UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004.
| ¨ | 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 000-30293
EMBARCADERO TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 68-0310015 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
425 MARKET STREET, SUITE 425
SAN FRANCISCO, CA 94105
(415) 834-3131
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) 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 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. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act). x Yes ¨ No
The number of shares outstanding of the Registrant’s Common Stock as of April 30, 2004 was 27,482,494.
EMBARCADERO TECHNOLOGIES, INC.
| PART I. FINANCIAL INFORMATION | Page | |||
| ITEM 1. | FINANCIAL STATEMENTS | |||
| Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 | 3 | |||
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 | 5 | |||
| Notes to Condensed Consolidated Financial Statements | 6 | |||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 13 | ||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 27 | ||
| ITEM 4. | CONTROLS AND PROCEDURES | 28 | ||
| PART II. OTHER INFORMATION | ||||
| ITEM 1. | LEGAL PROCEEDINGS | 28 | ||
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K | 28 | ||
| ITEM 10. | MATERIAL CONTRACTS | 28 | ||
| SIGNATURE | 29 | |||
2
PART I- FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
EMBARCADERO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 38,915 | $ | 45,066 | ||||
| Short-term investments |
23,197 | 12,901 | ||||||
| Trade accounts receivable, net |
9,039 | 8,237 | ||||||
| Prepaid expenses and other current assets |
1,942 | 1,670 | ||||||
| Deferred income taxes |
465 | 465 | ||||||
| Total current assets |
73,558 | 68,339 | ||||||
| Property and equipment, net |
3,070 | 3,259 | ||||||
| Goodwill |
10,337 | 10,337 | ||||||
| Other intangible assets, net |
490 | 692 | ||||||
| Deferred income taxes |
3,711 | 3,711 | ||||||
| Other assets |
3,176 | 3,692 | ||||||
| Total assets |
$ | 94,342 | $ | 90,030 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 262 | $ | 1,011 | ||||
| Accrued liabilities |
5,200 | 5,098 | ||||||
| Deferred revenue |
13,862 | 13,219 | ||||||
| Total current liabilities |
19,324 | 19,328 | ||||||
| Long-term deferred revenue |
182 | 251 | ||||||
| Long-term restructuring accrual |
107 | 203 | ||||||
| Total liabilities |
19,613 | 19,782 | ||||||
| Stockholders’ Equity: |
||||||||
| Common stock at $0.001 par value |
28 | 28 | ||||||
| Treasury stock |
(6,287 | ) | (6,287 | ) | ||||
| Additional paid-in capital |
82,069 | 80,145 | ||||||
| Accumulated other comprehensive income |
384 | 374 | ||||||
| Deferred stock-based compensation |
(1,198 | ) | (1,519 | ) | ||||
| Accumulated deficit |
(267 | ) | (2,493 | ) | ||||
| Total stockholders’ equity |
74,729 | 70,248 | ||||||
| Total liabilities and stockholders’ equity |
$ | 94,342 | $ | 90,030 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
EMBARCADERO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| License |
$ | 7,379 | $ | 6,347 | ||||
| Maintenance |
7,046 | 5,861 | ||||||
| Total revenues |
14,425 | 12,208 | ||||||
| Cost of revenues: |
||||||||
| License |
209 | 100 | ||||||
| Amortization of acquired technology |
555 | 555 | ||||||
| Maintenance |
622 | 588 | ||||||
| Total cost of revenues |
1,386 | 1,243 | ||||||
| Gross profit |
13,039 | 10,965 | ||||||
| Operating expenses: |
||||||||
| Research and development |
3,774 | 3,790 | ||||||
| Sales and marketing |
5,111 | 4,895 | ||||||
| General and administrative |
1,213 | 1,302 | ||||||
| Total operating expenses |
10,098 | 9,987 | ||||||
| Income from operations |
2,941 | 978 | ||||||
| Other income, net |
151 | 126 | ||||||
| Income before provision for income taxes |
3,092 | 1,104 | ||||||
| Provision for income taxes |
(866 | ) | (208 | ) | ||||
| Net income |
$ | 2,226 | $ | 896 | ||||
| Net income per share: |
||||||||
| Basic |
$ | 0.08 | $ | 0.03 | ||||
| Diluted |
$ | 0.08 | $ | 0.03 | ||||
| Shares used in per share calculation: |
||||||||
| Basic |
27,122 | 26,652 | ||||||
| Diluted |
29,103 | 28,255 | ||||||
| Non-cash stock-based compensation included in the above expenses: |
||||||||
| Research and development |
$ | — | $ | 3 | ||||
| Sales and marketing |
149 | 105 | ||||||
| General and administrative |
146 | 150 | ||||||
| $ | 295 | $ | 258 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
EMBARCADERO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income |
$ | 2,226 | $ | 896 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
487 | 535 | ||||||
| Recovery of doubtful accounts |
(24 | ) | (47 | ) | ||||
| Amortization of capitalized software |
