<PAGE> 1
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, 1998
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: 0-22657
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 OCTOBER 30, 1998
----- ----------------------------------
Common stock
Par value $.01 per share 16,876,254
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,778 $ 18,634
Restricted cash - 1,574
Trade accounts receivable, net 38,323 22,822
Deferred income taxes 755 751
Other current assets 3,971 1,405
------------ ------------
Total current assets 50,827 45,186
------------ ------------
COMPUTER EQUIPMENT, FURNITURE AND
FIXTURES, net 4,266 3,257
------------ ------------
OTHER ASSETS
Computer software development costs, net 6,331 4,297
Other intangible assets 2,684 1,271
Deposits 303 197
------------ ------------
9,318 5,765
------------ ------------
Total assets $ 64,411 $ 54,208
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,069 $ 3,134
Accrued liabilities 4,902 5,235
Deferred revenue 20,094 12,430
------------ ------------
Total current liabilities 27,065 20,799
------------ ------------
LONG-TERM LIABILITIES
Deferred income taxes 2,070 1,731
Due to stockholders - 1,213
Other long-term liabilities 319 173
------------ ------------
Total long-term liabilities 2,389 3,117
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 168 165
Additional paid-in capital 28,309 27,999
Retained earnings 6,527 2,122
Cumulative translation adjustment (47) 6
------------ ------------
Total stockholders' equity 34,957 30,292
------------ ------------
Total liabilities and stockholders' equity $ 64,411 $ 54,208
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 3
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
CONSOLIDATED STATEMENT OF INCOME DATA: 1998 1997 1998 1997
REVENUES: ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Software licenses $ 12,260 $ 6,460 $ 32,061 $ 18,509
Professional services 5,398 3,528 14,852 11,026
Hardware 4,256 2,406 9,733 7,046
Maintenance and other 4,738 3,235 13,100 9,232
Resource management 356 - 1,079 -
----------- ------------ ---------- ----------
Total revenues 27,008 15,629 70,825 45,813
----------- ------------ ---------- ----------
EXPENSES:
Cost of software licenses 2,428 1,651 5,444 3,858
Cost of professional services 3,199 2,055 8,745 6,214
Cost of hardware 3,609 1,932 7,987 5,502
Cost of maintenance and other 2,543 1,402 6,943 4,279
Cost of resource management 215 - 682 -
Research and development 3,307 2,091 9,533 6,155
Sales and marketing 5,012 2,800 13,334 7,933
General and administrative 3,724 2,389 10,550 7,877
Acquisition related - - 237 -
----------- ------------ ---------- ----------
Total operating expenses 24,037 14,320 63,455 41,818
----------- ------------ ---------- ----------
OPERATING INCOME 2,971 1,309 7,370 3,995
INTEREST INCOME, net 41 131 296 5
----------- ------------ ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,012 1,440 7,666 4,000
TAXES:
Deferred tax provision related to acquisitions - - 339 -
Provision for income taxes 1,157 639 2,963 1,442
----------- ------------ ---------- ----------
NET INCOME 1,855 801 4,364 2,558
ACCRETION AND ACCRUAL OF DIVIDENDS ON MANDATORILY
REDEEMABLE PREFERRED STOCK - - - (1,308)
----------- ------------ ---------- ----------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS 1,855 801 4,364 1,250
Foreign currency translation adjustments (13) 10 (52) 7
----------- ------------ ---------- ----------
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 1,842 $ 811 $ 4,312 $ 1,257
=========== ============ ========== ==========
PRO FORMA INCOME DATA:
INCOME BEFORE PROVISION FOR INCOME TAXES 3,012 1,440 7,666 4,000
PRO FORMA PROVISION FOR INCOME TAXES 1,157 534 2,913 1,539
----------- ------------ ---------- ----------
PRO FORMA NET INCOME $ 1,855 $ 906 $ 4,753 $ 2,461
=========== ============ ========== ==========
PER SHARE DATA:
NET INCOME PER SHARE (PRO FORMA FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997)
Basic $ 0.11 $ 0.05 $ 0.26 $ 0.19
=========== =========== ========== ==========
Diluted $ 0.11 $ 0.05 $ 0.25 $ 0.18
=========== =========== ========== ==========
PRO FORMA NET INCOME PER SHARE, AS ADJUSTED FOR PRO
FORMA PROVISION FOR INCOME TAXES
Basic $ 0.11 $ 0.06 $ 0.28 $ 0.18
=========== =========== ========== ==========
Diluted $ 0.11 $ 0.05 $ 0.27 $ 0.18
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 4
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,364 $ 2,558
Adjustments to reconcile net income to net cash (used in)
provided by operating activities--
Depreciation and amortization 3,419 2,468
Accretion of mandatorily redeemable Class C common stock
charged to interest expense - 19
Compensation due to sale of stock - 65
Deferred income taxes 338 (83)
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net (15,067) (1,749)
Other current assets (2,713) (864)
