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, 1997
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 No: 333-22637
H.T.E., INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2133858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1000 BUSINESS CENTER DRIVE
LAKE MARY, FLORIDA 32746
(407) 304-3235
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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.
CLASS OUTSTANDING AS OF NOVEMBER 1, 1997
----- -----------------------------------
Common stock
Par value $.01 per share 7,688,651
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,890 $ 740
Trade accounts receivable, net 18,199 16,767
Other current assets 2,273 1,183
----------- --------------
Total current assets 41,362 18,690
----------- --------------
COMPUTER EQUIPMENT, FURNITURE AND
FIXTURES, net 2,080 1,592
----------- --------------
OTHER ASSETS
Computer software development costs, net 3,679 3,657
Other assets 787 842
----------- --------------
4,466 4,499
----------- --------------
Total assets $ 47,908 $ 24,781
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 4,673 $ 6,258
Line of credit - 2,306
Deferred revenue 13,270 10,378
Other current liabilities 17 158
------------ --------------
Total current liabilities 17,960 19,100
------------ --------------
LONG-TERM LIABILITIES:
Deferred income taxes 1,731 1,731
Other long-term liabilities 123 250
------------ --------------
Total long-term liabilities 1,854 1,981
------------ --------------
COMMITMENTS AND CONTINGENCIES (Note 2)
MANDATORILY REDEEMABLE PREFERRED STOCK - 4,303
MANDATORILY REDEEMABLE CLASS C COMMON - 119
STOCKHOLDERS' EQUITY (DEFICIT)
Class A common stock - 1
Common stock 77 -
Additional paid-in capital 27,963 229
Accumulated earnings (deficit) 52 (947)
Cumulative translation adjustment 2 (5)
------------ --------------
Total stockholders' equity (deficit) 28,094 (722)
------------ --------------
Total liabilities and stockholders'
equity $ 47,908 $ 24,781
============ ==============
The accompanying notes are an integral part of these
consolidated balance sheets.
2
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<TABLE>
<CAPTION>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $ 5,950 $ 3,409 $ 16,607 $ 9,044
Professional services 2,284 1,578 6,464 4,954
Hardware 1,993 1,914 6,251 5,583
Maintenance and other 3,088 2,191 8,813 6,126
--------- --------- ---------- ---------
Total revenues 13,315 9,092 38,135 25,707
--------- --------- ---------- ---------
EXPENSES:
Cost of software licenses 1,606 906 3,718 2,331
Cost of professional services 1,326 1,109 3,880 3,371
Cost of hardware 1,647 1,443 4,966 4,339
Cost of maintenance and other 1,257 724 3,824 2,161
Research and development 1,457 1,197 4,357 3,326
Sales and marketing 2,550 2,098 7,197 4,784
General and administrative 1,891 1,355 6,149 4,007
Provision for relocation of offices -- -- 300 --
--------- --------- ---------- ---------
Total operating expenses 11,734 8,832 34,391 24,319
--------- --------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS 1,581 260 3,744 1,388
OTHER (INCOME) EXPENSES:
Interest (131) 61 (5) 182
--------- --------- ---------- ---------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 1,712 199 3,749 1,206
PROVISION (BENEFIT) FOR INCOME
TAXES 639 82 1,442 501
--------- --------- ---------- ---------
NET INCOME (LOSS) 1,073 117 2,307 705
ACCRETION AND ACCRUAL OF
DIVIDENDS ON MANDATORILY
REDEEMABLE PREFERRED STOCK -- (334) (1,308) (714)
--------- --------- ---------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 1,073 $ (217) $ 999 $ (9)
========= ========= ========== =========
PROFORMA NET INCOME (LOSS) PER
COMMON AND COMMON
EQUIVALENT SHARE $ 0.14 $ 0.02 $ 0.35 $ 0.13
========= ========= ========== =========
PROFORMA WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 7,817 5,435 6,503 5,435
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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<TABLE>
<CAPTION>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,307 $ 705
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization 2,210 1,624
Accretion of mandatorily redeemable Class C common
stock charged to interest expense 19 --
Gain on forgiveness of accounts payable -- (210)
Compensation due to sale of stock 65 --
Deferred income taxes (83) 245
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net (1,432) (228)
Other current assets (1,007) (29)
Other assets (64) (21)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (1,585) 972
Deferred revenue 2,892 (1,761)
Other liabilities 57 (128)
--------- --------
Net cash provided by operating activities: 3,379 1,169
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (928) (371)
Computer software development costs (1,673) (1,555)
--------- --------
Net cash used in investing activities: (2,601) (1,926)
--------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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<TABLE>
<CAPTION>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 22,620 224
Net proceeds from issuance of preferred stock -- 252
Net borrowing (repayment) under line of credit (2,306) 411
Borrowing of long-term debt -- (50)
Repayments of notes payable to related parties (300) (100)
Repayments under obligations of capital leases (25) (49)
