<PAGE> 1
================================================================================
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 March 31, 2000
[ ] 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 0-27030
INFINIUM SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Massachusetts 04-2734036
------------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
25 Communications Way, Hyannis, MA 02601
(Address of principal executive offices, including Zip Code)
(508) 778-2000
(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 12 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
--- ---
The number of shares outstanding of the registrant's Common Stock on April 28,
2000 was 12,831,505.
================================================================================
<PAGE> 2
INFINIUM SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at September 30, 1999 and
March 31, 2000........................................................ 3
Condensed Consolidated Statement of Operations for the three and
six month periods ended March 31, 1999 and 2000....................... 4
Condensed Consolidated Statement of Cash Flows for the
six month periods ended March 31, 1999 and 2000....................... 5
Notes to Condensed Consolidated Financial Statements.................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................. 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................... 19
ITEM 2. Changes in Securities....................................................... 19
ITEM 3. Defaults Upon Senior Securities............................................. 19
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 19
ITEM 5. Other Information........................................................... 19
ITEM 6. Exhibits and Reports on Form 8-K............................................ 19
SIGNATURES............................................................................... 20
EXHIBITS................................................................................. 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $23,099 $21,524
Marketable securities at fair market value............................. 24,113 9,882
Accounts receivable, less allowance for doubtful accounts of $4,229
and $3,005 at September 30, 1999 and March 31, 2000,
respectively......................................................... 16,510 15,343
Deferred income taxes.................................................. 3,590 3,727
Prepaid expenses and other current assets.............................. 4,142 5,977
------- -------
Total current assets........................................... 71,454 56,453
------- -------
Property and equipment, net.............................................. 10,593 11,212
Capitalized software development costs, net.............................. 5,406 7,147
Goodwill and other intangible assets, net................................ 755 6,185
Deferred income taxes.................................................... 3,477 3,477
Other assets............................................................. 2,196 2,096
------- -------
Total assets................................................... $93,881 $86,570
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 7,775 $ 5,516
Accrued expenses....................................................... 11,709 9,083
Income taxes payable................................................... 795 --
Lease obligation, short-term portion................................... 109 271
Deferred revenue....................................................... 35,744 33,364
------- -------
Total current liabilities...................................... 56,132 48,234
------- -------
Lease obligation, long-term portion 343 754
Deferred revenue......................................................... 2,063 2,105
Other long-term liabilities.............................................. -- 1,000
------- -------
Total liabilities.............................................. 58,538 52,093
------- -------
Common stock, $.01 par value; authorized 40,000 shares, issued 12,607
and 12,927 shares at September 30, 1999 and March 31, 2000,
respectively......................................................... 126 129
Additional paid-in capital............................................. 36,306 38,327
Retained earnings (accumulated deficit)................................ 1,188 (3,696)
Accumulated other comprehensive income (loss).......................... (257) 171
------- -------
37,363 34,931
Less: treasury stock at cost, 410 and 96 shares at September 30,
1999 and March 31, 2000, respectively................................ (2,020) (454)
------- -------
Total stockholders' equity..................................... 35,343 34,477
------- -------
Total liabilities and stockholders' equity..................... $93,881 $86,570
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license fees ......................... $ 9,237 $ 4,552 $ 17,775 $ 8,310
Services revenue .............................. 22,128 18,034 43,673 37,797
-------- -------- -------- --------
Total revenue ......................... 31,365 22,586 61,448 46,107
-------- -------- -------- --------
Operating costs and expenses:
Cost of software license fees ................. 2,353 1,574 4,280 3,135
Cost of services .............................. 10,262 9,123 19,712 17,854
Research and development ...................... 4,952 4,629 10,213 9,646
Sales and marketing ........................... 10,253 9,236 20,182 17,553
General and administrative .................... 2,953 3,125 5,338 5,831
-------- -------- -------- --------
Total operating costs and expenses .... 30,773 27,687 59,725 54,019
-------- -------- -------- --------
Income (loss) from operations ................... 592 (5,101) 1,723 (7,912)
Other income, net ............................... 311 374 742 778
-------- -------- -------- --------
Income (loss) before provision for (benefit from)
income taxes .............................. 903 (4,727) 2,465 (7,134)
Provision for (benefit from) income taxes ....... 289 (1,534) 789 (2,425)
