UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 December 31, 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 000-29357
Chordiant Software, Inc.
(Exact name of Registrant as specified in its Charter)
| Delaware | 93-1051328 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
20400 Stevens Creek Boulevard, Suite 400
Cupertino, CA 95014
(Address of Principal Executive Offices including Zip Code)
(408) 517-6100
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed since last report)
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 ¨ NO x
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 as of March 31, 2005 was 77,008,337.
CHORDIANT SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 2004
| Page No. | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
1 | |||
| Condensed Consolidated Balance Sheets at December 31, 2004 and September 30, 2004 |
1 | |||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||
| Item 3. |
32 | |||
| Item 4. |
33 | |||
| PART II. |
OTHER INFORMATION | 35 | ||
| Item 1. |
35 | |||
| Item 6. |
35 | |||
| 36 | ||||
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
| December 31, 2004 |
September 30, 2004 |
|||||||
| (Restated) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 47,287 | $ | 55,748 | ||||
| Marketable securities |
4,000 | 4,000 | ||||||
| Restricted cash |
1,780 | 279 | ||||||
| Accounts receivable, net |
17,928 | 20,161 | ||||||
| Prepaid expenses and other current assets |
3,841 | 3,097 | ||||||
| Total current assets |
74,836 | 83,285 | ||||||
| Restricted cash |
558 | 2,057 | ||||||
| Property and equipment, net |
3,172 | 3,237 | ||||||
| Goodwill |
32,028 | 24,874 | ||||||
| Intangible assets, net |
6,178 | 244 | ||||||
| Other assets |
2,419 | 1,643 | ||||||
| Total assets |
$ | 119,191 | $ | 115,340 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 6,656 | $ | 6,394 | ||||
| Accrued expenses |
13,981 | 11,681 | ||||||
| Deferred revenue |
18,582 | 18,459 | ||||||
| Current portion of capital lease obligations |
201 | 191 | ||||||
| Total current liabilities |
39,420 | 36,725 | ||||||
| Deferred revenue, long-term |
1,622 | 2,122 | ||||||
| Long term portion of capital lease obligations |
257 | 317 | ||||||
| Total liabilities |
41,299 | 39,164 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
77 | 72 | ||||||
| Additional paid-in capital |
271,890 | 262,703 | ||||||
| Deferred stock-based compensation |
(4,391 | ) | (339 | ) | ||||
| Accumulated deficit |
(193,411 | ) | (189,349 | ) | ||||
| Accumulated other comprehensive income |
3,727 | 3,089 | ||||||
| Total stockholders’ equity |
77,892 | 76,176 | ||||||
| Total liabilities and stockholders’ equity |
$ | 119,191 | $ | 115,340 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data, unaudited)
| Three Months Ended |
||||||||
| December 31, 2004 |
December 31, 2003 |
|||||||
| Revenues: |
||||||||
| License |
$ | 8,842 | $ | 9,248 | ||||
| Service |
12,835 | 10,352 | ||||||
| Total revenues |
21,677 | 19,600 | ||||||
| Cost of revenues: |
||||||||
| License |
166 | 574 | ||||||
| Service |
7,503 | 6,237 | ||||||
| Stock—based compensation |
(56 | ) | 676 | |||||
| Amortization of intangible assets |
131 | 794 | ||||||
| Total cost of revenues |
7,744 | 8,281 | ||||||
| Gross profit |
13,933 | 11,319 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
7,215 | 5,695 | ||||||
| Research and development |
4,865 | 4,176 | ||||||
| General and administrative |
3,912 | 1,291 | ||||||
| Stock—based compensation |
(105 | ) | 2,671 | |||||
| Amortization of intangible assets |
24 | 96 | ||||||
| Purchased in-process research and development |
1,940 | — | ||||||
| Restructuring expense |
(123 | ) | 1,028 | |||||
| Total operating expenses |
17,728 | 14,957 | ||||||
| Loss from operations |
(3,795 | ) | (3,638 | ) | ||||
| Interest income, net |
210 | 17 | ||||||
| Other income (expense), net |
(397 | ) | 141 | |||||
| Net loss before income taxes |
(3,982 | ) | (3,480 | ) | ||||
| Provision for income taxes |
80 | 457 | ||||||
| Net loss |
$ | (4,062 | ) | $ | (3,937 | ) | ||
| Other comprehensive income: |
||||||||
| Foreign currency translation gain |
638 | 1,135 | ||||||
| Comprehensive loss |
$ | (3,424 | ) | $ | (2,802 | ) | ||
| Net loss per share—basic and diluted |
$ | (0.06 | ) | $ | (0.06 | ) | ||
| Weighted average shares used in computing basic and diluted loss per share |
72,223 | 61,560 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Three Months Ended |
||||||||
| December 31, 2004 |
December 31, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (4,062 | ) | $ | (3,937 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
372 | 539 | ||||||
| Amortization of intangibles |
155 | 890 | ||||||
| Purchased in-process research and development |
1,940 | — | ||||||
| Non-cash stock-based compensation expense |
(161 | ) | 3,149 | |||||
| Provision for doubtful accounts |
79 | — | ||||||
