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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 September 30, 1999
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 0-27280
META Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0971675
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
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(Address of principal executive offices, including Zip Code)
(203) 973-6700
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(Registrant's telephone number, including area code)
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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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of the
issuer's Common Stock, $.01 par value per share, outstanding as of November 9,
1999 was 10,104,385.
Total Number of Pages: 22
Exhibit Index is on Page 21
<PAGE>
META Group, Inc.
INDEX
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Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
September 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income (unaudited):
Three and nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited):
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, December 31,
Assets 1999 1998
------------- -------------
<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $4,534 $9,945
Marketable securities 7,281 21,031
Accounts receivable, net 39,178 35,306
Deferred commissions 1,897 1,436
Deferred tax asset 991 3,808
Other current assets 4,939 2,894
---------- ----------
Total current assets 58,820 74,420
Marketable securities 6,470 15,850
Furniture and equipment, net 6,882 4,553
Deferred tax asset 249 792
Goodwill, net 5,580 5,528
Other assets 17,154 11,044
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Total assets $95,155 $112,187
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $86 $1,432
Deferred revenues 34,405 31,276
Accrued compensation 2,733 5,314
Other current liabilities 1,074 1,475
----------- ------------
Total current liabilities 38,298 39,497
----------- ------------
Stockholders' equity:
Preferred stock - -
Common stock 107 123
Paid-in capital 37,126 58,443
Retained earnings 20,255 14,444
Accumulated other comprehensive loss (311) -
Treasury stock, at cost (320) (320)
----------- -----------
Total stockholders' equity 56,857 72,690
----------- -----------
Total liabilities and stockholders Equity $95,155 $112,187
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
META Group, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Continuous Advisory Services $18,229 $15,244 $50,885 $42,229
Project Consulting 5,978 1,992 14,099 4,773
Published Research 1,272 1,218 4,711 3,054
---------- ---------- ---------- ----------
Total revenues 25,479 18,454 69,695 50,056
---------- ---------- ---------- ----------
Operating expenses:
Cost of services and fulfillment 13,282 8,675 37,451 24,070
Selling and marketing 5,395 4,270 16,183 11,766
General and administrative 2,006 1,764 5,879 4,721
Depreciation and amortization 683 458 1,935 1,358
---------- ---------- ---------- ----------
Total operating expenses 21,366 15,167 61,448 41,915
---------- ---------- ---------- ----------
Operating income 4,113 3,287 8,247 8,141
Other income, primarily interest, net 93 681 1,656 1,963
---------- ---------- ---------- ----------
Income before provision for income taxes 4,206 3,968 9,903 10,104
Provision for income taxes 1,752 1,612 4,092 4,133
---------- ---------- ---------- ----------
Net income $ 2,454 $ 2,356 $ 5,811 $ 5,971
========== ========== ========== ==========
Net income per diluted common share $ .23 $ .19 $ .50 $ .48
========== ========== ========== ==========
Weighted average number of diluted common
shares outstanding 10,807 12,717 11,708 12,539
========== ========== ========== ==========
Net income per basic common share $ .24 $ .21 $ .53 $ .53
========== ========== ========== ==========
Weighted average number of basic common
shares outstanding 10,095 11,350 10,919 11,254
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
META Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
For the nine months ended
September 30,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income $5,811 $5,971
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 1,935 1,358
Deferred income taxes 3,575 3,915
Changes in assets and liabilities:
Accounts receivable (4,974) 798
Other current assets (2,259) (886)
Other assets (1,303) (809)
Accounts payable (1,375) (907)
Accrued expenses and other current liabilities (2,982) 168
Deferred revenues 3,129 (2,115)
----------- -----------
Net cash provided by operating activities 1,557 7,493
----------- -----------
Investing activities:
Capital expenditures (4,089) (2,277)
Proceeds from sales/maturities of (investments in) marketable securities - net 22,344 (5,067)
Investments and advances (3,890) (1,192)
----------- ----------
Net cash provided by (used in) investing activities 14,365 (8,536)
----------- ----------
Financing activities:
Proceeds from exercise of stock options 1,067 1,246
Proceeds from employee stock purchase plan 351 168
Reacquisition of shares (22,485) -
Reacquisition of shares - current stockholder (266) -
----------- ----------
Net cash (used in) provided by financing activities (21,333) 1,414
------------ ----------
Net (decrease) increase in cash and cash equivalents (5,411) 371
Cash and cash equivalents, beginning of period 9,945 12,910
=========== ==========
Cash and cash equivalents, end of period $ 4,534 $13,281
=========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
META Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Financial Statements
- -------------------------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures required for complete financial
statements are not included herein. It is recommended that these financial
statements be read in conjunction with the financial statements and related
notes of META Group, Inc. (the "Company") as reported on the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of financial position, results of
operations and cash flows at the dates and for the periods presented have been
included. Results for interim periods are not necessarily indicative of results
for the entire year.
Note 2 - Income Taxes
- ---------------------
During the quarter and nine months ended September 30, 1999, the Company
recorded a tax provision of $1.75 million and $4.1 million, respectively,
reflecting an effective tax rate of 41%. The total deferred tax asset decreased
to $1.2 million at September 30, 1999 from $4.6 million at December 31, 1998 as
the Company utilized its net operating loss carryforwards to offset taxable
income. For the nine months ended September 30, 1999, the Company paid $312,500
for state income tax liabilities, and $400,000 for federal alternative minimum
tax liabilities. The Company currently anticipates utilizing its remaining
federal net operating loss carryforwards by the first quarter of 2000.