Dividend payments on preferred stock (624) --
Advances on notes receivable from shareholders -- (115)
-------- --------
Net cash provided by financing activities: 19,365 573
-------- --------
Effect of foreign currency exchange rate changes on cash
and cash equivalents 7 --
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 20,150 (184)
CASH AND CASH EQUIVALENTS, beginning of period 740 355
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 20,890 $ 171
======== ========
SUPPLEMENTAL SCHEDULES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 159 $ 180
Cash paid for income taxes 1,245 24
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The condensed consolidated financial statements included herein have been
prepared by H.T.E., Inc., without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the
financial statements for the year ended March 31, 1996, and the nine months
ended December 31, 1996 and the notes thereto, included in the Company's Form
S-1 Registration Statement (File No. 333-22637) filed with the Securities and
Exchange Commission.
The unaudited condensed consolidated financial statements included herein
include normal recurring adjustments and reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of such financial
statements. The Company's business is seasonal and, accordingly, interim results
are not indicative of results for a full year.
1. INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On June 16, 1997, the Company successfully completed its initial public offering
of common stock. Of the 2,500,000 shares of common stock sold, 1,950,000 were
sold by H.T.E., Inc. and 550,000 were sold by certain selling shareholders. The
Company sold the 1,950,000 shares of common stock for $19,056 net of issuance
costs of $2,818. In July, the underwriters exercised their option to purchase
375,000 additional shares of common stock to cover over-allotments. The Company
received $3,564 from the transaction, net of additional issuance costs of $561.
Concurrent with the effectiveness of the Company's registration statement on
Form S-1, the Company completed a recapitalization pursuant to which all
outstanding shares of Redeemable Preferred Stock, Class A Common stock and Class
C Common Stock were split 53-for-one and exchanged simultaneously on a
one-for-one basis for shares of the Company's newly authorized Common Stock. As
part of the recapitalization, the Company paid $624 in accrued dividends on the
Redeemable Preferred Stock. The Redeemable Preferred Stock, Class A Common
Stock, Class B Common Stock and Class C Common stock were then canceled, retired
and eliminated from the shares the Company is authorized to issue.
2. LITIGATION
The Company is involved in various legal actions arising in the normal course of
business, as both a claimant and a defendant. While it is not possible to
determine with certainty the outcome of these matters, in the opinion of
management, the eventual resolution of these claims and actions outstanding will
not have a material adverse effect on the Company's financial position or
operating results.
3. EARNINGS PER SHARE
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE. Pro forma net income (loss) per
common share is determined by dividing net income (loss), as adjusted for the
effects of the assumed conversion of the mandatorily redeemable Class C common
stock as of the date it was first issued, by the proforma weighted average
number of common and common equivalent shares outstanding during the period.
Common share equivalents are computed using the treasury stock method and
consist of common stock which may be issuable upon the exercise of outstanding
common stock options, when dilutive.
6
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1996 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
The pro forma weighted average number of common and common equivalent shares
outstanding during the period assumes the conversion of the mandatorily
redeemable preferred stock outstanding prior to the twelve-month period
preceding the initial filing date into Class A common stock as of the date such
preferred stock was first issued. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, stock issued and common stock options granted
by the Company during the 12 months preceding the initial filing date have been
included in the calculation of pro forma weighted average common and common
equivalent shares outstanding, using the treasury stock method based on the
initial public offering price of $11.00, as if the stock and options were
outstanding for all periods presented.
All share and per share information in the financial statements have been
adjusted to give effect to the 53-to-1 common stock split and par value
restatement which became effective concurrent with the effectiveness of the
registration statement.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board recently
issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 will require the
presentation of "basic" and "diluted" earnings per share ("EPS") and is
effective for periods ending after December 15, 1997. Generally, the Company
expects basic EPS, which is calculated based on the weighted-average number of
shares outstanding, to be slightly higher than primary EPS currently presented.
