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 June 30, 2004
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Commission file number: 000-30931)
OPNET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 7372 | 52-1483235 | ||
| (State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
7255 Woodmont Avenue
Bethesda, MD 20814
(Address of principal executive office)
(240) 497-3000
(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 registrants were 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 of the registrant’s Common Stock outstanding on June 30, 2004 was 20,115,791.
2
ITEM 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| June 30, 2004 |
March 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 42,345 | $ | 41,492 | ||||
| Marketable securities |
43,304 | 40,001 | ||||||
| Accounts receivable, net of $294 and $341 in allowance for doubtful accounts at June 30 and March 31, 2004, respectively |
9,320 | 10,044 | ||||||
| Unbilled accounts receivable |
2,366 | 2,559 | ||||||
| Deferred income taxes, prepaid expenses and other current assets |
1,788 | 1,772 | ||||||
| Total current assets |
99,123 | 95,868 | ||||||
| Property and equipment, net |
6,251 | 6,410 | ||||||
| Intangible assets, net |
1,106 | 1,240 | ||||||
| Goodwill |
12,212 | 12,212 | ||||||
| Deferred income taxes and other assets |
1,073 | 952 | ||||||
| Total assets |
$ | 119,765 | $ | 116,682 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 217 | $ | 934 | ||||
| Accrued liabilities |
4,119 | 4,218 | ||||||
| Deferred and accrued income taxes |
1,039 | 173 | ||||||
| Deferred revenue |
13,652 | 12,918 | ||||||
| Total current liabilities |
19,027 | 18,243 | ||||||
| Notes payable |
300 | 300 | ||||||
| Deferred rent |
1,018 | 994 | ||||||
| Deferred revenue |
644 | 774 | ||||||
| Total liabilities |
20,989 | 20,311 | ||||||
| Commitments and Contingencies (Note 8) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock- par value $0.001; 5,000 shares authorized, no shares issued and outstanding at June 30 and March 31, 2004 |
— | — | ||||||
| Common stock-par value $0.001; 100,000 authorized; 26,250 and 26,184 shares issued at June 30 and March 31, 2004, respectively; 20,116 and 20,050 shares outstanding at June 30 and March 31, 2004, respectively |
26 | 26 | ||||||
| Additional paid-in capital |
78,247 | 77,808 | ||||||
| Deferred compensation |
(5 | ) | (21 | ) | ||||
| Retained earnings |
24,701 | 22,661 | ||||||
| Accumulated other comprehensive loss |
(93 | ) | (3 | ) | ||||
| Treasury stock, at cost - 6,134 shares at June 30 and March 31, 2004 |
(4,100 | ) | (4,100 | ) | ||||
| Total stockholders’ equity |
98,776 | 96,371 | ||||||
| Total liabilities and stockholders’ equity |
$ | 119,765 | $ | 116,682 | ||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, | ||||||
| 2004 |
2003 | |||||
| Revenues: |
||||||
| New software licenses |
$ | 8,046 | $ | 6,166 | ||
| Software license updates and technical support |
4,656 | 3,341 | ||||
| Professional services |
4,085 | 2,798 | ||||
| Total revenues |
16,787 | 12,305 | ||||
| Cost of revenues: |
||||||
| New software licenses |
194 | 257 | ||||
| Software license updates and technical support |
551 | 376 | ||||
| Professional services |
2,506 | 1,537 | ||||
| Amortization of acquired technology |
134 | 125 | ||||
| Total cost of revenues |
3,385 | 2,295 | ||||
| Gross Profit |
13,402 | 10,010 | ||||
| Operating expenses: |
||||||
| Research and development |
3,395 | 3,197 | ||||
| Sales and marketing |
5,450 | 4,527 | ||||
| General and administrative |
1,703 | 1,382 | ||||
| Total operating expenses |
10,548 | 9,106 | ||||
| Income from operations |
2,854 | 904 | ||||
| Interest and other income, net |
196 | 151 | ||||
| Income before provision for income taxes |
3,050 | 1,055 | ||||
| Provision for income taxes |
1,010 | 291 | ||||
| Net income |
$ | 2,040 | $ | 764 | ||
| Basic net income per common share |
$ | 0.10 | $ | 0.04 | ||
| Diluted net income per common share |
$ | 0.10 | $ | 0.04 | ||
| Weighted average common shares outstanding (basic) |
20,083 | 19,452 | ||||
| Weighted average common shares outstanding (diluted) |
20,986 | 20,150 | ||||
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 2,040 | $ | 764 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
569 | 527 | ||||||
| Provision for losses on accounts receivable |
— | 61 | ||||||
| Deferred income taxes |
(163 | ) | 132 | |||||
| Expense related to employee and other stock options |
16 | 79 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
917 | (937 | ) | |||||
| Prepaid expenses and other current assets |
75 | 252 | ||||||
| Other assets |
(148 | ) | (138 | ) | ||||
| Accounts payable |
(717 | ) | 384 | |||||
| Accrued liabilities |
(99 | ) | 407 | |||||