Deposits (106) (67)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (1,398) (1,358)
Deferred revenue 7,363 2,583
Other liabilities 146 57
---------- ----------
Net cash (used in) provided by operating activities (3,654) 3,629
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,826) (1,007)
Decrease in restricted cash 1,574 -
Computer software development costs (3,799) (1,858)
Cash paid for acquisitions (2,197) -
---------- ----------
Net cash used in investing activities (6,248) (2,865)
---------- ----------
</TABLE>
<PAGE> 5
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Net proceeds from issuance of common stock 312 22,620
Net repayment under line of credit - (2,306)
Payment of dividends on preferred stock - (624)
Repayments of notes payable to related parties - (300)
Repayments under obligations of capital leases - (25)
Change in due to stockholders (1,213) 19
--------- ----------
Net cash (used in) provided by financing activities (901) 19,384
--------- ----------
Effect of foreign currency exchange rate changes on cash and
cash equivalents (53) 7
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(10,856) 20,155
CASH AND CASH EQUIVALENTS, beginning of period 18,634 1,038
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 7,778 $ 21,193
========== ==========
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 31 $ 159
Cash paid for income taxes 3,952 1,245
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The consolidated financial statements included herein have been prepared by
H.T.E., Inc. (HTE), 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 December 31, 1997, and the notes thereto, included in the
Company's Form 10-K (File No. 0-22657) and the Company's financial statements,
and the notes thereto, included in the Company's Current Report filed on Form
8-K on August 19, 1998.
The unaudited 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.
The accompanying consolidated financial statements include the accounts of HTE,
a Florida corporation, and its wholly owned subsidiaries, Bellamy Software Ltd.
(Bellamy), a Canadian corporation, HTE-Kb Systems, Inc. (Kb Systems), a Florida
corporation, HTE-Jalan, Inc. (Jalan), a Florida corporation, HTE-Phoenix
Systems, L.L.C. (Phoenix), a Connecticut limited liability company, HTE-UCS,
Inc. (UCS), a Florida corporation, and HTE-Vanguard Systems, Inc., a Florida
corporation (collectively, the Company). HTE develops, markets, implements and
supports fully-integrated enterprise-wide software applications designed
specifically for public sector and utility organizations, including state,
county and city governments, other municipal agencies, and publicly and
privately owned utilities. The Company is also engaged in remarketing IBM
hardware systems to run in concert with their application software. The effect
of the Company's foreign operations on the accompanying consolidated financial
statements was not material. On June 1, 1998, the Company, through its
wholly-owned subsidiary HTE-UCS, Inc., purchased privately held UCS, Inc., in
exchange for 1,120,000 shares of the Company's common stock valued at
approximately $15 million as of the April 1998 agreement valuation date. UCS,
Inc. is a mobile work force automation provider of field-based reporting
software. The acquisition has been accounted for as a pooling of interests.
Therefore, the accompanying consolidated financial statements include the
results of operations of UCS, Inc. for all periods presented.
1. INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On June 16, 1997, the Company successfully completed its initial public
offering of common stock. Of the 5,000,000 shares of common stock sold,
3,900,000 were sold by HTE and 1,100,000 were sold by certain selling
shareholders. The Company sold the 3,900,000 shares of common stock for $19,056
net of issuance costs of $2,394. In July, the underwriters exercised their
option to purchase 750,000 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 mandatorily redeemable preferred stock, mandatorily
redeemable Class C common stock and Class A common stock were split 53-for-one
and exchanged simultaneously on a two-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 mandatorily redeemable preferred stock.
The mandatorily redeemable preferred stock, mandatorily redeemable Class C
common stock, Class A common stock and Class B common stock were then canceled,
retired and eliminated from the shares the Company is authorized to issue.
<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
1. INITIAL PUBLIC OFFERING AND RECAPITALIZATION (CONTINUED)
Effective June 18, 1998, the Company effected a two-for-one stock split, which
has been applied retroactively in the accompanying consolidated financial
statements. In connection with the stock split, the Company also increased the
number of authorized shares of common stock to 50 million.