Diluted EPS, which would include the effects of dilutive potential common
shares, is expected to approximate primary EPS. The pro forma earnings per share
for the three months and nine months ended September 30, 1997 and 1996,
utilizing the requirements of SFAS No. 128 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- -------- ----------
Basic earnings per share $ 0.14 $ 0.02 $ 0.37 $ 0.13
Diluted earnings per share $ 0.14 $ 0.02 $ 0.35 $ 0.13
4. NON-RECURRING CHARGES - OFFICE RELOCATION/MOVE EXPENSES
During the quarter ended June 30, 1997, the Company closed two of its Midwest
regional offices and a West Coast regional office and relocated its headquarters
20 miles north of its Orlando, FL location to Lake Mary, FL. As a result, the
Company incurred non-recurring relocation and move related expenses. The
provision for relocation of offices expense includes the costs for reimbursing
certain employees for real estate transactions, moving expenses and severance.
The provision for relocation expenses also includes move and dual building costs
related to the change in headquarters location.
5. EMPLOYEE STOCK PURCHASE PLAN
The Company adopted an Employee Stock Purchase Plan on July 23, 1997, subject to
shareholder approval at the next annual meeting. The plan is effective as of
September 1, 1997 and is designed to qualify as an employee stock purchase plan
under Section 423 of the Internal Revenue Code of 1986, as amended. Two hundred
thousand shares are reserved for issuance over the term of the plan, subject to
periodic adjustment for changes in the outstanding common stock occasioned by
stock splits, stock dividends, recapitalizations or other similar changes. The
plan qualifies as a non-compensatory plan under APB Opinion No. 25; therefore,
the plan is not expected to have any effect on the income statement.
7
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section of the Report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Discussion containing such forward-looking statements may be found in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the captions "Comparison of Three Months Ended September 30,
1997 and September 30, 1996," "Comparison of Nine Months Ended September 30,
1997 and September 30, 1996" and "Liquidity and Capital Resources." Actual
results for future periods could differ materially from those discussed in this
section as a result of the various risks and uncertainties discussed herein. A
comprehensive summary of such risks and uncertainties can be found in the
Company's registration statement on Form S-1 (File No. 333-22637), which was
declared effective on June 10, 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Software licenses 44.7 % 37.5 % 43.5 % 35.2%
Professional services 17.1 17.4 17.0 19.3
Hardware 15.0 21.0 16.4 21.7
Maintenance and other 23.2 24.1 23.1 23.8
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
EXPENSES:
Cost of software licenses 12.1 9.9 9.8 9.1
Cost of professional services 10.0 12.2 10.2 13.1
Cost of hardware 12.4 15.9 13.0 16.9
Cost of maintenance and other 9.4 7.9 10.0 8.4
Research and development 10.9 13.2 11.4 12.9
Sales and marketing 19.1 23.1 18.9 18.6
General and administrative 14.2 14.9 16.1 15.6
Provision for relocation -- -- 0.8 --
------ ------ ------ ------
Total operating expenses 88.1 97.1 90.2 94.6
------ ------ ------ ------
Income from operations: 11.9 2.9 9.8 5.4
Other (income) expenses:
Interest (1.0) 0.7 -- 0.7
------ ------ ------ ------
Income before provision for
income taxes 12.9 2.2 9.8 4.7
------ ------ ------ ------
Provision for income
taxes 4.8 0.9 3.8 2.0
------ ------ ------ ------
Net income 8.1 % 1.3 % 6.0 % 2.7%
====== ====== ====== ======
</TABLE>
8
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
REVENUES The Company's total revenues were $13,315 for the three months ended
September 30, 1997 compared to $9,092 for the three months ended September 30,
1996, an increase of $4,223 or 46.4%. Revenues from software licenses were
$5,950 for the three months ended September 30, 1997 compared to $3,409 for the
period ended September 30, 1996, an increase of $2,541 or 74.5%, as a result of
an increased number of applications available for sale and an increased
investment in sales and marketing. Revenues from professional services were
$2,284 for the three months ended September 30, 1997 compared to $1,578 for the
three months ended September 30, 1996, an increase of $706 or 44.7%, directly
related to new software licenses and the Company's increased number of service
offerings. Hardware revenues were $1,993 for the three months ended September
30, 1997 compared to $1,914 for the three months ended September 30, 1996, an
increase of $79 or 4.1%, as the Company expanded its third-party re-marketing
sales through IBM. Revenues from maintenance and other were $3,088 for the three
months ended September 30, 1997 compared to $2,191 for the three months ended
September 30, 1996, an increase of $897 or 40.9%. This change was a result of
maintenance contracts associated with new software licenses, customer system
upgrades and price increases in the fees charged for annual maintenance.