| Accrued income taxes |
965 | 115 | ||||||
| Deferred revenue |
604 | 779 | ||||||
| Deferred rent |
24 | 94 | ||||||
| Net cash provided by operating activities |
4,083 | 2,519 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(276 | ) | (201 | ) | ||||
| Purchase of investments |
(19,228 | ) | (8,320 | ) | ||||
| Proceeds from sale/maturity of investments |
15,925 | — | ||||||
| Net cash used in investing activities |
(3,579 | ) | (8,521 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from exercise of common stock options |
258 | 231 | ||||||
| Proceeds from issuance of common stock under employee stock purchase plan |
181 | 147 | ||||||
| Net cash provided by financing activities |
439 | 378 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(90 | ) | (38 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
853 | (5,662 | ) | |||||
| Cash and cash equivalents, beginning of period |
41,492 | 70,251 | ||||||
| Cash and cash equivalents, end of period |
$ | 42,345 | $ | 64,589 | ||||
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Significant Accounting Policies
Organization. OPNET Technologies, Inc. (“OPNET”, “we” or “us”) is a leading provider of management software for networks and applications. Our solutions address: application performance troubleshooting; network configuration auditing; network capacity and resiliency planning; application deployment planning; and network technology R&D. We sell our products to corporate enterprises, government and defense agencies, network service providers, and network equipment manufacturers. We market our product suite in North America primarily through a direct sales force and, to a lesser extent, several resellers and original equipment manufacturers. Internationally, we conduct research and development through our wholly-controlled subsidiary in Ghent, Belgium and market our products through our wholly-owned subsidiaries in Paris, France; Slough, United Kingdom; and Sydney, Australia; third-party distributors; and value-added resellers. OPNET is headquartered in Bethesda, MD and has offices in Cary, NC; Dallas, TX; and Santa Clara, CA.
The accompanying condensed consolidated financial statements include our results and the results of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The interim condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Company’s Annual Report on Form 10-K, for the year ended March 31, 2004, filed with the SEC. The March 31, 2004 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. In the opinion of management, these interim condensed consolidated financial statements reflect all adjustments of a normal and recurring nature necessary to present fairly our results for the interim periods. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. In addition, our operating results for the three months ended June 30, 2004 may not be indicative of the operating results for the full fiscal year or any other future period.
Stock-Based Compensation. We account for stock-based compensation given to employees using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and accordingly, recognize compensation expense for fixed stock option grants only when the exercise price is less than the quoted market price of the shares on the date of the grant. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure,” permits the use of either a fair-value based method or the intrinsic value method provided in APB Opinion No. 25 to account for employee stock-based compensation arrangements. Companies that elect to use the intrinsic value method provided in APB Opinion No. 25 are required to disclose the pro forma net income (loss) and earnings (loss) per share that would have resulted from the use of the fair value method. We have provided below the pro forma disclosures of the effect on net income and earnings per share for the three months ended June 30, 2004 and 2003, respectively, as if SFAS No. 123 had been applied in measuring compensation expense for all periods.
6
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (in thousands, except per share data) |
||||||||
| Net income |
$ | 2,040 | $ | 764 | ||||
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
16 | 9 | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(838 | ) | (991 | ) | ||||
| Pro forma net income (loss) |
$ | 1,218 | $ | (218 | ) | |||
| Basic net income (loss) per common share: |
||||||||
| As reported |
$ | 0.10 | $ | 0.04 | ||||
| Pro forma |
$ | 0.06 | $ | (0.01 | ) | |||
| Diluted net income (loss) per common share: |
||||||||
| As reported |
$ | 0.10 | $ | 0.04 | ||||
| Pro forma |
$ | 0.06 | $ | (0.01 | ) | |||
2. Intangible Assets
Intangible assets consisted of the following:
| At June 30, 2004 |
At March 31, 2004 |
|||||||