Note 3 - Marketable Securities
- ------------------------------
During the nine months ended September 30, 1999, the Company liquidated
approximately $22.3 million of its marketable securities on hand at December 31,
1998. Of the $22.3 million, approximately $17.4 million was used to finance the
Company's stock repurchase plan, approximately $3.75 million was re-invested
into short-term commercial paper (classified as a cash equivalent on the
Company's September 30, 1999 consolidated balance sheet), and approximately $1.2
million was used for working capital purposes. Of the $22.3 million, $1.5
million came from proceeds of securities called by the issuer, $7 million from
proceeds of securities that matured, and the remaining proceeds of $13.8 million
were from securities sold. During the quarter and nine months ended September
30, 1999, the Company recognized $268,400 in losses on the sale of its
marketable securities. These losses are reflected in "Other income" on the
Company's consolidated statements of income.
Effective in the quarter ended June 30, 1999, the Company reclassified its
entire portfolio of marketable securities from held-to-maturity to available for
sale. Accordingly, at September 30, 1999, such securities have been
marked-to-market, resulting in an unrealized loss of $311,000, net of $215,000
of income tax benefits. The unrealized loss is reflected as "Accumulated other
comprehensive loss" in Stockholders' Equity and has no effect on net income for
the three and nine months ended September 30, 1999. See Note 4 for
Comprehensive Income.
Note 4 - Comprehensive Income
- -----------------------------
<TABLE>
<CAPTION>
Comprehensive income for the three and nine months ended September 30, 1999 and 1998 was as follows:
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $2,454 $2,356 $5,811 $5,971
--------------- ----------------- ---------------- ---------------
Other comprehensive income, net of tax:
Unrealized loss on marketable securities (90) - (437) -
Less: reclassification adjustment for
losses included in net income - - 126 -
--------------- ----------------- ---------------- ---------------
Other comprehensive income: (90) - (311) -
--------------- ----------------- ---------------- ---------------
Comprehensive Income $2,364 $2,356 $5,500 $5,971
=============== ================= ================ ===============
</TABLE>
Note 5 - Segment Reporting
- --------------------------
The Company operates in three business segments: Continuous Advisory
Services, Project Consulting and Published Research. The Company's reportable
segments are separately managed strategic business segments. Each operating
segment offers different products/services, and is sold via different
distribution channels. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," ("SFAS 131.") Effective January 1, 1999, the Company
changed the way it reports revenues on its Consolidated Statements of Income to
be consistent with the direction of SFAS 131. Consequently, the Company now
reports separately the revenues earned from each of its three operating
segments, which is consistent with the way the Company manages its operations.
Previously, the Company reported revenues from two sources: Continuous Services
and Other, principally consulting and publications. The revenues for the three
and nine months ended September 30, 1998 have been reclassified to conform to
the 1999 presentation. SFAS 131 requires the Company to disclose selected
segment information on an interim basis consistent with the way management
operates its business. Revenue and operating income information for the three
operating segments is set forth below:
<TABLE>
<CAPTION>
Continuous
Advisory Project Published Consolidated
Services Consulting Research Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
Three months ended September 30,
1999
Revenues $18,229 $ 5,978 $1,272 $25,479
Operating income (loss) 2,885 1,473 (245) 4,113
Three months ended September 30,
1998
Revenues $15,244 $ 1,992 $1,218 $18,454
Operating income (loss) 3,203 (128) 212 3,287
Nine months Ended September 30,
1999
Revenues $50,885 $14,099 $4,711 $69,695
Operating income (loss) 7,185 1,858 (796) 8,247
Nine Months Ended September 30,
1998
Revenues $42,229 $ 4,773 $ 3,054 $50,056
Operating income (loss) 7,573 513 55 8,141
</TABLE>
Note 6 - Advances
In May 1999, the Company advanced $960,000 to Syndicated Research Group
("SRG") in exchange for a subordinated convertible promissory note. SRG is a
research and advisory firm dedicated to helping human resource professionals
make business decisions that impact staffing, training, and retention issues.
On March 15, 1999, the Company entered into an agreement to advance
$2.7 million to META Security Group, Inc., an independent internet security
start-up consulting firm, in exchange for a secured convertible promissory note.
As of September 30, 1999, the Company had advanced the $2.7 million, which is
included in Other Assets on the consolidated balance sheet. On July 13, 1999,
the Company entered into an agreement to advance an additional $1 million to
META Security Group, Inc., in exchange for a secured promissory note.
As of September 30, 1999, no advances were made.
Note 7 - Stock Repurchases
- --------------------------
On April 14, 1999, the Company's Board of Directors unanimously
authorized the repurchase of up to 1.2 million shares of its common stock in the
open market and in privately negotiated transactions from time to time,
depending on market conditions and other factors. On May 3, 1999, the Company
announced the expansion of the repurchase program to a total of 2.4 million
shares. During the period April 19, 1999 to June 15, 1999, 1,989,993 shares were
repurchased at an average price of $11.28 per share. All shares repurchased have
been retired to the status of authorized but unissued.
Additionally, in April 1999, the Company repurchased 2,389 shares of
its common stock and warrants to purchase 2,449 shares of its common stock from
a minority stockholder pursuant to the terms of a Settlement Agreement, dated
October 31, 1995, between the stockholder and The Sentry Group, Inc. ("Sentry").