COST OF REVENUES Cost of software licenses, which include third-party
royalties and amortization of computer software development costs, was $1,606
for the three months ended September 30, 1997 compared to $906 for the three
months ended September 30, 1996, an increase of $700 or 77.3%, as a result of
increased number of software licenses, specifically, third party public safety
products. Cost of professional services, which consists primarily of personnel
costs and other costs related to the services business, was $1,326 for the three
months ended September 30, 1997 compared to $1,109 for the three months ended
September 30, 1996, an increase of $217 or 19.6%. This was directly related to
increased professional service revenues and expanded offerings of full service
professional services. Cost of hardware, which consists primarily of costs
payable to vendors for hardware, was $1,647 for the three months ended September
30, 1997 compared to $1,443 for the three months ended September 30, 1996, an
increase of $204 or 14.1%, which is related to the increased hardware sales and
the mix of equipment sold. Cost of maintenance and other for the three months
ended September 30, 1997 was $1,257 compared to $724 for the three months ended
September 30, 1996, an increase of $533 or 73.6%. This was due to investment in
new customer support processes, increased personnel to enhance products and
support additional clients installed and additional computer equipment required
to handle GUI interfaces to the AS400.
RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are
comprised primarily of salaries and a portion of the Company's overhead for its
in-house staff and amounts paid to outside consultants to supplement the product
development efforts of its in-house staff. Research and development expenses
were $1,457 for the three months ended September 30, 1997 compared to $1,197 for
the three months ended September 30, 1996, an increase of $260 or 21.7%. This
was due to increased staffing levels and expenses for additional software and
hardware required for the development of additional products and platforms.
SALES AND MARKETING EXPENSES Sales and marketing expenses consist primarily
of salaries, commissions, travel related benefits and administrative costs
allocated to the Company's sales and marketing personnel. Sales and marketing
expenses were $2,550 for the three months ended September 30, 1997 compared to
$2,098 for the three months ended September 30, 1996, an increase of $452 or
21.5%. This increase was attributable to the Company's continued expansion of
its direct sales force, increased marketing efforts, travel and other expenses
related to increased sales activity.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
include the costs of corporate operations, finance and accounting, human
resources and other general operations of the Company. General and
administrative expenses were $1,891 for the three months ended September 30,
1997 compared to $1,355 for the three months ended September 30, 1996, an
increase of $536 or 39.6%. This increase, which was partially offset by $300 of
Seminole County incentives, was due to additional staffing,
9
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
additional facility related expenses and additional computer equipment and
software required to build the infrastructure to support the Company's growth.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
REVENUES The Company's total revenues were $38,135 for the nine months ended
September 30, 1997 compared to $25,707 for the nine months ended September 30,
1996, an increase of $12,428 or 48.3%. Revenues from software licenses were
$16,607 for the nine months ended September 30, 1997 compared to $9,044 for the
period ended September 30, 1996, an increase of $7,563 or 83.6%, as a result of
an increased number of applications available for sale and an increased
investment in sales and marketing. Revenues from professional services were
$6,464 for the nine months ended September 30, 1997 compared to $4,954 for the
nine months ended September 30, 1996, an increase of $1,510 or 30.5%, as a
result of new software licenses and the Company's increased number of service
offerings. Hardware revenues were $6,251 for the nine months ended September 30,
1997 compared to $5,583 for the nine months ended September 30, 1996, an
increase of $668 or 12.0%, as the Company expanded its third-party re-marketing
sales through IBM. Revenues from maintenance and other were $8,813 for the nine
months ended September 30, 1997 compared to $6,126 for the nine months ended
September 30, 1996, an increase of $2,687 or 43.9%. This was a result of
maintenance contracts associated with new software licenses, customer system
upgrades and price increases in the fees charged for annual maintenance.