-------- -------- -------- --------
Net income (loss) .............................. $ 614 $ (3,193) $ 1,676 $ (4,709)
======== ======== ======== ========
Basic earnings (loss) per share ................. $ 0.05 $ (0.25) $ 0.13 $ (0.38)
======== ======== ======== ========
Diluted earnings (loss) per share ............... $ 0.05 $ (0.25) $ 0.13 $ (0.38)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE> 5
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ 1,676 $ (4,709)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ...................................... 4,389 3,923
Allowance for doubtful accounts .................................... 175 (1,285)
Changes in operating assets and liabilities, net of effects from the
acquisitions of iT-Soft and Dexton:
Accounts receivable ............................................ 1,327 2,958
Prepaid expenses and other current assets ...................... 389 (1,764)
Other assets ................................................... 17 142
Accounts payable ............................................... 755 (2,523)
Accrued expenses ............................................... (2,202) (3,638)
Income taxes payable ........................................... (1,183) (687)
Deferred revenue ............................................... (1,291) (2,574)
-------- --------
Net cash provided by (used in) operating activities .......... 4,052 (10,157)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities ..................................... (9,774) (3,651)
Sale of marketable securities ......................................... 12,758 17,882
Purchase of property and equipment .................................... (3,609) (1,769)
Capitalized software .................................................. (3,250) (1,289)
Acquisitions of iT-Soft and Dexton, net of cash acquired (Note 6) ..... -- (4,575)
-------- --------
Net cash provided by (used in) investing activities ........... (3,875) 6,598
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan ....................................................... 328 2,028
Purchase of treasury stock ............................................ (542) --
-------- --------
Net cash provided by (used in) financing activities ........... (214) 2,028
-------- --------
Effect of foreign exchange rate changes on cash ......................... (42) (44)
-------- --------
Net decrease in cash and cash equivalents ............................... (79) (1,575)
-------- --------
Cash and cash equivalents, beginning of period .......................... 12,708 23,099
-------- --------
Cash and cash equivalents, end of period ................................ $ 12,629 $ 21,524
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE> 6
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at March 31, 1999 and 2000 and for the three and six month
periods then ended is unaudited, but includes all adjustments (consisting only
of normal recurring entries) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The
accompanying interim condensed consolidated financial statements should be read
in conjunction with the financial statements and related notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1999. Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. Interim results of operations for the three and six month
periods ended March 31, 2000 are not necessarily indicative of operating results
for the full fiscal year.
2. STOCK REPURCHASE PROGRAM
In February 1998, the Company announced that it would be initiating a stock
repurchase program of up to $6,000 of common stock to use to meet requirements
of its employee stock option and stock purchase plans. No minimum number or
value of shares to be repurchased has been fixed nor has a time limit as to the
duration of the program been established.
On October 29, 1999, the Company's Board of Directors approved a new stock
repurchase program authorizing the Company to repurchase an additional $10,000
of common stock to use to meet requirements of its employee stock option and
stock purchase plan. No minimum number or value of shares to be repurchased has
been fixed for the new program nor has a time limit as to the duration of the
program been established.
No shares were repurchased by the Company during the three and six months
ended March 31, 2000 under either of the repurchase plans. The Company reissued
189 and 125 shares which had been purchased under the February 1998 Plan during
the quarters ended March 31, 2000 and December 31, 1999, respectively.
3. COMPREHENSIVE INCOME
The table below sets forth comprehensive income and loss as defined by
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income for the three and six month periods ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------- -------------------
1999 2000 1999 2000
----- -------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 614 $ (3,193) $ 1,676 $ (4,709)
Other comprehensive income (loss):
Foreign currency translation adjustments 9 (49) (8) (67)
Unrealized gain on investments -- 453 -- 495
----- -------- ------- --------
Comprehensive income (loss) $ 623 $ (2,789) $ 1,668 $ (4,281)
===== ======== ======= ========
</TABLE>
6
<PAGE> 7
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. NET INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. This
Statement, which the Company adopted with the quarter ended December 31, 1997,
establishes and simplifies standards for computing and presenting earnings per
share. SFAS 128 requires restatement of all previously reported earnings per
share data that are presented.
Basic earnings per share is determined by dividing net income applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is determined by dividing net
income applicable to common stockholders by the weighted average number of
common shares and common share equivalents outstanding during the period. Common
share equivalents are included in the diluted earnings per share calculation
when dilutive. Common share equivalents consisting of common stock issuable upon
exercise of outstanding common stock options are computed using the treasury
stock method.