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
Basic and diluted weighted average shares outstanding were as follows (amounts
in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Basic weighted-average shares outstanding
(pro forma for nine months ended
September 30, 1997) 16,819 16,293 16,724 13,586
Common shares applicable to stock options
using the treasury stock method 777 393 736 334
-------- ---------- --------- ---------
Diluted weighted average shares outstanding (pro
forma for nine months ended September 30,
1997) 17,596 16,686 17,460 13,920
======== ========== ========= =========
</TABLE>
The pro forma basic and diluted weighted-average shares outstanding for the
nine months ended September 30, 1997, assume the conversion of the mandatorily
redeemable preferred stock and the mandatorily redeemable Class C common stock
into Class A common stock as of the date such stock was first issued. Common
share equivalents included in the diluted calculation 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.
For the nine months ended September 30, 1997, pro forma net income per share is
determined by dividing net income, 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 pro forma weighted-average number of shares
outstanding during the period. Pro forma net income per share, as adjusted for
pro forma provision for income taxes, is determined by dividing pro forma net
income determined above, as further adjusted for the effects of the pro forma
provision for income taxes, by the pro forma weighted-average number of shares
outstanding during the period.
<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
3. EARNINGS PER SHARE (CONTINUED)
All share and per share information in the consolidated financial statements
have been adjusted to give effect to the 53-for-one stock split and par value
restatement (related to the Company's mandatorily redeemable preferred stock,
mandatorily redeemable Class C common stock and Class A common stock), which
was effective on June 10, 1997. Additionally, the share and per share
information in the consolidated financial statements have been further adjusted
to give effect to the two-for-one common stock split which was effective on
June 18, 1998.
4. BUSINESS COMBINATIONS
PURCHASES
During the year ended December 31, 1997, the Company created Kb Systems as a
wholly owned subsidiary. In December 1997, Kb Systems purchased the net assets
of Kb Systems, Inc. for $400 in cash. The assets purchased consisted
principally of purchased software and other intangible assets. As part of the
purchase, the Company also assumed various customer service liabilities.
Additionally, the Company entered into a royalty agreement with Kb Systems,
Inc. for a period of five years. The Company was granted offset rights against
royalty payments due under this agreement. This acquisition was accounted for
as a purchase in the accompanying consolidated financial statements.
In January 1998, the Company purchased the net assets of JALAN, Inc. for
$1,723. The assets purchased consisted of equipment, furniture and fixtures and
purchased software. As part of the purchase, HTE also assumed various customer
service liabilities. Additionally, the Company entered into a consulting
agreement with the former owners of JALAN, Inc. This acquisition was accounted
for as a purchase in the accompanying consolidated financial statements.
In August 1998, the Company created HTE-Vanguard Systems, Inc., a wholly owned
subsidiary, which purchased the net assets of Vanguard Management and
Information Systems, Inc. (Vanguard) for $400 in cash. The assets purchased
consisted of accounts receivable, equipment, furniture and fixtures, purchased
software and other intangible assets. As part of the purchase agreement, the
Company also assumed various customer service liabilities. Additionally, the
Company entered into a royalty agreement with Vanguard for approximately 5
years and was granted offset rights for royalties due under this agreement.
This acquisition was accounted for as a purchase in the accompanying
consolidated financial statements.
Revenues, net income and earnings per share presented on a pro forma basis, as
if the acquisitions had occurred at the beginning of each period presented, are
as follows (unaudited):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 27,111 $ 16,312 $ 71,236 $ 49,074
Net income 1,897 586 4,531 2,863
Basic earnings per share $ 0.11 $ 0.04 $ 0.27 $ 0.21
Diluted earnings per share $ 0.11 $ 0.04 $ 0.26 $ 0.21
</TABLE>
<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
4. BUSINESS COMBINATIONS (CONTINUED)
POOLING-OF-INTERESTS
On April 1, 1998, the Company purchased privately held Phoenix Systems, LLC
(Phoenix), in exchange for 272,036 shares of the Company's common stock valued
at approximately $3 million on or about the closing date. Phoenix provides a
suite of integrated software products targeted towards school districts
(kindergarten through 12th grade). The acquisition was accounted for as a
pooling-of-interests, although the Company did not restate the results of prior
periods due to the financial immateriality of Phoenix's historical operations.
In connection with the acquisitions of UCS, Inc. (described in Note 1) and
Phoenix, the Company recorded a non-recurring deferred income tax charge of
$339 during the three months ended June 30, 1998. This provision recorded the
deferred tax liability of UCS, Inc. and Phoenix due to changes in tax status on
the acquisition dates for federal income tax reporting purposes.
5. SUBSEQUENT EVENTS
On October 15, 1998, the Company announced the termination of its planned
underwritten offering. As a result, costs related to the offering of
approximately $342, which have been capitalized as of September 30, 1998, will
be charged to operations in the fourth quarter of 1998.