Such repurchase obligation was assumed by the Company upon the acquisition of
Sentry in October 1998. The fair market value of the repurchased securities and
all associated costs were recovered from a purchase consideration escrow
established for the satisfaction of indemnification claims pursuant to the terms
of the Agreement and Plan of Merger between Sentry and the Company. Such
recovery by the Company was in the form of a release of 15,264 shares of the
Company's common stock from the Sentry purchase consideration escrow. Such
released shares, and the aforementioned repurchased shares, were retired to the
status of authorized but unissued.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below under "Certain Factors That May Affect Future Results" and in the
Company's other filings with the Securities and Exchange Commission, principally
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Overview
META Group, Inc.("META Group"), together with its subsidiary, The
Sentry Group, Inc. ("Sentry" and collectively, the "Company"), is an independent
market assessment company providing research and analysis of developments,
trends and organizational issues relating to the computer hardware, software,
communications, and related information technology ("IT") industries to IT users
and vendors. IT user organizations utilize META Group's research, analysis and
recommendations to develop and employ cost-effective and revenue enhancing
strategies for selecting and implementing timely IT solutions and for aligning
these solutions with business priorities. IT vendors use META Group's services
for help in product positioning, marketing and market planning, as well as for
internal IT decision making.
The Company has three operating business segments: Continuous Advisory
Services, Project Consulting and Published Research. The Continuous Advisory
Services segment provides annually renewable subscription services focused on
specific areas of IT, IT issues related to a specific vertical market, or the
specific needs of those within the IT organization. Supplementing the Company's
Continuous Advisory Services is the Company's INfusion program, which
builds on the business-focused analysis of Continuous Advisory Services by
offering interactive workshops that provide methodology and skill based training
needed to successfully manage specific business-critical issues. The Project
Consulting segment provides strategic consulting engagements servicing clients'
business and technology issues. The Published Research segment provides reports,
studies, and surveys offering in-depth analysis of specific business or IT
issues.
Continuous Advisory Services revenues constituted approximately 72% and
83% of the Company's total revenues for the quarters ended September 30, 1999
and 1998, respectively. Billings attributable to the Company's Continuous
Advisory Services are initially recorded as deferred revenues and then
recognized pro rata over the contract term.
Continuous Advisory Services revenues attributable to international
clients are billed and collected by the Company's international sales
representative organizations. The Company realizes revenues from the
international sales representative organizations at rates of 40% to 60% of
amounts billed to those clients.
One measure of the volume of the Company's business is its annualized
"Contract Value," which the Company calculates as the aggregate annualized value
of renewable revenues recognized from all contracts in effect at a given point
in time, without regard to the remaining duration of such contracts. While
Contract Value is not necessarily indicative of future revenues, Contract Value
has grown, sequentially and year-over-year, every quarter since the Company's
inception and increased 18% to $78.0 million at September 30, 1999 from $65.8
million at September 30, 1998. At September 30, 1999, the Company had 4,500
Continuous Services subscribers in approximately 1,975 client organizations
worldwide, as compared to 3,740 subscribers in 1,620 organizations at September
30, 1998.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses and general and administrative
expenses. Cost of services and fulfillment represents the costs associated with
production and delivery of the Company's products and services and includes the
costs of research, development and preparation of periodic reports, analyst
telephone consultations, executive briefings and conferences, published
research, consulting services, new product development, and all associated
editorial and support services. Selling and marketing expenses include the costs
of salaries, commissions and related benefits for such personnel, travel and
promotion. General and administrative expenses include the costs of the finance
and accounting departments, legal, human resources, corporate IT and other
administrative functions of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES Total revenues increased 38% to $25.5 million in the quarter ended
September 30, 1999 from $18.5 million in the quarter ended September 30, 1998.
Revenues from Continuous Advisory Services, which generally are derived from
annually renewable contracts, payable by clients in advance, increased 20% to
$18.2 million in the quarter ended September 30, 1999 from $15.2 million in the
quarter ended September 30, 1998. The increase in revenues from Continuous
Advisory Services was due to incremental revenue generated from the Company's
new security planning and operations services, increased subscription
revenues as a result of the Company's expanded domestic sales force and
increased client subscriber base, increasing revenue from the Company's INfusion
products, and continued international market acceptance of the Company's
Continuous Advisory Services.
Continuous Advisory Services revenues attributable to international clients
increased 7% in the quarter ended September 30, 1999 from the quarter ended
September 30, 1998, and decreased as a percentage of Continuous Advisory
Services revenue to 15% from 16%. The increase in Continuous Advisory Services
revenue attributable to international clients was due principally to increased
demand for the Company's Continuous Advisory Services and, to a lesser extent,
an increased demand for the Company's INfusion products. The Company currently
has sales representation in 31 countries.
The Company increased Contract Value 18% to $78.0 million at September 30, 1999
from $65.8 million at September 30, 1998. The Company grew its subscriber client
base 20% to 4,500 Continuous Service clients at September 30, 1999 from 3,740
clients at September 30, 1998.
Project Consulting revenues, which result from strategic consulting engagements
servicing clients' business and technology issues, increased 200% to $6 million
in the quarter ended September 30, 1999 from $2 million in the quarter ended
September 30, 1998, and increased as a percentage of total revenues to 23% from
11%. The significant increase was primarily due to incremental revenues from the
acquisition of Sentry in October 1998 coupled with a shift in client demand from
Continuous Advisory Services towards more focused consulting services, as well
as, to a lesser extent, new revenues during the quarter ended September 30, 1999
from Packaged Consulting, which is certain proprietary methodology of the
Company encapsulated in product form and delivered to the client. The Company's
Project Consulting clients typically consist of Continuous Advisory Services
clients seeking additional advice tailored to their individual IT requirements.