COST OF REVENUES Cost of software licenses, which include third-party
royalties and amortization of computer software development costs, was $3,718
for the nine months ended September 30, 1997 compared to $2,331 for the nine
months ended September 30, 1996, an increase of 1,387 or 59.5%, as a result of
increased number of software licenses, specifically, third party public safety
products. Cost of professional services, which consists primarily of personnel
costs and other costs related to the services business, was $3,880 for the nine
months ended September 30, 1997 compared to $3,371 for the nine months ended
September 30, 1996, an increase of $509 or 15.1%. This was directly related to
increased professional service revenues and expanded offerings of full service
professional services. Cost of hardware, which consists primarily of costs
payable to vendors for hardware, was $4,966 for the nine months ended September
30, 1997 compared to $4,339 for the nine months ended September 30, 1996, an
increase of $627 or 14.5%, which is related to the increased hardware sales and
the mix of equipment sold. Cost of maintenance and other for the nine months
ended September 30, 1997 was $3,824 compared to $2,161 for the nine months ended
September 30, 1996, an increase of $1,663 or 77.0%. This was due to investment
in new customer support processes, increased personnel to enhance products and
support additional clients installed and additional computer equipment required
to handle GUI interfaces to the AS400.
RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are
comprised primarily of salaries and a portion of the Company's overhead for its
in-house staff and amounts paid to outside consultants to supplement the product
development efforts of its in-house staff. Research and development expenses
were $4,357 for the nine months ended September 30, 1997 compared to $3,326 for
the nine months ended September 30, 1996, an increase of $1,031 or 31.0%. This
was due to increased staffing levels and expenses related to additional software
and hardware required for the development of additional products and platforms.
SALES AND MARKETING EXPENSES Sales and marketing expenses consist primarily
of salaries, commissions, travel related benefits and administrative costs
allocated to the Company's sales and marketing personnel. Sales and marketing
expenses were $7,197 for the nine months ended September 30, 1997 compared to
$4,784 for the nine months ended September 30, 1996, an increase of $2,413 or
50.4%. This increase was attributable to the Company's continued expansion of
its direct sales force, increased marketing efforts, travel and other expenses
related to increased sales activity.
10
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
include the costs of corporate operations, finance and accounting, human
resources and other general operations of the Company. General and
administrative expenses were $6,149 for the nine months ended September 30, 1997
compared to $4,007 for the nine months ended September 30, 1996, an increase of
$2,142 or 53.5%. This increase, which was partially offset by $300 of Seminole
County incentives, was due to additional staffing, additional facility related
expenses and additional computer equipment and software required to build the
infrastructure to support the Company's growth.
PROVISION FOR RELOCATION OF OFFICES During the quarter ended June 30, 1997,
the Company closed two of its Midwest regional offices and a West Coast regional
office and relocated its headquarters 20 miles north of its Orlando, FL location
to Lake Mary, FL. As a result, the Company incurred non-recurring relocation and
move related expenses. The provision for relocation of offices expense includes
the costs for reimbursing certain employees for real estate transactions, moving
expenses and severance. The provision for relocation expenses also includes move
and dual building costs related to the change in headquarters location.
The Company's revenues and operating results are subject to quarterly and other
fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for the Company's solutions, the timing of customer system
conversions, and the Company's sales practices. Historically, the Company has
achieved its highest income in the fiscal quarter ended March 31 due to the
Company's sales practices. Recently, the Company implemented a new sales and
marketing program and changed its fiscal year end to December 31 which the
Company believes will moderate such fluctuations. Based on this change in sales
practices combined with the change in fiscal year end, the Company believes that
historical quarterly operating data should not be relied upon as an indicator of
future performance. However, the Company has often recognized a substantial
portion of its revenues during the last month of each quarter. Since a
significant portion of the Company's operating expenses is relatively fixed, the
Company may not be able to adjust or reduce spending in response to sales
shortfalls or delays. These factors can cause significant variations in
operating results from quarter to quarter. The Company believes that quarter to
quarter comparisons of its financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance. To conform to
industry standards, the Company changed its fiscal year end from March 31 to
December 31, effective December 31, 1996.
The Company anticipates having all of its products year 2000 compliant. Many
installed non-H.T.E. computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. A significant amount of current demand for applications software may be
generated by customers in the process of replacing and upgrading applications in
order to accommodate the change in date to the year 2000. Significant
uncertainty exists in the software industry concerning the potential effects of
such compliance. The Company is currently reviewing processes to facilitate
faster implementation to support demand for year 2000 transitions. The Company
could incur increased expenses in addressing the transition of customers to
software that is year 2000 compliant.