In October 1998, the Company signed an agreement with SunTrust Bank for a
revolving line of credit of $15,000. This line of credit bears interest at
LIBOR plus 1.7 percent and extends through June 30, 2000, at which time the
entire unpaid principal balance and any accrued interest is payable in full.
The line of credit is collateralized by the Company's assets, including , but
not limited to, accounts receivable, general intangibles, inventory and
equipment, and requires the Company to maintain certain financial ratios.
<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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.
Discussions 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,
1998 and September 30, 1997," "Comparison of Nine Months Ended September 30,
1998 and September 30, 1997," and "Liquidity and Capital Resources." These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control, and actual results for future periods
could differ materially from those discussed in this section depending on a
variety of important factors, among which are the level of acquisition
opportunities available to the Company and the Company's ability to price and
negotiate such transactions on a favorable basis, the ability of the Company to
properly manage growth and successfully integrate acquired companies and
operations, the ability of the Company to respond to technological changes for
enhancement of existing products and development of new products, changes in
budgetary and regulatory conditions in the Company's public sector customers,
demand for the Company's products and changes in the competitive and economic
environment generally. A comprehensive summary of these and other risks and
uncertainties can be found in the Company's filings with the Securities and
Exchange Commission from time to time, including the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-22657).
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,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
REVENUES
Software licenses 45.4% 41.3% 45.3% 40.4%
Professional services 20.0 22.6 21.0 24.1
Hardware 15.8 15.4 13.7 15.4
Maintenance and other 17.5 20.7 18.5 20.1
Resource management 1.3 - 1.5 -
------- ------- ------- -----
Total revenues 100.0 100.0 100.0 100.0
------- ------- ------- -----
EXPENSES
Cost of software licenses 9.0 10.6 7.7 8.4
Cost of professional services 11.8 13.1 12.3 13.6
Cost of hardware 13.4 12.3 11.3 12.0
Cost of maintenance and other 9.4 9.0 9.8 9.4
Cost of resource management 0.8 - 1.0 -
Research and development 12.2 13.4 13.5 13.4
Sales and marketing 18.6 17.9 18.8 17.3
General and administrative 13.8 15.3 14.9 17.2
Acquisition related - - 0.3 -
------- ------- ------- -----
Total operating expenses 89.0 91.6 89.6 91.3
------- ------- ------- -----
OPERATING INCOME 11.0 8.4 10.4 8.7
INTEREST INCOME, net 0.2 0.8 0.4 -
------- ------- ------- -----
INCOME BEFORE PROVISION FOR INCOME TAXES
11.2 9.2 10.8 8.7
TAXES
Deferred tax provision related to acquisitions - - 0.5 -
Provision for income taxes 4.3 4.1 4.2 3.1
------- ------- ------- -----
NET INCOME 6.9% 5.1% 6.1% 5.6%
------- ------- ------- -----
</TABLE>
<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
Comparison of Three Months Ended September 30, 1998 and September 30, 1997
(Amounts in thousands)
Revenues
The Company's total revenues increased by 73% to $27,008 for the three
months ended September 30, 1998, from $15,629 for the three months ended
September 30, 1997.
Software License Revenues. Revenues from software licenses increased 90% to
$12,260 for the three months ended September 30, 1998, from $6,460 for the
three months ended September 30, 1997. As a percentage of total revenues,
software license revenues increased to 45.4% for the three months ended
September 30, 1998, from 41.3% for the three months ended September 30, 1997.
The dollar and percentage increases resulted primarily from an increased number
of applications available for sale and an increased investment in sales and
marketing.
Professional Services Revenues. Revenues from professional services
increased 53% to $5,398 for the three months ended September 30, 1998, from
$3,528 for the three months ended September 30, 1997. As a percentage of total
revenues, professional services revenues decreased to 20.0% for the three
months ended September 30, 1998, from 22.6% for the three months ended
September 30, 1997. The dollar increase in professional services was directly
related to the growth in staff and related revenue stemming from the increase
in license fees and service offerings. The decrease in professional services
revenues as a percentage of total revenues was primarily due to changes in the
mix of products, along with an increased backlog of services revenue associated
with license fee bookings.
Hardware Revenues. Hardware revenues increased 77% to $4,256 for the three
months ended September 30, 1998, from $2,406 for the three months ended
September 30, 1997. As a percentage of total revenues, hardware revenues
increased to 15.8% for the three months ended September 30, 1998, from 15.4%
for the three months ended September 30, 1997. The dollar and percentage
increases were primarily due to a larger number of sales of software licenses
to customers who required additional hardware.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 46% to $4,738 for the three months ended September 30, 1998, from
$3,235 for the three months ended September 30, 1997. As a percentage of total
revenues, maintenance and other revenues decreased to 17.5% for the three
months ended September 30, 1998, from 20.7% for the three months ended
September 30, 1997. The dollar increase was primarily due to maintenance
contracts associated with new software licenses, customer system upgrades and
price increases in the fees charged for annual maintenance. The decrease in
maintenance and other revenues as a percentage of total revenues was primarily
due to the growth of software license revenues exceeding the growth of the
maintenance backlog, which is recognized ratably over the maintenance term.