Published Research revenues, which result from the sale of reports, studies, and
surveys offering in-depth analysis of specific business or IT issues, increased
4% to $1.3 million in the quarter ended September 30, 1999 from $1.2 million in
<PAGE>
the quarter ended September 30, 1998, and decreased as a percentage of total
revenues to 5% from 7%. The increase in revenues was primarily due to an
increase in sales of published research distributed under the Company's
agreements with CXP International, S.A. and META CXP LLC (SPEX.)
The Company currently expects Project Consulting revenues to continue to grow at
a faster rate than Continuous Advisory Services revenues due to the Sentry
acquisition, the shift in business demand by clients from Continuous Advisory
Services towards more focused, client specific services, and the emergence of
Packaged Consulting. The Company currently expects Published Research revenues
to grow at a slower rate than Continuous Advisory Services and Project
Consulting.
Cost of Services and Fulfillment Cost of services and fulfillment increased 53%
to $13.3 million in the quarter ended September 30, 1999 from $8.7 million in
the quarter ended September 30, 1998 due to the Sentry acquisition, fulfillment
expenses associated with new security planning and operations services revenues,
and increased staffing costs (which primarily consist of compensation, and to a
lesser extent, travel) for analyst, consultant and fulfillment positions
necessary to support the Company's growth both domestically and internationally.
Additionally, royalty payments to third parties with whom the Company has
distribution agreements increased as a result of increased sales of the
underlying services.
Cost of services and fulfillment increased as a percentage of total revenues to
52% from 47% in the quarter ended September 30, 1999 due to the increase in
analyst and consultant headcount that occurred in the first half of 1999 in
order to support the Company's growth both domestically and internationally, and
to support the development of new product offerings to meet changing customer
demands. The Company anticipates continuing increases in the costs of services
and fulfillment, and it expects that such expenses will increase slightly as a
percentage of total revenues.
Selling and Marketing Expenses Selling and marketing expenses increased 26% to
$5.4 million in the quarter ended September 30, 1999 from $4.3 million in the
quarter ended September 30, 1998 and decreased as a percentage of total revenues
to 21% from 23%. The increase in Selling and Marketing expenses was principally
due to increased compensation and travel expenses associated with the expanded
domestic Direct Sales force and Inside Sales channel (which is a team of sales
professionals that sell the Company's published research by telephone) to
support the increasing scope of the Company's product offerings. In addition,
the Company incurred greater marketing expenses, both domestically and
internationally, in connection with the Company's revenue growth. While the
Company anticipates continuing increases in the amount of selling and marketing
expenses, it expects that such expenses, as a percentage of total revenues, will
decrease slightly.
General and Administrative Expenses General and administrative expenses
increased 14% to $2.0 million in the quarter ended September 30, 1999 from $1.8
million in the quarter ended September 30, 1998, and decreased as a percentage
of total revenues to 8% from 10%. The increase in expenses was principally due
to increased payroll and benefits costs associated with an increase in
administrative personnel, and increased facility costs due to the assumption of
additional lease space throughout the Company's domestic locations necessary to
support the Company's growth. The Company anticipates continuing increases over
the prior year in the amount of general and administrative expenses and expects
such expenses to remain approximately the same as a percentage of total
revenues.
Depreciation and Amortization Depreciation and amortization expense increased
49% to $683,000 in the quarter ended September 30, 1999 from $458,000 in the
quarter ended September 30, 1998. The increase in depreciation and amortization
expense was principally due to purchases of computer equipment, leasehold
improvements, and office furniture required to support business growth and the
amortization of goodwill from the Sentry acquisition consummated in October
1998.
OTHER INCOME Other income decreased 86% to $93,000 in the quarter ended
September 30, 1999 from $681,000 in the quarter ended September 30, 1998. The
decrease was due to $268,400 in losses recognized on the sale of the Company's
marketable securities, and a reduction in interest income during the quarter
ended September 30, 1999 due to the decreased levels of cash and marketable
securities on hand in 1999 versus 1998, which cash and proceeds were used
primarily to finance the Company's stock repurchases (see Note 7).
PROVISION FOR INCOME TAXES Provision for income taxes of $1.75 million was
recorded for the quarter ended September 30, 1999, as compared to a provision of
$1.6 million recorded for the quarter ended September 30, 1998, reflecting an
effective tax rate of 41%. The total deferred tax asset decreased to $1.2
million at September 30, 1999 from $4.6 million at December 31, 1998 as the
Company utilized its net operating loss carryforwards to offset taxable income.
The Company currently anticipates utilizing its remaining federal net operating
loss carryforwards by the first quarter of 2000.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES Total revenues increased 39% to $69.7 million in the nine months ended
September 30, 1999 from $50.1 million in the nine months ended September 30,
1998.
Revenues from Continuous Advisory Services increased 21% to $50.9 million in the
nine months ended September 30, 1999 from $42.2 million in the nine months ended
September 30, 1998. The increases in revenues from Continuous Advisory Services
were primarily due to the expansion of the Company's domestic sales force
resulting in an increased client subscriber base, growing international market
acceptance of the Company's Continuous Advisory Services revenues, the emergence
of the Company's security planning and operations services, increasing revenues
from the introduction of the Company's INfusion products in the fourth quarter
of 1998, and an increase in analyst briefings to existing clients. Continuous
Advisory Services revenue growth, however, was lower than expected, primarily as
a result of a shift in client demand toward consulting services. Continuous
Advisory Services revenues attributable to international clients increased 26%
in the nine months ended September 30, 1999 from the nine months ended September
30, 1998, and increased as a percentage of Continuous Advisory Services revenues
to 16% from 15%.