LIQUIDITY AND CAPITAL RESOURCES
On June 16, 1997, the Company successfully completed its initial public offering
of common stock. Of the 2,500,000 shares of common stock sold, 1,950,000 were
sold by H.T.E., Inc. and 550,000 were sold by certain selling shareholders. The
Company sold the 1,950,000 shares of common stock for $19,056 net of issuance
costs of $2,818. On July 22, 1997, the underwriters exercised their option to
purchase 375,000 additional shares of common stock to cover over-allotments. The
Company received $3,564 from the transaction, net of additional issuance costs
of $561. The Company has invested the net proceeds in short-term, investment
grade, interest-bearing securities.
Cash used in investing activities (capital expenditures, software development
investments and acquisitions) totaled $2,601 and $1,926 during the nine months
ended September 30, 1997 and 1996, respectively. Capital expenditures were
primarily comprised of the Company's investments in equipment and related
software development costs. In addition, the Company made significant
investments in upgrading internal systems.
11
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
Net cash provided by financing activities was $19,365 in the nine months ended
September 30, 1997, compared to $573 in the comparable 1996 period. The 1997
period reflects net proceeds from the initial public offering of $22,620
partially offset by the repayment of the Company's line of credit. Cash provided
by financing activities for the nine months ended September 30, 1996 related
primarily to the issuance of common and preferred stock which raised $476 and
net repayments of $212.
The Company believes its cash balances, cash generated from operations and
borrowings available under its line of credit will satisfy the Company's working
capital and capital expenditure requirements for at least the next 12 months. In
the longer term, the Company may require additional sources of liquidity to fund
future growth. Such sources of liquidity may include additional equity offerings
or debt financings. In the normal course of business, the Company evaluates
acquisitions of businesses, products and technologies that complement the
Company's business. The Company has not executed any agreements with respect to
any such transaction, except as provided in the following sentence. In September
the Company signed a letter of intent to acquire the assets of Kb Systems, Inc.,
a software company that develops and licenses property appraisal, assessment and
tax collection software applications to state and local governments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
12
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal course of
business, as both a claimant and a defendant. While it is not possible to
determine with certainty the outcome of these matters, in the opinion of
management, the eventual resolution of these claims and actions outstanding will
not have a material adverse effect on the Company's financial position or
operating results.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
In September the Company signed a letter of intent to acquire the assets of Kb
Systems, Inc. ("Kb"), a software company that develops and licenses property
appraisal, assessment and tax collection software applications to state and
local governments. For its fiscal year ended June 30, 1997, Kb had total
revenues of approximately $1.4 million. The transaction is expected to be
finalized in the fourth quarter, subject to completion of due diligence and the
execution of a definitive purchase agreement.
The Company's common stock is listed on the NASDAQ National Market under the
symbol "HTEI." Trading in the stock began on June 11, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NUMBER NAME
--------- -----------------------------------------------
27.0 Financial Data Schedule (submitted only in
electronic format)
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by H.T.E., Inc. during the quarter ended
September 30, 1997.
13
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H.T.E., INC.
Date: November 14, 1997
/S/ DENNIS J. HARWARD
----------------------------------
Dennis J. Harward
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER AND DIRECTOR (PRINCIPAL
EXECUTIVE OFFICER)
/S/ L.A. GORNTO, JR.
----------------------------------
L.A. Gornto, Jr.
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
/S/ SUSAN D. FALOTICO
----------------------------------
Susan D. Falotico
VICE PRESIDENT, CONTROLLER AND
CHIEF ACCOUNTING OFFICER (CHIEF
ACCOUNTING OFFICER)
14
<PAGE>
EXHIBIT INDEX
NUMBER NAME
--------- ------------------------------------------------
27.0 Financial Data Schedule (submitted only in
electronic format)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,890
<SECURITIES> 0
<RECEIVABLES> 18,199
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,362
<PP&E> 2,080
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,908
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0
0
<COMMON> 77
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<TOTAL-LIABILITY-AND-EQUITY> 47,908
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<CGS> 0
<TOTAL-COSTS> 34,391
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> 3,749
<INCOME-TAX> 1,442
<INCOME-CONTINUING> 2,307
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<NET-INCOME> 2,307
<EPS-PRIMARY> .35
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