Resource Management Revenues. Revenues from resource management were $356 or
1.3% of total revenue for the three months ended September 30, 1998. There were
no comparable revenues for the three months ended September 30, 1997 as this
division began operations in the fourth quarter of 1997.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses includes
third-party royalties and amortization of computer software development costs.
Cost of software licenses increased by 47% to $2,428 for the three months ended
September 30, 1998, compared to $1,651 for the three months ended September 30,
1997. As a percentage of software license revenues, cost of software licenses
decreased to 19.8% for the three months ended September 30, 1998, from 25.6%
for the three months ended September 30, 1997. The dollar increase resulted
primarily from an increased number of third party software licenses,
specifically module enhancements such as report writers and imaging products.
The decrease in the cost of software licenses as a percentage of software
license revenues was primarily due to the mix of third party to internal HTE
software licensed, as the growth of internal software licenses exceeded the
growth of third party software licenses.
<PAGE> 12
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
Cost of Professional Services Revenues. Cost of professional services
consists primarily of personnel costs and other costs related to the services
business. Cost of professional services increased 56% to $3,199 for the three
months ended September 30, 1998, from $2,055 for the three months ended
September 30, 1997. As a percentage of professional services revenues, cost of
professional services increased to 59.3% for the three months ended September
30, 1998, from 58.2% for the three months ended September 30, 1997. The dollar
increase was directly related to increased professional services revenues and
expanded offerings of full service professional services. The increase in the
cost of professional services as a percentage of professional services revenues
was primarily due to lower utilization rates resulting from an increased number
of non-billable consultants in training.
Cost of Hardware Revenues. Cost of hardware consists primarily of costs
payable to vendors for hardware. Cost of hardware increased 87% to $3,609 for
the three months ended September 30, 1998, from $1,932 for the three months
ended September 30, 1997. As a percentage of hardware revenues, cost of
hardware increased to 84.8% for the three months ended September 30, 1998, from
80.3% for the three months ended September 30, 1997. The dollar increase was
related to the increased hardware sales and the mix of equipment sold. The
increase in the cost of hardware as a percentage of hardware revenues was
primarily due to the higher volume and smaller size of new contracts signed.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
consists primarily of 7 days a week, 24 hours a day telephone support,
documentation and related administrative and personnel expenses. Cost of
maintenance and other increased 81% to 2,543 for the three months ended
September 30, 1998, from $1,402 for the three months ended September 30, 1997.
As a percentage of maintenance and other revenues, cost of maintenance and
other increased to 53.7% for the three months ended September 30, 1998, from
43.3% for the three months ended September 30, 1997. The dollar and percentage
increases were primarily due to investment in a new customer interaction
software system and increased personnel to enhance products and support a
larger client base.
Cost of Resource Management Revenues. Cost of resource management was $215
or 60.4% of resource management revenues for the three months ended September
30, 1998. There were no comparable costs for the three months ended September
30, 1997, as this division began operations in the fourth quarter of 1997.
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 increased 58% to $3,307 for the three months ended September 30, 1998,
from $2,091 for the three months ended September 30, 1997. As a percentage of
total revenues, research and development decreased to 12.2% for the three
months ended September 30, 1998, from 13.4% for the three months ended
September 30, 1997. The dollar increase was primarily due to increased staffing
levels and expenses for additional software and hardware required for the
development of additional products and platforms. The decrease in research and
development expenses as a percentage of total revenues was primarily due to
revenues growing at a faster rate than research and development expenditures.
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 increased 79% to $5,012 for the three months ended September 30, 1998,
from $2,800 for the three months ended September 30, 1997. As a percentage of
total revenues, sales and marketing increased to 18.6% for the three months
ended September 30, 1998, from 17.9% for the three months ended September 30,
1997. The dollar and percentage increases were attributable to the Company's
continued expansion of its direct sales force, increased marketing efforts,
travel and other expenses related to increased sales activity.
<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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 increased 56% to $3,724 for the three months ended
September 30, 1998, from $2,389 for the three months ended September 30, 1997.
As a percentage of total revenues, general and administrative expenses decreased
to 13.8% for the three months ended September 30, 1998, from 15.3% for the three
months ended September 30, 1997. The dollar increase 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. The decrease in general and administrative expenses as a percentage of
total revenues was primarily due to leveraging of existing resources.