The computation of basic and diluted earnings per share for the three and
six months ended March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31, 1999 MARCH 31, 2000
---------------------------- ---------------------------
PER PER
INCOME SHARES SHARE LOSS SHARES SHARE
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) per common
share $ 614 12,510 $ 0.05 $(3,193) 12,709 $(0.25)
===== ====== ======= ======
EFFECT OF DILUTIVE SECURITIES:
Stock options 128 N/A
------ ------
DILUTED EARNINGS PER SHARE:
Income (loss) per common
share $ 614 12,638 $ 0.05 $(3,193) 12,709 $(0.25)
===== ====== ====== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------------------------------
MARCH 31, 1999 MARCH 31, 2000
--------------------------- ---------------------------
PER PER
INCOME SHARES SHARE LOSS SHARES SHARE
------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) per common
share $ 1,676 12,514 $ 0.13 $(4,709) 12,476 $(0.38)
======= ====== ======= ======
EFFECT OF DILUTIVE SECURITIES:
Stock options 231 N/A
------ ------
DILUTED EARNINGS PER SHARE:
Income (loss) per common
share $ 1,676 12,745 $ 0.13 $(4,709) 12,476 $(0.38)
======= ====== ====== ======= ====== ======
</TABLE>
7
<PAGE> 8
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
5. SEGMENT INFORMATION AND GEOGRAPHIC AREAS
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosures About Segments of an
Enterprise and Related Information. SFAS 131 superceded Statement of Financial
Accounting Standards No. 14 (SFAS 14), Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for disclosures about
operating segments, products and services, geographic areas, and major
customers. Management has determined that the Company operates in one industry
segment: the design, development, sale, service, and support of proprietary
software products. Substantially all of the Company's revenues are derived from
the licensing of software products and providing related consulting, support,
and training services.
The Company has determined that its reportable business segments are North
American Operations (which includes all operations in the United States and
Canada with the exclusion of the Cort Payroll Unit), the Cort Payroll Unit, and
International Operations. The Company's determination of its reportable segments
is based on its internal reporting. The following table presents a summary of
operating information for the three and six months ended March 31, 1999 and
2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
North American operations $ 28,003 $ 19,188 $ 54,374 $ 39,870
(excluding Cort)
Cort payroll unit 1,191 1,157 2,489 2,223
International operations 2,171 2,241 4,585 4,014
-------- -------- -------- --------
Consolidated $ 31,365 $ 22,586 $ 61,448 $ 46,107
======== ======== ======== ========
Operating income (loss):
North American operations $ 1,713 $ (2,914) $ 4,002 $ (4,278)
(excluding Cort)
Cort payroll unit (380) (513) (731) (975)
International operations (741) (1,674) (1,548) (2,659)
-------- -------- -------- --------
Consolidated $ 592 $ (5,101) $ 1,723 $ (7,912)
======== ======== ======== ========
</TABLE>
The following table presents a summary of balance sheet information by
business segment as of September 30, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
--------------------------
1999 2000
-------- --------
<S> <C> <C>
Identifiable assets:
North American operations $ 87,015 $ 78,467
(excluding Cort)
Cort payroll unit 1,798 1,466
International operations 5,068 6,637
-------- --------
Consolidated $ 93,881 $ 86,570
======== ========
</TABLE>
8
<PAGE> 9
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. ACQUISITIONS
On January 13, 2000, the Company acquired all of the outstanding capital
stock of Dexton Information Systems, B.V. ("Dexton"), a privately held supplier
of Web-based customer relationship management solutions located in the
Netherlands. The purchase price of $7,589 was comprised of $5,000 in cash, the
issuance of 320 shares of Infinium common stock and acquisition expenses of
$749. The acquisition was accounted for as a purchase, consequently, the
purchase price was allocated to the acquired assets and assumed liabilities,
based on their fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Net tangible assets acquired $ 460
Intangible assets acquired:
Customer base 716
Work force 802
Current technology 2,064
Goodwill 3,547
-------
Total $ 7,589
=======
</TABLE>
The intangible assets are being amortized on a straight-line basis over
five years.
On November 29, 1999, the Company acquired substantially all of the assets
and liabilities of iT-Soft (M.) Sdn. Bhd. ("iT-Soft"), a privately held
value-added reseller of Infinium solutions located in Malaysia. The transaction
was consummated for $650 in cash which was paid during the quarter ended
December 31, 1999 and $84 in acquisition expenses. The difference of $766
between the purchase price and the net book value of the acquired assets and
liabilities was allocated to goodwill and will be amortized over a period of
five years.
The acquisitions of Dexton and iT-Soft were accounted for as purchases.
Accordingly, the results of operations of Dexton and iT-Soft and the fair market
values of the acquired assets and assumed liabilities are included in the
Company's financial statements as of their respective acquisition dates.
7. DISCONTINUED PRODUCT LINES
The Company decided, in September 1999, to discontinue new release
development of Infinium Financials for Microsoft Windows NT and Infinium Human
Resources for Microsoft Windows NT. In February 2000, the Company divested
Infinium Financials for Microsoft Windows NT to a Gores Technology Group
company, Artemis Financial Systems, Inc. ("Artemis"), for a cash payment of $822
from the Company to Artemis. Gores Technology Group, a leading international
technology and management company, is a guarantor of Artemis' obligations under
the agreement to acquire Infinium Financials for Microsoft Windows NT. The
Company plans to continue to provide maintenance and consulting services for
existing customers of Infinium Human Resources for Microsoft Windows NT until
November 2000.