Project Consulting revenues increased 195% to $14.1 million in the nine months
ended September 30, 1999 from $4.8 million in the nine months ended September
30, 1998, and increased as a percentage of total revenues to 20% from 10%. The
increase was principally due to the incremental revenues from the acquisition of
Sentry in October 1998 coupled with a shift in client demand from Continuous
Advisory Services towards more focused consulting services. Additionally, the
Company recognized new revenues from the launch of Packaged Consulting in 1999.
Project Consulting revenues, however, were partially offset in the first quarter
of 1999 by unexpected transitional issues with respect to the integration
commenced in the first quarter 1999 in connection with the Sentry acquisition.
Published Research revenues increased 54% to $4.7 million in the nine months
ended September 30, 1999 from $3.1 million in the nine months ended September
30, 1998, and increased as a percentage of total revenues to 7% from 6%. The
increase was primarily due to an increase in sales of published research
distributed under the Company's agreements with CXP International, S.A. and META
CXP LLC (SPEX) and Rubin Systems, Inc., and the introduction of new products in
1999. The increase was partially offset by publishing delays in the quarter
ended March 31, 1999 with respect to certain publications sold by the Company.
Cost of Services and Fulfillment Cost of services and fulfillment increased 56%
to $37.5 million in the nine months ended September 30, 1999 from $24.1 million
<PAGE>
in the nine months ended September 30, 1998, and increased as a percentage of
total revenues to 54% from 48%. The increase was principally due to the Sentry
acquisition, and increased staffing for analyst, consultant and fulfillment
positions necessary to support the Company's growth both domestically and
internationally. The principal areas of cost increases were compensation, and to
a lesser extent, travel. Additionally, the Company incurred fulfillment expenses
associated with the emergence of the Company's security planning and operations
services, and royalty payments to third parties with whom the Company has
distribution agreements increased as a result of increased sales of the
underlying services.
Selling and Marketing Expenses Selling and marketing expenses increased 38% to
$16.2 million in the nine months ended September 30, 1999 from $11.8 million in
the nine months ended September 30, 1998 and remained approximately the same as
a percentage of total revenues at 24%. The increase in Selling and Marketing
expenses was principally due to increased compensation and travel expenses
associated with the expanded domestic Direct Sales force and Inside Sales
channel to support the increasing scope of its product offerings. In addition,
the Company incurred greater marketing expenses, both domestically and
internationally, in connection with the growth of the Company's existing
services, as well as the launch of its new services.
General and Administrative Expenses General and administrative expenses
increased 25% to $5.9 million in the nine months ended September 30, 1999 from
$4.7 million in the nine months ended September 30, 1998 and decreased as a
percentage of total revenues to 8.5% from 9.5%. The increase in expenses was
principally due to increased payroll and benefits costs associated with an
increase in administrative personnel, and increased facility costs due to the
assumption of additional lease space throughout the Company's domestic locations
necessary to support the Company's growth.
Depreciation and Amortization Depreciation and amortization expense increased
43% to $1.9 million in the nine months ended September 30, 1999 from $1.4
million in the nine months ended September 30, 1998. The increase in
depreciation and amortization expense was principally due to purchases of
computer equipment and office furniture required to support business growth and
the amortization of goodwill from the Sentry acquisition consummated in October
1998.
OTHER INCOME Other income decreased 16% to $1.7 million in the nine months ended
September 30, 1999 from $2.0 million in the nine months ended September 30,
1998. The decrease was principally due to $268,400 of losses recognized on the
sale of the Company's marketable securities, and a reduction in interest income
during the nine months ended September 30, 1999 due to the decreased levels of
cash and marketable securities on hand in 1999 versus 1998, which cash and
proceeds were used primarily to finance the Company's stock repurchases (see
Note 7). However, the decreases were partially offset by increases in interest
income from debt financings of investee companies.
PROVISION FOR INCOME TAXES Provision for income taxes of $4.1 million was
recorded for the nine months ended September 30, 1999 and 1998, reflecting an
effective tax rate of 41%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is cash from operating
activities which consists of net income adjusted for non-cash operating
activities and changes in current assets and liabilities. The Company generated
$1.5 million of cash from operating activities during the nine months ended
September 30, 1999, compared to $7.5 million in the same period of 1998. The
decrease in cash generated from operating activities was principally due to
decreased cash collections on outstanding accounts receivable, increased
employee bonuses paid in 1999 versus 1998, and an increase in other current
assets as a result of increases in short-term advances made to investee
companies and prepaid income taxes. Such decreases were partially offset by an
increase in deferred revenues at September 30, 1999 versus the same period in
1998.
<PAGE>
The Company used $4.1 million of cash in the nine months ended
September 30, 1999, compared to $2.3 million in the same period of 1998, for the
purchase of furniture, equipment, computers and related software for use by the
Company's employees. The increase is due primarily to greater headcount and the
implementation of a systems upgrade program discussed below. The Company expects
that additional purchases of equipment will be made as the Company's employee
base continues to grow. As of September 30, 1999, the Company had no material
commitments for capital expenditures. The Company, however, is currently
upgrading significant internal systems, including its client information system,
and accounting system, to support business growth. The total cash outlay for the
completion of the project in 1999 (excluding internal resources) is expected to
be less than $1 million.
On April 14, 1999, the Company's Board of Directors unanimously
authorized the repurchase of up to 1.2 million shares of its common stock in the
open market and in privately negotiated transactions from time to time,
depending on market conditions and other factors. On May 3, 1999, the Company
announced the expansion of the repurchase program to a total of 2.4 million
shares. During the period April 19, 1999 to June 15, 1999, 1,989,993 shares were
repurchased at an average price of $11.28 per share. All shares repurchased have
been retired to the status of authorized but unissued. The Company financed all
repurchases with its cash and marketable securities balances.