Comparison of Nine Months Ended September 30, 1998 and September 30, 1997
(Amounts in thousands)
Revenues
The Company's total revenues increased by 55% to $70,825 for the nine months
ended September 30, 1998, from $45,813 for the nine months ended September 30,
1997.
Software License Revenues. Revenues from software licenses increased 73% to
$32,061 for the nine months ended September 30, 1998, from $18,509 for the nine
months ended September 30, 1997. As a percentage of total revenues, software
license revenues increased to 45.3% for the nine months ended September 30,
1998, from 40.4% for the nine months ended September 30, 1997. The dollar and
percentage increases resulted primarily from an increased number of
applications available for sale and an increased investment in sales and
marketing.
Professional Services Revenues. Revenues from professional services
increased 35% to $14,852 for the nine months ended September 30, 1998, from
$11,026 for the nine months ended September 30, 1997. As a percentage of total
revenues, professional services revenues decreased to 21.0% for the nine months
ended September 30, 1998, from 24.1% for the nine months ended September 30,
1997. The dollar increase in professional services was directly related to the
growth in staff and related revenue stemming from the increase in license fees
and service offerings. The decrease in professional services revenues as a
percentage of total revenues was primarily due to changes in the mix of
products, along with an increased backlog of services revenue associated with
license fee bookings.
Hardware Revenues. Hardware revenues increased 38% to $9,733 for the nine
months ended September 30, 1998, from $7,046 for the nine months ended
September 30, 1997. As a percentage of total revenues, hardware revenues
decreased to 13.7% for the nine months ended September 30, 1998, from 15.4% for
the nine months ended September 30, 1997. The dollar increase was primarily due
to the increased number of license fee contracts executed that require the
installation of hardware. The decrease in hardware revenue as a percentage of
total revenue was primarily due to stronger growth in software license
revenues.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 42% to $13,100 for the nine months ended September 30, 1998, from
$9,232 for the nine months ended September 30, 1997. As a percentage of total
revenues, maintenance and other revenues decreased to 18.5% for the nine months
ended September 30, 1998, from 20.1% for the nine months ended September 30,
1997. The dollar increase was primarily due to maintenance contracts associated
with new software licenses, customer system upgrades and price increases in the
fees charged for annual maintenance. The decrease in maintenance and other
revenues as a percentage of total revenues was primarily due to the growth of
software license revenues exceeding the growth of the maintenance backlog,
which is recognized ratably over the maintenance term.
<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
Resource Management Revenues. Revenues from resource management were $1,079
or 1.5% of total revenues for the nine months ended September 30, 1998. There
were no comparable revenues for the nine months ended September 30, 1997 as
this division began operations in the fourth quarter of 1997.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses increased by
41% to $5,444 for the nine months ended September 30, 1998, compared to $3,858
for the nine months ended September 30, 1997. As a percentage of software
license revenues, cost of software licenses decreased to 17.0% for the nine
months ended September 30, 1998, from 20.8% for the nine months ended September
30, 1997. The dollar increase resulted primarily from an increased number of
third party software licenses, specifically module enhancements such as report
writers and imaging products. The decrease in the cost of software licenses as
a percentage of software license revenues was primarily due to the mix of third
party to internal HTE software licensed, as the growth of internal software
licenses exceeded the growth of third party software licenses.
Cost of Professional Services Revenues. Cost of professional services
increased 41% to $8,745 for the nine months ended September 30, 1998, from
$6,214 for the nine months ended September 30, 1997. As a percentage of
professional services revenues, cost of professional services increased to
58.9% for the nine months ended September 30, 1998, from 56.4% for the nine
months ended September 30, 1997. The dollar increase was directly related to
increased professional service revenues and expanded offerings of full service
professional services. The increase in the cost of professional services as a
percentage of professional services revenues was primarily due to lower
utilization rates resulting from an increased number of non-billable
consultants in training.
Cost of Hardware Revenues. Cost of hardware increased 45% to $7,987 for the
nine months ended September 30, 1998, from $5,502 for the nine months ended
September 30, 1997. As a percentage of hardware revenues, cost of hardware
increased to 82.1% for the nine months ended September 30, 1998, from 78.1% for
the nine months ended September 30, 1997. The dollar increase was related to
the increased hardware sales and the mix of equipment sold. The increase in the
cost of hardware as a percentage of hardware revenue was primarily due to the
higher volume and smaller size of new contracts signed.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
increased 62% to $6,943 for the nine months ended September 30, 1998, from
$4,279 for the nine months ended September 30, 1997. As a percentage of
maintenance and other revenues, cost of maintenance and other increased to
53.0% for the nine months ended September 30, 1998, from 46.3% for the nine
months ended September 30, 1997. The dollar and percentage increases were
primarily due to investment in a new customer interaction software system and
increased personnel to enhance products and support a larger client base.