General and administrative expense for the quarter ended March 31, 2000
includes $354 in expenses incurred in connection with transitioning NT
customers from the discontinued product lines described above.
9
<PAGE> 10
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board (FASB) released FASB
interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions
involving Stock Compensation - an interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of FIN No. 44 will have
a significant impact on the Company's results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which is effective no later than the quarter
ending June 30, 2000. SAB 101 clarifies the Securities and Exchange Commission's
view regarding recognition of revenue. The Company will adopt SAB 101 in the
third quarter of 2000 and is currently evaluating the effects it will have. The
Company anticipates that the adoption of SAB 101 will not have a material effect
on the Company's financial position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company will adopt SFAS No. 133, as required by SFAS No. 137, Deferral of the
Effective Date of the FASB Statement No. 133, in fiscal year 2001. The adoption
of SFAS No. 133 is not expected to have a material impact on the Company's
financial position or results of operations.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including but
not limited to, statements regarding anticipated future revenue and expense
levels and capital requirements, the Company's future product development and
marketing plans, the Company's ability to generate cash from operations, and the
Company's ability to attract and retain employees, are based on current
expectations. These statements are forward looking in nature, involve a number
of risks and uncertainties, as more fully described under "Factors Affecting
Future Performance" and are made pursuant to the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those described in
the forward-looking statements.
OVERVIEW
Infinium Software, Inc. ("Infinium", "the Company") develops, markets and
supports enterprise-level business software applications and provides software
application services. Infinium offers Web- and server-based products that
automate the financial, human resources and materials management functions of
organizations. The Company also offers a specialized manufacturing system
designed to manage process manufacturing operations.
During the first six months of fiscal 2000, the Company initiated a
reorganization to focus on delivering Internet business solutions and services
to customers. As part of its reorganization, Infinium completed plans to open
its ASP East Coast Enterprise Solution Hosting Center, a full-featured data
center that will allow Infinium to become a single source, fully accountable
application service provider. In addition, two acquisitions were completed
during the first six months of fiscal 2000. The Company acquired iT-Soft, a
privately held value-added reseller of Infinium solutions, in November 1999. In
January 2000, the Company acquired Dexton, a supplier of Web-based customer
relationship management solutions based in the Netherlands. (See Note 6 of
Notes to Condensed Consolidated Financial Statements.)
The Company discontinued new release development of Infinium Financials for
Microsoft Windows NT and Infinium Human Resources for Microsoft Windows NT
during the fourth quarter of fiscal 1999. The Company plans to continue to
provide maintenance and consulting services for existing customers of Infinium
Human Resources for Microsoft Windows NT until November 2000. In February 2000,
the Company divested Infinium Financial for Microsoft Windows NT to Artemis, a
Gores Technology Group company, for a cash payment of $822 from the Company to
Artemis. General and administrative expense for the quarter ended March 31, 2000
includes $354 in expenses incurred in connection with transitioning NT customers
from the discontinued product lines. During the remainder of fiscal 2000, the
Company may incur additional costs associated with this transition.
The results of operations for the discontinued product lines for the three
and six month periods ended March 31, 2000, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 2000
-------------- --------------
<S> <C> <C>
Services revenue $ 175 $ 473
Operating costs and expenses:
Cost of services 766 1,689
Research and development 480 1,657
General and administrative 433 433
--------
Total operating costs and expenses 1,679 3,779
-------- -------
Loss from operations (1,504) (3,306)
Benefit from income taxes 488 1,155
-------- -------
Net operating loss $ (1,016) $(2,151)
======== =======
</TABLE>
The impact to basic and diluted loss per share for the results relating to
the discontinued product lines was ($0.08) per share and ($0.17) per share for
the three and six months ended March 31, 2000, respectively.
The Company's revenue is currently derived from two sources: software
license fees and services revenue. Software license fees include revenue from
non-cancelable software license agreements entered into between the Company and
its customers with respect to both the Company's products and third party
products marketed and/or distributed by the Company. The Company's service
revenue is comprised of software maintenance fees and fees for consulting and
training services. Maintenance revenue is recognized ratably over the
maintenance period. Consulting service revenue is recognized as the services are
performed.