On November 4, 1999, the Company invested $1 million Ninth House, Inc.,
in exchange for shares of Series B Preferred Stock. Ninth House, Inc. is an
innovative provider of interactive, online learning products, utilizing both the
Internet and corporate intranets. The investment was funded from the Company's
cash balances.
In May 1999, the Company advanced $960,000 to Syndicated Research Group
("SRG") in exchange for a subordinated convertible promissory note. SRG is a
research and advisory firm dedicated to helping human resource professionals
make business decisions that impact staffing, training, and retention issues .
On March 15, 1999, the Company entered into an agreement to advance
$2.7 million to META Security Group, Inc., an independent internet security
start-up consulting firm, in exchange for a secured convertible promissory note.
As of September 30, 1999, the Company had advanced the $2.7 million, which is
included in Other Assets on the consolidated balance sheet. On July 13, 1999,
the Company entered into an agreement to advance an additional $1 million to
META Security Group, Inc., in exchange for a secured promissory note. As
of September 30, 1999, no advances were made.
Under the terms of the Agreement and Plan of Merger between Sentry and
the Company consummated in October 1998, the former Sentry shareholders may be
entitled to consideration of up to $7.0 million, payable in common stock or (at
the Company's option) cash in the event certain financial targets are met by
Sentry in 1999. The amount of consideration, if any, will be determined and paid
in the first quarter of 2000.
The Company regularly invests excess funds in investment-grade,
short-term commercial paper, debt instruments, and money market funds. As these
investments generally have terms of less than three months, they are included
under the caption "Cash and cash equivalents" in the balance sheets.
In addition, the Company invests in longer term, callable, higher-yield
marketable debt securities. Generally, these securities are U.S. federal
government agency issues, purchased in denominations of $1 million to $7
million.
<PAGE>
As of September 30, 1999, the Company had cash and cash equivalents of
$4.5 million, marketable securities of $13.7 million and working capital of
$20.5 million. The decrease in these assets from December 31, 1998 is primarily
attributable to the share repurchase program discussed above. The Company
believes that existing cash balances, credit facilities, and anticipated cash
flows from operations will be sufficient to meet its working capital, strategic
investments, and capital expenditure requirements for the foreseeable future.
Year 2000 Readiness Disclosure
The following disclosure may be deemed "Year 2000 Readiness Disclosure" pursuant
to the Year 2000 Information and Readiness Disclosure Act.
State of Readiness
- ------------------
The Company has completed its identification and assessment program on the Year
2000 compliance status of both the IT and non-IT software and systems used in
its internal business processes. We have obtained appropriate assurances of
compliance from the manufacturers of these products, and are modifying or
replacing all non-compliant products.
The Company made inquiries with its third party providers of intermediary
products or services to determine the impact of Year 2000 issues on their
business and operations, and the resulting impact on the business and operations
of the Company. These systems relate to the ability of the Company to transmit
its products to its customers via the internet, CD-ROM, and Lotus Notes, and are
reliant on the compliance of the third parties in order to operate past 1999.
The Company has been advised by the applicable third parties that the necessary
modifications for the Year 2000 issue have been completed. The Company believes
that its internal systems are Year 2000 compliant to interface with such third
parties. While the Company has received such third party assurances and
believes such systems are compliant, the Company can offer no assurance that its
systems, to the extent they are reliant on third party systems, will in fact be
operational on January 1, 2000.
The Company has contacted its suppliers of its business critical software and
systems to determine whether the products obtained by the Company are Year 2000
compliant and has reviewed other areas within its business and operations which
could be adversely affected by Year 2000 issues. Based on the responses the
Company has received from manufacturers and the internal evaluation performed
through October 1999, the Company believes that all servers, workstations, and
network infrastructure are Year 2000 compliant.
Among the systems reviewed were the Company's operating system, telephone
system, client information system, and accounting system. The Company's
operating system (which serves as the platform from which our front-end
applications reside) was upgraded during 1999, and the Company has obtained
representations from the applicable vendors that the systems are Year 2000
compliant. The Company's telephone system, which is critical to the function of
the business, was replaced during the third quarter of 1999. The Company has
obtained representations from the vendor that the new telephone system is Year
2000 compliant. Also, in response to an increase in clients and employees, and
the need for improved information management for customer service, the Company
implemented a new client information system during the first half of 1999. In
selecting the new client information system, Year 2000 compliance was one of the
criteria reviewed, and the Company has obtained a representation from the vendor
that the system is Year 2000 compliant. Due to the large amount of information
contained in the old client information system, not all information will be
transferred to the new system by the end of 1999. Accordingly, the Company still
uses the existing system for non-critical functions. The Company has completed
the necessary upgrades and obtained representations from the vendor to ensure
the existing system is Year 2000 compliant. The Company has purchased a new
accounting software package that is better suited to support the Company's
<PAGE>
growth and is Year 2000 compliant. The implementation is scheduled to be
complete by December 1, 1999; however, in the event the Company is unable to
replace the existing accounting software prior to the end of 1999, the Company
has completed the upgrade of the existing system and has obtained
representations from the vendor that the existing system is Year 2000 compliant.
The Company has not identified any internal non-IT systems that are both
critical to the business and would cause significant disruption of business in
the event of failure in the year 2000. The Company has not contacted all of its
non-business critical vendors (e.g., office supply vendors) to determine the
level of compliance of these third parties. The Company believes, however,
that non-compliance on the part of these third parties would not have a material
adverse effect on the business or operations of the Company.