Cost of Resource Management Revenues. Cost of resource management was $682
or 63.2% of resource management revenues for the nine months ended September
30, 1998. There were no comparable costs for the nine months ended September
30, 1997, as this division began operations in the fourth quarter of 1997.
Research and Development Expenses. Research and development expenses
increased 55% to $9,533 for the nine months ended September 30, 1998, from
$6,155 for the nine months ended September 30, 1997. As a percentage of total
revenues, research and development increased to 13.5% for the nine months ended
September 30, 1998, from 13.4% for the nine months ended September 30, 1997.
The dollar increase was primarily due to increased staffing levels and expenses
for additional software and hardware required for the development of additional
products and platforms. The percentage remained relatively unchanged for the
period.
<PAGE> 15
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
Sales and Marketing Expenses. Sales and marketing expenses increased 68% to
$13,334 for the nine months ended September 30, 1998, from $7,933 for the nine
months ended September 30, 1997. As a percentage of total revenues, sales and
marketing increased to 18.8% for the nine months ended September 30, 1998, from
17.3% for the nine months ended September 30, 1997. The dollar and percentage
increases were 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
increased 34% to $10,550 for the nine months ended September 30, 1998, from
$7,877 for the nine months ended September 30, 1997. As a percentage of total
revenues, general and administrative expenses decreased to 14.9% for the nine
months ended September 30, 1998, from 17.2% for the nine months ended September
30, 1997. The dollar increase 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. The
decrease in general and administrative expenses as a percentage of total
revenue was primarily due to leveraging of existing resources.
Acquisition Expenses. Acquisition expenses include the non-recurring charges
related to the acquisitions of Phoenix Systems, L.L.C. and UCS, Inc., which
both occurred in the nine months ended September 30, 1998. These expenses were
$237 or 0.3% of total revenues for the nine months ended September 30, 1998.
There were no comparable expenses in the nine months ended September 30, 1997.
Taxes. The Company's income taxes have been recorded on a quarterly basis
based on the Company's anticipated annual tax rate. However, during the nine
months ended September 30, 1998, the Company recorded a non-recurring deferred
income tax charge of $339 in connection with the acquisitions of UCS, Inc. and
Phoenix Systems, L.L.C. This provision recorded the deferred tax liability of
UCS, Inc. and Phoenix due to changes in tax status on the acquisition dates for
federal income tax reporting purposes.
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. In 1997, the
Company implemented a new sales and marketing program and, to conform to
industry standards, changed its fiscal year end to December 31, which the
Company believes will moderate such fluctuations. Because of these changes, 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.
<PAGE> 16
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
YEAR 2000 COMPLIANCE
Risks Associated with the Year 2000. Many currently installed 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, As a result, in less
than two years, computer systems and software used by many companies will need
to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. There are several aspects to the Year 2000
issues as follows:
Impact on Revenue. The Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues in a
variety of ways. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software
products such as those offered by the Company. Conversely, Year 2000 issues may
cause other companies to accelerate purchases of software to replace non-Year
2000 compliant applications, causing a short-term increase in demand for the
Company's products. There is no assurance that such increase in demand will be
realized. Either of the foregoing could have a material adverse effect upon the
Company's business, operating results and financial condition.
Year 2000 Compliance. The Company believes that the current versions of its
products are Year 2000 compliant. The Company regularly runs regression tests
on its software, including tests of the Year 2000 rollover. Based on the above,
it is not expected that the Company's products will be adversely affected by
date changes in the year 2000. However, there can be no assurance that the
Company's products contain and will contain all features and functionality
considered necessary by customers, distributors, resellers and systems
integrators to be Year 2000 compliant. Notwithstanding the fact that the
Company regularly provides free software upgrades to its customers and the fact
that these newer upgrades are Year 2000 compliant, certain customers of the
Company may still be running earlier, non-compliant versions of the Company's
products. The Company is in the process of informing customers of the need to
migrate to current products that management believes are Year 2000 compliant.
The Company anticipates that generally throughout the software industry
substantial litigation may be brought against software vendors of non-compliant
operating environments. The Company believes that any such claims against the
Company, with or without merit, could have a material adverse effect on the
Company's business, operating results and financial condition.