11
<PAGE> 12
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
The following table sets forth for the periods indicated the Company's
condensed consolidated statement of operations data expressed as a percentage of
total revenue and the percentage of dollar increase or decrease from period to
period for the three months ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
% OF TOTAL % OF $
REVENUE INCREASE
------------- (DECREASE)
----------
1999 TO
----------
1999 2000 2000
----- ---- ------------
<S> <C> <C> <C>
Revenue:
Software license fees........................... 29% 20% (51)%
Services revenue................................ 71 80 (19)
---- ---
Total revenue................................ 100 100 (28)
---- ---
Operating costs and expenses:
Cost of software license fees................... 7 7 (33)
Cost of services................................ 33 40 (11)
Research and development........................ 16 21 (7)
Sales and marketing............................. 33 41 (10)
General and administrative...................... 9 14 6
---- ---
Total operating costs and expenses........... 98 123 (10)
---- ---
Income (loss) from operations..................... 2 (23) (962)
Other income, net................................. 1 2 20
---- ---
Income (loss) before provision for
(benefit from) income taxes.................... 3 (21) (623)
Provision for (benefit from)
income taxes.................................... 1 (7) (631)
---- ---
Net income (loss)................................. 2% (14%) (620)%
==== ====
</TABLE>
REVENUE. Total revenue declined $8.8 million, or 28%, from $31.4 million for
the quarter ended March 31, 1999 to $22.6 million for the quarter ended March
31, 2000. Software license fees declined 51%, from $9.2 million for the quarter
ended March 31, 1999 to $4.6 million for the same quarter in fiscal 2000. The
Company believes that the decrease was primarily due to potential customers
deciding to postpone software acquisitions to focus on their internal Year 2000
compliance issues. Service revenue, comprised of maintenance fee revenue and
consulting services revenue, declined 19%, from $22.1 million for the quarter
ended March 31, 1999 to $18.0 million for the quarter ended March 31, 2000. This
decrease was due primarily to a decrease in demand for the Company's consulting
service offerings due to lower software license fees. The components of service
revenue are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
(in thousands) % INCREASE
----------
(DECREASE)
----------
1999 2000 1999 TO 2000
-------- ------- ------------
<S> <C> <C> <C>
Maintenance fee revenue $ 10,487 $10,887 4%
Consulting services revenue 11,641 7,147 (39)
-------- -------
Total services revenue $ 22,128 $18,034 (19)
======== =======
</TABLE>
12
<PAGE> 13
Revenue derived from the North American operations (United States and
Canada, including the Cort Payroll Unit), representing 90% of total revenue for
the quarter ended March 31, 2000 and 93% for the same quarter in fiscal 1999,
declined 30% to $20.4 million for the quarter ended March 31, 2000 from $29.2
million for the quarter ended March 31, 1999. EMEA (Europe, Middle East and
Africa) revenue increased 5% from $1.9 million, or 6% of total revenue, for to
the quarter ended March 31, 1999 to $2.0 million, or 9% of total revenue, for
the same quarter in fiscal 2000. The increase is primarily attributable to the
acquisition of Dexton, which contributed $0.6 million to revenue for the second
quarter of fiscal 2000. Other international regions, including Asia-Pacific and
Latin America, contributed 1% of total revenue for the both the second quarter
of fiscal year 1999 and the second quarter of fiscal year 2000.
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties on the sale of third party products, amortization expense
related to capitalized software and the cost of product media, manuals and
shipping. Cost of software license fees decreased 33%, from $2.4 million for the
quarter ended March 31, 1999 to $1.6 million for the quarter ended March 31,
2000. Cost of software license fees as a percentage of software license fee
revenue increased from 25% for the quarter ended March 31, 1999 to 35% for the
same quarter in fiscal 2000. The decrease in the dollar amount was primarily due
to a decrease in royalties on third party product software sales directly
attributable to the decline in software license fee revenue.
COST OF SERVICES. Cost of services consists of costs to provide product and
technical support, consulting services and training services to licensees of the
Company's software products. Cost of services decreased 11%, from $10.3 million
for the quarter ended March 31, 1999 to $9.1 million for the quarter ended March
31, 2000. The decrease in the dollar amount is due to lower third party
consulting fees. Cost of services as a percentage of service revenue was 46% and
51% for the quarters ended March 31, 1999 and 2000, respectively. The percentage
increase is attributable to costs associated with the divestiture of the
Infinium Financials for Windows NT product to Artemis. For the quarter ended
March 31, 2000, the cost of services relating to the discontinued product lines
was $766. (See Note 7 of Notes to Condensed Consolidated Financial Statements.)