Costs to Address Year 2000 Issues
- ---------------------------------
Based on the Company's internal evaluation performed to date on potential costs
for completing the evaluating, testing, modifying or replacing of any of its
internal IT or non-IT software or systems, the Company currently expects to
spend approximately $3.0 million (including an estimated $2.9 million of costs
for replacing the client information system, telephone system, and accounting
system), of which the Company has spent approximately $2.1 million as of
September 30, 1999. The Company will fund all Year 2000 compliance costs from
existing working capital.
The potential costs associated with failure of the internet or other major
systems outside the Company's control (i.e., utilities, telephone service,
etc.), or of any significant non-IT systems, including increased costs of doing
business, inability to conduct business, potential loss of customers, and impact
of certain risk areas as discussed below, are unknown and cannot be estimated by
the Company.
Risks Associated with Year 2000 Issue
- -------------------------------------
The primary risk to the Company in the event of non-compliance with Year 2000
issues is a disruption of customer fulfillment. As a significant portion of the
Company's clients choose to receive the Company's written deliverables via the
internet, failure of that system could prevent customers from accessing the
Company's written deliverables via the Company's internet site. Likewise,
failure of the telephone systems would prevent the Company from speaking with
its customers directly, which is an integral part of the Company's service and
products. Also, failure of the client information system would result in
potential delays in responding to customers' inquiries.
In addition to the risks to the Company's systems as they relate to customer
service, and discussed above, the Year 2000 Issue presents the following
business risks to the Company:
o Because the Company's business results from selling knowledge based
research on a wide variety of IT issues, the short term demand for
certain of the Company's products could potentially be hindered while
customers and potential customers focus immediate resources on fixing
their own Year 2000 issues. The Company, however, currently feels that
the risk of a shift in the focus of customers' and potential customers'
discretionary IT spending will not have a material adverse effect on
the Company's business, operating results and financial condition.
o Part of the Company's services to its customers involves forming
opinions and making suggestions with regards to IT issues. As such,
customers rely on the Company for advice when making IT related
decisions, which may involve Year 2000 issues. Because of the overall
risk of litigation associated with the Year 2000 issue, there exists a
risk that the Company could face legal action from a customer or be
named as a co-defendant in an action by a third party against a
customer. The likelihood of such action occurring, and the potential
related costs, cannot be estimated by the Company at this time.
o Failure of certain systems of third parties due to Year 2000 issues
could potentially create the risk of impairment of certain assets
of the Company. In particular, as of September 30, 1999, the Company had
over $13 million in marketable securities, which are invested in
unsecured, short-term investment grade, corporate debt instruments
(commercial paper), and long-term U.S. federal government agency issues.
Financial impairment to certain investees, or a collapse of the
securities markets in general, would potentially have a material adverse
effect on the Company's financial position. In addition, as of
September 30, 1999, the Company had over $39 million in accounts
receivable from customers and international sales representative
organizations, as well as significant investments in other companies.
Financial impairment to certain of such companies due to Year 2000 issues
could potentially have a material adverse effect on the
Company's financial position and results of operations. The likelihood of
such action occurring, and the potential related costs, cannot be
estimated by the Company at this time.
Contingency Plans
-----------------
The Company has the following contingency plans in place in order to protect
customer service in the event of Year 2000 disruptions:
o The Company's research is available in written form as well as via the
internet, CD-ROM, and Lotus Notes. In the event of disruption of the other
forms of delivery, the Company will deliver research in printed form to all
customers. The Company has obtained representations from its printers and
mail services that their internal systems necessary to deliver the
Company's research are Year 2000 compliant. The incremental cost of doing
so would not be material to the results of operations and is currently an
option many customers continue to use.
The Company does not currently have a contingency plan in place with regards to
the risk of asset impairment described above but will be reviewing investment
risk to include Year 2000 exposure as the year 2000 approaches.
Certain Factors That May Affect Future Results
The Company does not provide forecasts of the future financial performance of
the Company. However, from time to time, information provided by the Company or
statements made by its employees may contain "forward-looking" information
involving risks and uncertainties. In particular, statements contained in this
Form 10-Q that are not historical facts (including, but not limited to,
statements concerning the revenue growth rate in its three operating segments
and in international revenues, anticipated costs of services and fulfillment,
selling and marketing and operation expense levels, cost and expense levels
relative to the Company's total revenues and anticipated mix of revenues, the
ability of the Company's computer systems and applications to function properly
beyond 1999, planned capital expenditures, the Company's working capital and
capital expenditure requirements, and net operating loss carryforwards)
constitute forward-looking statements and are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied and
may in the future vary significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, without limitation,
the risks, uncertainties, and other information discussed below, as well as the
accuracy of the Company's internal estimates of revenue and operation expense
levels. Each of these factors, and others, are discussed from time to time in
the filings made by the Company with the Securities and Exchange Commission.