| Warrants issued to customers |
(15 | ) | 95 | |||||
| Loss on disposal of assets |
— | 11 | ||||||
| Other non-cash charges |
105 | — | ||||||
| Changes in assets and liabilities net of effect of acquisitions: |
||||||||
| Accounts receivable |
2,983 | 1,091 | ||||||
| Prepaid expenses and other current assets |
(637 | ) | 502 | |||||
| Other assets |
(736 | ) | 139 | |||||
| Accounts payable |
(2,094 | ) | 938 | |||||
| Accrued expenses |
1,755 | 1,366 | ||||||
| Deferred revenue |
(1,487 | ) | (1,215 | ) | ||||
| Other liabilities |
— | (90 | ) | |||||
| Net cash provided by (used in) operating activities |
(1,803 | ) | 3,478 | |||||
| Cash flows from investing activities: |
||||||||
| Property and equipment purchases, net |
(196 | ) | (173 | ) | ||||
| Proceeds from release of restricted cash |
(3 | ) | — | |||||
| Cash used for acquisitions, net of cash acquired |
(7,869 | ) | — | |||||
| Net cash used for investing activities |
(8,068 | ) | (173 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from exercise of stock options |
135 | 617 | ||||||
| Payment on capital leases |
(50 | ) | — | |||||
| Collection of notes receivable |
— | 400 | ||||||
| Repayment of borrowings |
— | (2,131 | ) | |||||
| Net cash provided by (used in) financing activities |
85 | (1,114 | ) | |||||
| Effect of exchange rate changes |
1,325 | 1,933 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(8,461 | ) | 4,124 | |||||
| Cash and cash equivalents at beginning of period |
55,748 | 32,094 | ||||||
| Cash and cash equivalents at end of period |
$ | 47,287 | $ | 36,218 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, which in the opinion of management, are necessary to state fairly the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. These unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Transition Report on Form 10-K/T for the nine months ended September 30, 2004 filed with the Securities and Exchange Commission (“SEC”) on March 29, 2005 (“2004 Form 10-K”).
Change in year end
On December 29, 2004, Chordiant Software’s Board of Directors approved a change in the Company’s fiscal year end from December 31 to September 30. The three months ended December 31, 2004 reported by the Company in this Quarterly Report on Form 10-Q relate to the fiscal year ending September 30, 2005.
Restatement
The financial information as of September 30, 2004 is labeled restated as it has been revised from the amounts previously filed with the SEC. The restatement is further discussed in Note 2 and Note 18 of the Consolidated Financial Statements in our 2004 Form 10-K.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to prior year balances to conform to the current year presentation.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
On an on-going basis, we evaluate the estimates, including those related to our allowance for doubtful accounts, valuation of goodwill and intangible assets, valuation of deferred tax assets, restructuring costs, contingencies and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue recognition
We derive revenues from licenses of our software and related services, which include assistance in implementation, customization and integration, post-contract customer support, training and consulting. The amount and timing of our revenue is difficult to predict and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in operating losses.
At the time of entering into a transaction, we assess whether any services included within the arrangement require us to
4
perform significant implementation or customization essential to the functionality of our products. For contracts involving significant implementation or customization essential to the functionality of our products, we recognize the license and professional consulting services revenues using the percentage-of-completion method using labor hours incurred as the measure of progress towards completion as prescribed by Statement of Position (“SOP”) No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts.” The progress toward completion is measured based on the “go-live” date. We define the “go-live” date as the date the essential product functionality has been delivered or the application enters into a production environment or the point at which no significant additional Chordiant supplied professional services resources are required. Estimates are updated when new information becomes available. We account for the change in estimate when the information becomes known in the period the change was identified. Provisions for estimated contract losses are recognized in the period in which the loss becomes probable and can be reasonably estimated. When we sell additional licenses related to the original licensing agreement, revenue is recognized either upon delivery if the project has reached the go-live date, or if the project has not reached the go-live date, revenue is recognized under the perc