UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 November 30, 2004
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: 0-26880
VERITY, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0182779 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
894 Ross Drive
Sunnyvale, California 94089
(408) 541-1500
(Address, including zip code, and telephone number, including area code of principal executive offices)
Indicate by check mark whether 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, $0.001 par value, was 37,768,678 as of December 31, 2004.
VERITY, INC.
FORM 10-Q
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
3 | |||
| Condensed Consolidated Balance Sheets — As of November 30, 2004 and May 31, 2004 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||
| Item 3. |
30 | |||
| Item 4. |
31 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. |
33 | |||
| Item 2. |
33 | |||
| Item 3. |
33 | |||
| Item 4. |
33 | |||
| Item 5. |
34 | |||
| Item 6. |
34 | |||
| 35 | ||||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
( In thousands, except per share data, unaudited)
| November 30, 2004 |
May 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 76,207 | $ | 92,245 | ||||
| Short-term investments |
52,573 | 25,256 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $1,741 and $2,131 |
32,101 | 31,807 | ||||||
| Deferred tax assets |
2,590 | 2,482 | ||||||
| Prepaid and other assets |
6,396 | 4,636 | ||||||
| Total current assets |
169,867 | 156,426 | ||||||
| Property and equipment, net |
5,842 | 4,272 | ||||||
| Long-term investments |
81,780 | 84,248 | ||||||
| Deferred tax assets |
16,831 | 17,884 | ||||||
| Intangible assets, net |
21,475 | 24,854 | ||||||
| Goodwill |
55,824 | 55,824 | ||||||
| Other assets |
573 | 573 | ||||||
| Total assets |
$ | 352,192 | $ | 344,081 | ||||
| LIABILITIES | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,034 | $ | 2,855 | ||||
| Accrued compensation |
11,592 | 10,086 | ||||||
| Income tax payable |
6,415 | 4,214 | ||||||
| Deferred purchase payment |
570 | 3,066 | ||||||
| Other accrued liabilities |
6,212 | 5,043 | ||||||
| Deferred revenue |
21,731 | 21,421 | ||||||
| Total current liabilities |
49,554 | 46,685 | ||||||
| Non-current liabilities: |
||||||||
| Deferred purchase payment |
— | 570 | ||||||
| Total liabilities |
49,554 | 47,255 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value: |
||||||||
| Authorized: 2,000 shares |
||||||||
| Issued and outstanding: none |
||||||||
| Common stock, $0.001 par value: |
||||||||
| Authorized: 200,000 shares; issued and outstanding: 37,651 shares as of November 30, 2004 and 37,280 shares as of May 31, 2004 |
38 | 37 | ||||||
| Additional paid-in capital |
257,724 | 259,245 | ||||||
| Accumulated other comprehensive income |
2,694 | 2,249 | ||||||
| Deferred stock compensation |
(76 | ) | (88 | ) | ||||
| Retained earnings |
42,258 | 35,383 | ||||||
| Total stockholders’ equity |
302,638 | 296,826 | ||||||
| Total liabilities and stockholders’ equity |
$ | 352,192 | $ | 344,081 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
| Three Months Ended November 30, |
Six Months Ended November 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenues: |
||||||||||||
| Software products |
$ | 22,103 | $ | 16,227 | $ | 41,795 | $ | 30,404 | ||||
| Service and other |
15,533 | 12,672 | 30,463 | 25,098 | ||||||||
| Total revenues |
$ | 37,636 | $ | 28,899 | $ | 72,258 | $ | 55,502 | ||||
| Costs of revenues: |
||||||||||||
| Software products |
851 | 429 | 1,584 | 768 | ||||||||
| Service and other |
5,075 | 3,288 | 10,049 | 6,676 | ||||||||
| Amortization of purchased intangible assets |
1,690 | 645 | 3,379 | 1,290 | ||||||||
| Total costs of revenues |
7,616 | 4,362 | 15,012 | 8,734 | ||||||||
| Gross profit |
30,020 | 24,537 | 57,246 | 46,768 | ||||||||
| Operating expenses: |
||||||||||||
| Research and development |
5,851 | 4,773 | 11,540 | 10,234 | ||||||||
| Marketing and sales |
14,874 | 11,687 | 29,935 | 23,820 | ||||||||
| General and administrative |
4,604 | 2,712 | 7,846 | 5,600 | ||||||||
| Restructuring charges |
279 | 972 | 377 | 972 | ||||||||
| Total operating expenses |
25,608 | 20,144 | 49,698 | 40,626 | ||||||||
| Income from operations |
4,412 | 4,393 | 7,548 | 6,142 | ||||||||
| Other income, net |
1,591 | 1,770 | 2,642 | 2,956 | ||||||||
| Income before provision for income taxes |
6,003 | 6,163 | 10,190 | 9,098 | ||||||||
| Provision for income taxes |
1,640 | 2,524 | 3,315 | 3,639 | ||||||||
| Net income |
$ | 4,363 | $ | 3,639 | $ | 6,875 | $ | 5,459 | ||||
| Net income per share — basic |
$ | 0.12 | $ | 0.10 | $ | 0.18 | $ | 0.15 | ||||
| Net income per share — diluted |
$ | 0.11 | $ | 0.09 | $ | 0.18 | $ | 0.14 | ||||
| Number of shares — basic |
37,517 | 37,579 | 37,350 | 37,542 | ||||||||
| Number of shares — diluted |
38,684 | 39,475 | 38,380 | 39,569 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
| Six Months Ended November 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flow from operating activities: |
||||||||
| Net income |
$ | 6,875 | $ | 5,459 | ||||
| Adjustment to reconcile net income to net cash provided (used) by operating activities: |
||||||||
| Depreciation and amortization |
4,800 | 3,031 | ||||||
| Noncash restructuring charges |
282 | 12 | ||||||
| Allowance for doubtful accounts |
(390 | ) | — | |||||
| Deferred income taxes |
944 | — | ||||||
| Amortization of premium on securities, net |
322 | 512 | ||||||
| Amortization of deferred stock-based compensation |
12 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
1,129 | (2,515 | ) | |||||
| Prepaid and other assets |
(1,720 | ) | (713 | ) | ||||
| Accounts payable |
182 | (1,623 | ) | |||||
| Accrued compensation |
1,211 | (975 | ) | |||||
| Other accrued liabilities |
2,974 | (146 | ) | |||||
| Deferred revenue |
(216 | ) | 270 | |||||
| Net cash provided by operating activities |
16,405 | 3,312 | ||||||
| Cash flows from investing activities: |
||||||||
| Acquisition of property and equipment |
(2,859 | ) | (1,015 | ) | ||||
| Purchases of marketable securities |
(131,654 | ) | (213,149 | ) | ||||
| Maturity of marketable securities |
36,500 | 89,926 | ||||||
| Proceeds from sale of marketable securities |
69,900 | 115,860 | ||||||
| Cash paid for purchase of business |
(3,066 | ) | — | |||||
| Net cash used by investing activities |
(31,179 | ) | (8,378 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from the sale of common stock, net of issuance costs |
14,293 | 14,498 | ||||||
| Repurchases of common stock |
(15,815 | ) | (17,005 | ) | ||||
| Net cash used by financing activities |
(1,522 | ) | (2,507 | ) | ||||
| Effect of exchange rate changes on cash |
258 | 175 | ||||||
| Net decrease in cash and cash equivalents |
(16,038 | ) | (7,398 | ) | ||||
| Cash and cash equivalents-beginning of period |
92,245 | 85,672 | ||||||
| Cash and cash equivalents-end of period |
$ | 76,207 | $ | 78,274 | ||||
| & | ||||||||