The Company's future operating results are subject to substantial risks and
uncertainties. The Company currently derives most of its revenues from
<PAGE>
subscriptions to its Continuous Advisory Services. As a result, any decline in
the Company's ability to secure subscription renewals may have a material
adverse effect on the Company's results of operations. The Company's ability to
secure subscription renewals, at favorable average selling prices, as well as to
successfully market and sell its Project Consulting services and Published
Research, is dependent upon the Company's ability to deliver consistent,
high-quality, and timely analysis and advice with respect to issues,
developments, and trends that clients view as important. The Company's
successful delivery of such analysis and advice is, in turn, dependent upon many
factors, including, among other things, its ability to: understand and
anticipate rapidly changing technologies and market trends so as to keep its
analysis focused on the changing needs of its clients, deliver products and
services of sufficiently high quality and timeliness to withstand competition
from competitors that may have greater financial, information gathering, and
marketing resources than the Company, and recruit and retain highly talented
professionals in a competitive job market. The loss of any of the Company's
senior management personnel, including Dale Kutnick (President, Chief Executive
Officer and Co-Research Director), could have a material adverse affect on the
Company. The Company's ability to market and sell its products and services
could also be adversely affected by the emergence of new competitors into one or
more of the market segments addressed by the Company's products and services,
which could cause pricing pressure and loss of market share. The Company's
pricing strategy may limit the potential market for the Company's Continuous
Advisory Services. As a result, the Company may be required to reduce prices for
its Continuous Advisory Services or introduce new products with lower prices in
order to expand or maintain its market share. In addition, a significant portion
of the Company's revenues are attributable to international clients, which may
be adversely affected by factors including difficulties in developing and
managing relationships with independent international sales representative
organizations, reliance on sales entities that the Company does not control,
greater difficulty in maintaining direct client contact, fluctuations in
exchange rates, adverse political and economic conditions, tariffs and other
trade barriers, longer accounts receivable collection cycles, and adverse tax
consequences. The Company's future financial results also depend in part on the
development or acquisition of new products and services, which may not
successfully be achieved due to the inherent costs and risks associated with
development, assimilation, and marketing of a new product or service, as well as
the Company's limited experience in introducing new products and services.
Furthermore, the Company's quarterly operating results may fluctuate
significantly due to various factors. Because a disproportionately large portion
of the Company's Continuous Advisory Services contracts expire in the fourth
quarter of each year, the Company incurs operating expenses in the fourth
quarter at a higher level than would otherwise be required by its sequential
growth, and such increased expenses are not normally offset immediately by
higher revenues. In addition, the Company's operating results may fluctuate as a
result of a variety of other factors, including the level and timing of renewals
of subscriptions to Continuous Advisory Services, the level and timing of
contracted Project Consulting Services, the timing and amount of business
generated by the Company, the mix of domestic versus international business, the
timing of the development, introduction, and marketing of new products and
services, the integration of acquired businesses into the operations of the
Company (particularly the Sentry acquisition), the timing of the acquisition and
integration into the Company of new business, products, and services (including
without limitation, INfusion products and Packaged Consulting), the timing of
the delivery of published research sold by the Company, the timing of the hiring
of research analysts and consultants, changes in the spending patterns of the
Company's target clients, the Company's accounts receivable collection
experience, changes in market demand for IT research and analysis, competitive
conditions in the industry, the timing of the sale of marketable securities held
by the Company and any losses therefrom and the timing of capital contributions
or loans to strategic investees of the Company. Due to these factors, the
Company believes period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as an indication of future
results of operations. The potential fluctuations in the Company's operating
results make it likely that, in some future quarter, the Company's operating
results will be below the expectations of securities analysts and investors,
which would have a material adverse effect on the price of the Company's Common
Stock.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference should be made to the Company's annual report on Form 10-K for
the year ended December 31, 1998 for quantitative and qualitative disclosure of
the Company's market risk. There have been no material changes to the market
risk information included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, the Company is a party to certain legal proceedings
arising in the ordinary course of business. The Company, however, believes that
none of these proceedings is likely to have a material adverse effect on the
Company's business, results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
--------
Exhibit
Number Description
------ -----------
11.1 Statement re-computation of per-share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
META Group, Inc.
Date: November 15, 1999 By:/s/ Bernard F. Denoyer
------------------------------------------
Bernard F. Denoyer
Senior Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------------- --------------------------------------------- -----------
11.1 Statement re computation of per-share earnings 22
27.1 Financial Data Schedule *
* Exhibit included in EDGAR filing with Securities and Exchange Commission.
------------------
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
META Group, Inc.
EXHIBIT TO QUARTERLY REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
Three months ended Nine months ended
September 30, September 30,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
--------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net $2,454,000 $2,356,000 $5,811,000 $5,971,000
========== ========== ========== ==========
Net income..........................................
Weighted average number of common and common
equivalent shares outstanding:
Common shares
outstanding during the period............... 10,094,507 11,350,373 10,918,872 11,254,253
Common share equivalents - options
to purchase common shares................... 712,355 1,366,794 789,602 1,285,117
---------- ---------- ----------- ----------
Total 10,806,862 12,717,167 11,708,474 12,539,370
========== ========== ========== ==========
Net income per diluted common share................... $.23 $.19 $.50 $.48
==== ==== ==== ====
Net income per basic common share................. $.24 $.21 $.53 $.53
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 0 4,534
<SECURITIES> 0 13,751
<RECEIVABLES> 0 39,800
<ALLOWANCES> 0 (622)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 58,820
<PP&E> 0 11,213
<DEPRECIATION> 0 (4,331)
<TOTAL-ASSETS> 0 95,155
<CURRENT-LIABILITIES> 0 38,298
<BONDS> 0 0
0 0
0 0
<COMMON> 0 107
<OTHER-SE> 0 56,750
<TOTAL-LIABILITY-AND-EQUITY> 0 95,155
<SALES> 0 0
<TOTAL-REVENUES> 25,479 69,695
<CGS> 13,282 37,451
<TOTAL-COSTS> 13,282 37,451
<OTHER-EXPENSES> 8,084 23,997
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,206 9,903
<INCOME-TAX> (1,752) (4,092)
<INCOME-CONTINUING> 2,454 5,811
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,454 5,811
<EPS-BASIC> .24 .53
<EPS-DILUTED> .23 .50
</TABLE>