488 | 370 | ||||||
| Amortization of other intangible assets |
202 | 202 | ||||||
| Amortization of deferred stock-based compensation |
237 | 258 | ||||||
| Issuance of options in exchange for services |
58 | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Trade accounts receivable |
(660 | ) | 1,218 | |||||
| Prepaid expenses and other assets |
(344 | ) | 59 | |||||
| Accounts payable and accrued liabilities |
(779 | ) | (191 | ) | ||||
| Deferred revenue |
523 | 426 | ||||||
| Net cash provided by operating activities |
2,414 | 3,726 | ||||||
| Cash Flows from Investing Activities: |
||||||||
| Purchase of investments |
(10,296 | ) | (7,236 | ) | ||||
| Maturities of investments |
— | 1,700 | ||||||
| Sales of investments |
— | 13,267 | ||||||
| Purchase of property and equipment |
(296 | ) | (434 | ) | ||||
| Technology acquired and developed |
(15 | ) | (105 | ) | ||||
| Net cash provided by (used in) investing activities |
(10,607 | ) | 7,192 | |||||
| Cash Flows from Financing Activities: |
||||||||
| Payments for repurchase of common stock |
— | (1,171 | ) | |||||
| Proceeds from exercise of stock options |
1,952 | 1 | ||||||
| Net cash provided by (used in) financing activities |
1,952 | (1,170 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
90 | (27 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
(6,151 | ) | 9,721 | |||||
| Cash and cash equivalents at the beginning of the period |
45,066 | 15,870 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 38,915 | $ | 25,591 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
EMBARCADERO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—THE COMPANY AND BASIS OF PRESENTATION
Embarcadero Technologies, Inc. (with its subsidiaries, collectively referred to as “the Company”) was incorporated in California on July 23, 1993, and reincorporated in Delaware on February 15, 2000. The Company provides software products that enable organizations to effectively manage their database infrastructure and manage the underlying data housed within that infrastructure. The Company is headquartered in San Francisco, California and has international operations in Toronto, Canada, Maidenhead, United Kingdom and Melbourne, Australia.
The Company markets its software and related maintenance services directly through telesales and field sales organizations in the United States, the United Kingdom and Australia, and indirectly through independent distributors worldwide.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which, in the opinion of the Company, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are normal recurring adjustments. These financial statements have been prepared in accordance with generally accepted accounting principles related to interim financial statements and the applicable rules of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at December 31, 2003, was derived from the audited financial statements, but it does not include all disclosures required by generally accepted accounting principles.
The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 12, 2004.
Operating results for the three months ended March 31, 2004, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2004 or for any future period. Further, the preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to the estimates and impact future operating results.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Stock-Based Compensation
Pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company accounts for employee stock options under Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and follows the disclosure-only provisions of SFAS No. 123. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company’s common stock and the exercise price of options to purchase that stock. For purposes of estimating the compensation cost of the Company’s option grants in accordance with SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. If the Company had determined its compensation cost for the Company’s stock-based compensation plan based on the fair value at the grant dates for the awards under a method prescribed by SFAS No. 123, the Company’s net income would have been changed to the pro forma net income (loss) indicated below (in thousands, except per share amounts):
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Net income, as reported |
$ | 2,226 | $ | 896 | ||||
| Add: Employee stock-based compensation expense included in reported net income, net of tax |
141 | 217 | ||||||
| Less: Total employee stock-based compensation expense determined under fair value, net of tax |
(669 | ) | (774 | ) | ||||
| Pro forma net income |
$ | 1,698 | $ | 339 | ||||