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel, related facilities and computer and
communications overhead, and third party contractor costs reduced by capitalized
software development costs and, when applicable, research funding. Research and
development expenses decreased 7% from $5.0 million for the quarter ended March
31, 1999 to $4.6 million for the quarter ended March 31, 2000. Research and
development expense as a percentage of total revenue was 16% for the quarter
ended March 31, 1999 and 20% for the quarter ended March 31, 2000. The decrease
in the dollar amount is due to a reduction of development costs related to the
Infinium Financials for Windows NT and Infinium Human Resources for Windows NT
products. The Company decided to discontinue new release development for those
products in September 1999. For the quarter ended March 31, 2000, the research
and development expense relating to the discontinued product lines was $480.
(See Note 7 of Notes to Condensed Consolidated Financial Statements.)
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities and computers
and communications costs for direct sales offices. Sales and marketing expenses
decreased 10% from $10.3 million for the quarter ended March 31, 1999 to $9.2
million for the quarter ended March 31, 2000. The decrease was primarily due to
a decrease in commission expense associated with lower revenue. Sales and
marketing expense as a percentage of total revenue was 33% and 41% for the
second quarters of fiscal year 1999 and fiscal year 2000, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel and related
facilities and computers and communication overhead, as well as provisions for
doubtful accounts, insurance, investor relations and outside professional fees.
General and administrative expenses increased 6% from $3.0 million for the
quarter ended March 31, 1999 to $3.1 million for the quarter ended March 31,
2000. General and administrative expense as a percentage of total revenue was 9%
and 14% for the second quarters of fiscal year 1999 and fiscal year 2000,
respectively. The increase in percentage and dollar amount was primarily due to
costs associated with the Company's increasing focus on its new application
service provider and customer relationship management
13
<PAGE> 14
lines of business, as well as the expenses incurred in connection with
transitioning NT customers from the discontinued product lines. For the quarter
ended March 31, 2000, general and administrative expenses attributable to the
discontinued product lines was $433. (See Note 7 of Notes to Condensed
Consolidated Financial Statements.)
PROVISION FOR INCOME TAXES. The provision for federal, state and foreign
income taxes changed from $0.3 million representing an effective income tax rate
of 32% for the quarter ended March 31, 1999 to a tax benefit of $1.5 million
representing an effective income tax rate of 34% for the six months ended March
31, 2000.
SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999
The following table sets forth for the periods indicated the Company's
condensed consolidated statement of operations data expressed as a percentage of
total revenue and the percentage of dollar increase or decrease from period to
period for the six months ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------
% OF TOTAL % OF $
REVENUE INCREASE
------------ (DECREASE)
----------
1999 TO
---------
1999 2000 2000
---- ---- ---------
<S> <C> <C> <C>
Revenue:
Software license fees........................... 29% 18% (53)%
Services revenue................................ 71 82 (13)
--- ---
Total revenue................................ 100 100 (25)
--- ---
Operating costs and expenses:
Cost of software license fees................... 7 7 (27)
Cost of services................................ 32 39 (9)
Research and development........................ 16 21 (6)
Sales and marketing............................. 33 38 (13)
General and administrative...................... 9 12 9
--- ---
Total operating costs and taxes.............. 97 117 (10)
-- ---
Income (loss) from operations..................... 3 (17) (559)
Other income, net................................. 1 2 5
--- ---
Income (loss) before provision for
(benefit from) income taxes.................... 4 (15) (389)
Provision for (benefit from)
income taxes.................................... 1 (5) (407)
--- ---
Net income (loss)................................. 3% (10%) (381)%
=== ===
</TABLE>
REVENUE. As the following chart indicates, total revenue declined $15.3
million, or 25%, from $61.4 million for the six months ended March 31, 1999 to
$46.1 million for the same period in fiscal 2000.
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------
(in thousands) % INCREASE
----------
(DECREASE)
----------
1999 2000 1999 TO 2000
---- ---- ------------
<S> <C> <C> <C>
Software license fees $ 17,775 $ 8,310 (53)%
Services revenue:
Maintenance fee revenue 20,848 21,763 4
Consulting services revenue 22,825 16,034 (30)
-------- -------
Total services revenue 43,673 37,797 (13)
-------- -------
Total revenue $ 61,448 $46,107 (25)%
======== =======
</TABLE>
Software license fees declined 53%, from $17.8 million for the six months
ended March 31, 1999 to $8.3 million for the same period in fiscal 2000. The
Company believes that the decrease was primarily due to
14
<PAGE> 15
potential customers deciding to postpone software acquisitions to focus on their
internal Year 2000 compliance issues. Total services revenue declined $5.9
million, or 13%, from $43.7 million for the six months ended March 31, 1999 to
$37.8 million for the six month period ended March 31, 2000. The reduction was
primarily the result of a decrease in demand for the Company's consulting
services due to lower software license fees. Maintenance fee revenue, the other
component of services revenue, increased slightly from $20.8 million for the six
months ended March 31, 1999 to $21.8 million for the same period in fiscal 2000.
