 130 | 623 | 360 | |||||||||||
| Income (loss) before income taxes |
910 | (165 | ) | 3,576 | (710 | ) | |||||||||
| Income tax expense (benefit) |
346 | (33 | ) | 1,306 | (241 | ) | |||||||||
| Net income (loss) |
$ | 564 | $ | (132 | ) | $ | 2,270 | $ | (469 | ) | |||||
| Basic net income (loss) per share |
$ | 0.05 | $ | (0.01 | ) | $ | 0.19 | $ | (0.04 | ) | |||||
| Weighted average shares used in basic per share calculation |
11,747 | 11,141 | 11,919 | 11,381 | |||||||||||
| Diluted net income (loss) per share |
$ | 0.05 | $ | (0.01 | ) | $ | 0.18 | $ | (0.04 | ) | |||||
| Weighted average shares used in diluted per share calculation |
12,372 | 11,141 | 12,630 | 11,381 | |||||||||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended |
||||||||
| 12/31/2002 |
12/31/2003 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 2,270 | $ | (469 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,828 | 2,474 | ||||||
| Amortization of deferred compensation |
22 | — | ||||||
| Loss on disposition of property and equipment |
184 | 65 | ||||||
| Change in assets and liabilities: |
||||||||
| Reduction in future rentals for idle facility |
(1,151 | ) | (1,051 | ) | ||||
| Accounts receivable, net |
(1,132 | ) | 2,403 | |||||
| Prepaid expenses and other assets |
(201 | ) | (2,131 | ) | ||||
| Deferred tax assets |
16 | (10 | ) | |||||
| Accounts payable |
(535 | ) | (775 | ) | ||||
| Accrued liabilities |
1,139 | 158 | ||||||
| Deferred revenue |
(440 | ) | (501 | ) | ||||
| Net cash provided by operating activities |
3,000 | 163 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of short-term investments |
(3,973 | ) | (36,147 | ) | ||||
| Sale of short-term investments |
— | 30,350 | ||||||
| Transfer of funds to restricted cash |
(4 | ) | (3 | ) | ||||
| Purchases of property and equipment |
(1,910 | ) | (3,103 | ) | ||||
| Proceeds from the sale of property and equipment |
12 | — | ||||||
| Net cash used in investing activities |
(5,875 | ) | (8,903 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repurchase of common stock |
(3,176 | ) | (1,997 | ) | ||||
| Proceeds from exercise of common stock options and warrants |
88 | 1,825 | ||||||