Internal Systems. The Company has also reviewed its internal systems for
Year 2000 compliance and is in the process of upgrading to Year 2000 compliant
versions from third party software vendors, modifying certain systems, and
planning to replace certain systems with new third party software, which the
Company expects to complete prior to January 1, 2000. In addition to making its
own systems Year 2000 ready, the Company has also begun to contact its key
suppliers and vendors to determine the extent to which the systems of such
suppliers and vendors are Year 2000 compliant and the extent to which the
Company could be affected by the failure of such third parties to be Year 2000
compliant. The Company has appointed its Manager of Quality Assurance to
oversee all activities associated with Year 2000 compliance issues. A standing
committee meets on a monthly basis to review appropriate activities. Management
does not believe that the cost to bring its software products and internal
systems into Year 2000 compliance will have a material adverse effect on the
Company's results of operations or financial condition. However, delays in
upgrading some systems to Year 2000 compliance, or a failure to fully identify
all Year 2000 dependencies in the Company's systems and in the systems of its
suppliers, vendors, and financial institutions could have material adverse
consequences, including delays in the delivery or sale of products.
<PAGE> 17
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
Expenses Related to Year 2000 Compliance. The Company has not incurred
significant expense in becoming Year 2000 compliant as this has been achieved
as a part of regular upgrades to its internal operating systems. Future costs
related to Year 2000 compliance are not expected to have a material adverse
effect on the Company's results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities totaled $3,654 in the nine months ended
September 30, 1998, compared to cash provided of $3,629 in the comparable 1997
period. The decrease in cash provided by operating activities is primarily due
to an increase in accounts receivable partially offset by an increase in
deferred revenue, resulting primarily from growth in both the size and volume
of contracts in 1998.
Cash used in investing activities (capital expenditures, software development
investments and acquisitions) totaled $6,248 and $2,865 during the nine months
ended September 30, 1998 and 1997, respectively. The Company acquired JALAN,
Inc. and Vanguard Management and Information Systems, Inc. in 1998.
Additionally, capital expenditures were primarily comprised of the Company's
investments in equipment and related software development costs. The Company
also made significant investments in upgrading internal systems.
Net cash used in financing activities was $901 in the nine months ended
September 30, 1998, compared to cash provided of $19,384 during the nine months
ended September 30, 1997. The 1998 period reflects the payment of the amounts
due to stockholders related to the UCS acquisition, partially offset by the
proceeds from the sale of stock in conjunction with the Company's employee
stock purchase plan. The 1997 period reflects the net proceeds from the initial
public offering, offset partially by the repayment of the line of credit and
payment of dividends on the mandatorily redeemable preferred stock. In October
1998, the Company executed an agreement with SunTrust Bank for a revolving line
of credit of $15,000.
The Company believes its cash balances 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. In December
1997, the Company purchased the net assets of Kb Systems, Inc. for $400. On
January 1, 1998, the Company purchased the net assets of JALAN, Inc. for
$1,723. On April 1, 1998, the Company acquired Phoenix Systems, L.L.C. by
issuing 272,036 shares of common stock valued at $3,000 on or about the closing
date. On June 1, 1998, the Company acquired UCS, Inc. by issuing 1,120,000
shares of common stock valued at $15,000 as of the April 1998 agreement
valuation date. Both the Phoenix Systems, L.L.C. and UCS, Inc. acquisitions
were accounted for as pooling-of-interests. On August 31, 1998, the Company
purchased the net assets of Vanguard Management and Information Systems, Inc.
for $400.
<PAGE> 18
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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 AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) During the nine months ended September 30, 1998, the Company continued to
use the net proceeds of the initial public offering for working capital
purposes and investments which totaled $3,654 and $6,248 respectively.
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
A current report on Form 8-K and amendment thereto were filed by H.T.E.,
Inc. on June 12, 1998 and June 24, 1998, respectively. A current report on
Form 8-K was filed on August 19, 1998.
<PAGE> 19
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 10, 1998
/s/ DENNIS J. HARWARD
---------------------------------------
Dennis J. Harward
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND DIRECTOR (PRINCIPAL EXECUTIVE
OFFICER)
/s/ SUSAN D. FALOTICO
---------------------------------------
Susan D. Falotico
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
<PAGE> 20
EXHIBIT INDEX
Number Name
------------ ------------------------------------------------------
27.0 Financial Data Schedule (for SEC use only)
<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,
1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,778
<SECURITIES> 0
<RECEIVABLES> 38,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,827
<PP&E> 4,266
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,411
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0
<COMMON> 168
<OTHER-SE> 34,789
<TOTAL-LIABILITY-AND-EQUITY> 64,411
<SALES> 0
<TOTAL-REVENUES> 70,825
<CGS> 0
<TOTAL-COSTS> 63,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (296)
<INCOME-PRETAX> 7,666
<INCOME-TAX> 3,302
<INCOME-CONTINUING> 4,364
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