For the six months ended March 31, 2000, services revenue relating to the
discontinued product lines was $473. (See Note 7 of Notes to Condensed
Consolidated Financial Statements.)
COST OF SOFTWARE LICENSE FEES. Cost of software license fees decreased $1.2
million, or 27%, from $4.3 million for the six months ended March 31, 1999 to
$3.1 million for the six months ended March 31, 2000. As a percentage of
software license fee revenue, the cost of software license fees increased from
24% for the quarter ended March 31, 1999 to 38% for the same quarter in fiscal
2000. The decrease in the dollar amount was primarily due to a decrease in
royalties on third party product software sales.
COST OF SERVICES. Cost of services declined 9%, from $19.7 million for the
six months ended March 31, 1999 to $17.9 million for the six months ended March
31, 2000. The decrease in the dollar amount is due to lower third party
consulting fees. Cost of services as a percentage of service revenue was 45% and
47% for the six month periods ended March 31, 1999 and 2000, respectively. The
percentage increase is attributable to costs associated with the divestiture of
the Infinium Financials for Windows NT product to Artemis. For the six months
ended March 31, 2000, the cost of services relating to the discontinued product
lines was $1,689. (See Note 7 of Notes to Condensed Consolidated Financial
Statements.)
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 6%
from $10.2 million for the six months ended March 31, 1999 to $9.6 million for
the same period in fiscal 2000. Research and development expense as a percentage
of total revenue was 17% for the six months ended March 31, 1999 and 21% for the
quarter ended March 31, 2000. The decrease in the dollar amount is due to a
reduction of development costs related to the Infinium Financials for Windows NT
and Infinium Human Resources for Windows NT products. The Company decided to
discontinue new release development for those products in September 1999. For
the six months ended March 31, 2000, the research and development expense
relating to the discontinued product lines was $1,657. (See Note 7 of Notes to
Condensed Consolidated Financial Statements.)
SALES AND MARKETING. Sales and marketing expenses decreased 13% from $20.2
million for the six months ended March 31, 1999 to $17.6 million for the six
months ended March 31, 2000. The decrease was primarily due to a decrease in
commission expense associated with lower revenue. Sales and marketing expense as
a percentage of total revenue was 33% and 38% for the first six months of fiscal
year 1999 and fiscal year 2000, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 9%
from $5.3 million for the six months ended March 31, 1999 to $5.8 million for
the same period in fiscal 2000. General and administrative expense as a
percentage of total revenue was 9% and 13% for the first six months of fiscal
year 1999 and fiscal year 2000, respectively. The increase in percentage and
dollar amount was primarily due to costs associated with the Company's
increasing focus on its new application service provider and customer
relationship management lines of business, as well as the expenses incurred in
connection with transitioning customers from the discontinued product lines.
(See Note 7 of Notes to Condensed Consolidated Financial Statements.)
PROVISION FOR INCOME TAXES. The provision for federal, state and foreign
income taxes changed from $0.8 million representing an effective income tax rate
of 32% for the six months ended March 31, 1999 to a tax benefit of $2.4 million
representing an effective income tax rate of 34% for the six months ended March
31, 2000.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash, cash equivalents and marketable
securities of $31.4 million resulting from a net use of cash, cash equivalents
and marketable securities of $1.6 million during the first six months of fiscal
year 2000. Operating activities consumed $10.2 million, $1.3 million was used to
fund capitalized software, $1.8 was used for purchases of computers and
equipment and the acquisitions of iT-Soft and Dexton consumed an additional $4.6
million. Proceeds from the exercise of stock options and the employee stock
purchase plan provided $2.0 million.
Days sales outstanding ("DSO") increased to 61 days at March 31, 2000
compared to 47 days at September 30, 1999. The Company calculates DSO by
dividing the ending accounts receivable balance, net of allowance for doubtful
accounts, by the annualized revenue for the quarter, multiplied by 360. The
Company believes that this method of deriving DSO is indicative of actual
results due to the cyclical nature of software license and service transactions,
which are often consummated nearer the end of the quarter, as well as the
fluctuation of transactions from one quarter to the next. The increase in DSO is
primarily due to the decrease in revenue for the quarter ended March 31, 2000.
Deferred revenue decreased $2.3 million, from $37.8 million at September 30,
1999 to $35.5 million at March 31, 2000. The decrease in deferred revenue
primarily resulted from a decrease in the deferred consulting services component
due to lower customer bookings during the six months ended March 31, 2000.
The Company believes that cash, cash equivalents and marketable securities
on hand and cash flows from operations will be sufficient to fund its operations
at least through fiscal 2000. While operating activities may provide cash in
certain periods, to the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash,
and consequently, such growth may require the Company to obtain additional
sources of financing.
IMPACT OF THE YEAR 2000
The Year 2000 issue relates primarily to computer software and operating
systems in which dates have been abbreviated. Unless corrected, these systems
may recognize the date of "January 1, 2000" as "January 1, 1900." As a result,
computer software and operating systems used by many companies may need to be
upgraded to comply with Year 2000 requirements. The Company instituted a Year
2000 project in which Year 2000 issues were assessed and addressed in the
development of its software systems, its relationships with third parties, and
its internal operating systems.
Since the end of calendar 1999, the Company has not experienced any
material issues or failures related to the Year 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board (FASB) released FASB
interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions
involving Stock Compensation - an interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of FIN No. 44 will have
a significant impact on the Company's results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which is effective no later than the quarter
ending June 30, 2000. SAB 101 clarifies the Securities and Exchange Commission's
view regarding recognition of revenue. The Company will adopt SAB 101 in the
third quarter of 2000 and is currently evaluating the effects it will have. The
Company anticipates that the adoption of SAB 101 will not have a material effect
on the Company's financial position or results of operations.
16
<PAGE> 17
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company will adopt SFAS No. 133, as required by SFAS No. 137, Deferral of the
Effective Date of the FASB Statement No. 133, in fiscal year 2001. The adoption
of SFAS No. 133 is not expected to have a material impact on the Company's
financial position or results of operations.
FACTORS AFFECTING FUTURE PERFORMANCE
The factors affecting the Company's future performance have not changed
significantly from those enumerated in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
INTEREST RATE RISK
The Company is exposed to market risk from changes in interest rates
primarily through its investing and borrowing activities. In addition, the
Company's ability to finance future acquisition transactions may be impacted if
the Company is unable to obtain appropriate financing at acceptable rates. The
Company's investing strategy to manage interest rate exposure is to invest in
short-term, highly liquid investments. The Company maintains a portfolio of
highly liquid cash equivalents and short-term investments. At March 31, 2000,
the fair value of the Company's short-term investments approximated market
value.
FOREIGN CURRENCY RISK
The Company faces exposure to movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not use derivative financial instruments
to hedge foreign currency exposures or for trading. Historically, the Company's
primary exposures have been related to the operations of its foreign
subsidiaries. In the three and six month periods ended March 31, 2000, the net
impact of foreign currency changes was not material. The introduction of the
Euro as a common currency for most members of the European Monetary Union took
place in the Company's fiscal year 1999.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on Friday,
February 11, 2000. At the meeting, the stockholders elected the
following Class I directors to the Board of Directors:
<TABLE>
<CAPTION>
Name For Against Abstentions
---- --- ------- -----------
<S> <C> <C> <C>
Manuel Correia 10,374,121 108,977 None
Fred Luconi 5,426,340 152,500 None
</TABLE>
The terms of Robert A. Pemberton and Robert P. Schechter as
Class II directors and Roland D. Pampel and Michael Cusumano as
Class III directors continued after the meeting.
At the Annual Meeting, the stockholders also ratified the selection
of PricewaterhouseCoopers LLP as auditors for the Company for the
fiscal year ended September 30, 2000:
<TABLE>
<CAPTION>
Name For Against Abstentions
---- --- ------- -----------
<S> <C> <C> <C>
PricewaterhouseCoopers LLP 10,406,218 45,826 31,054
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Infinium Software, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 12, 2000
INFINIUM SOFTWARE, INC.
by:
/s/ VERONICA M. ZSOLCSAK
----------------------------------------
Veronica M. Zsolcsak
Chief Financial Officer
20
<PAGE> 21
INFINIUM SOFTWARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 21
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INFINIUM
SOFTWARE, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
2000.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 21,524
<SECURITIES> 9,882
<RECEIVABLES> 18,348
<ALLOWANCES> 3,005
<INVENTORY> 0
<CURRENT-ASSETS> 56,453
<PP&E> 27,450
<DEPRECIATION> 16,238
<TOTAL-ASSETS> 86,570
<CURRENT-LIABILITIES> 48,234
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 34,348
<TOTAL-LIABILITY-AND-EQUITY> 86,570
<SALES> 8,310
<TOTAL-REVENUES> 46,107
<CGS> 3,135
<TOTAL-COSTS> 20,989
<OTHER-EXPENSES> 33,030
<LOSS-PROVISION> (1,285)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,134)
<INCOME-TAX> (2,425)
<INCOME-CONTINUING> (4,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,709)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
