<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 MARCH 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
______________
Commission File No: 0-22657
H.T.E., INC.
------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2133858
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(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.
<TABLE>
<CAPTION>
Class OUTSTANDING AS OF APRIL 30, 1999
----- --------------------------------
<S> <C>
Common stock
Par value $.01 per share 17,165,140
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,064 $ 7,553
Trade accounts receivable, net 40,612 40,635
Income tax receivable 3,255 3,050
Deferred income taxes 485 485
Other current assets 4,322 4,347
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Total current assets 51,738 56,070
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COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net 4,288 4,587
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OTHER ASSETS:
Computer software development costs, net 6,663 6,393
Other intangible assets 2,224 2,498
Deposits 289 283
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Total other assets 9,176 9,174
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$65,202 $69,831
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 8,265 $11,829
Deferred revenue 20,722 22,163
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Total current liabilities 28,987 33,992
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LONG-TERM LIABILITIES:
Deferred income taxes 2,515 2,515
Other long-term liabilities 434 385
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Total long-term liabilities 2,949 2,900
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STOCKHOLDERS' EQUITY:
Common stock 172 170
Additional paid-in capital 30,307 29,661
Retained earnings 2,823 3,144
Cumulative translation adjustment (36) (36)
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Total stockholders' equity 33,266 32,939
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$65,202 $69,831
======= =======
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<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 MARCH 31,
1999 1998
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<S> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
REVENUES:
Software licenses $ 8,569 $ 8,559
Professional services 7,573 4,313
Hardware 4,045 2,613
Maintenance and other 5,562 4,094
Resource management 433 361
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Total revenues 26,182 19,940
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EXPENSES:
Cost of software licenses 1,848 1,309
Cost of professional services 4,288 2,566
Cost of hardware 3,276 1,946
Cost of maintenance and other 2,313 2,001
Cost of resource management 259 241
Research and development 4,326 2,889
Sales and marketing 4,652 3,638
General and administrative 3,982 3,325
Employee termination benefits and other costs 1,809 --
------- -------
Total expenses 26,753 17,915
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OPERATING INCOME (LOSS) (571) 2,025
INTEREST INCOME, net 45 144
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INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (526) 2,169
PROVISION (BENEFIT) FOR INCOME TAXES (205) 839
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NET INCOME (LOSS) (321) 1,330
Foreign currency translation adjustments -- (22)
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COMPREHENSIVE INCOME (LOSS) $ (321) $ 1,308
======= =======
NET INCOME (LOSS) PER SHARE:
Basic $ (0.02) $ 0.08
======= =======
Diluted $ (0.02) $ 0.08
======= =======
PRO FORMA NET INCOME DATA:
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES $ (526) $ 2,169
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES (205) 820
------- -------
PRO FORMA NET INCOME (LOSS) $ (321) $ 1,349
======= =======
PRO FORMA NET INCOME (LOSS) PER SHARE:
Basic $ (0.02) $ 0.08
======= =======
Diluted $ (0.02) $ 0.08
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
3
<PAGE> 4
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (321) $ 1,330
Adjustments to reconcile net income (loss) to net cash
used in operating activities--
Depreciation and amortization 1,410 1,283
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net 23 (2,951)
Income tax receivable (205) --
Other current assets 25 (713)
Deposits (6) (57)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (3,564) (2,065)
Deferred revenue (1,441) 270
Other liabilities 49 28
------- -------
Net cash used in operating activities (4,030) (2,875)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (103) (666)
Change in restricted cash -- 1,574
Computer software development costs (1,004) (1,115)
Cash paid for acquisitions -- (1,723)
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Net cash used in investing activities (1,107) (1,930)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 648 312
Change in due to stockholders -- (18)
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Net cash provided by financing
activities 648 294
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Effect of foreign currency exchange rate changes on cash
and cash equivalents -- (22)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (4,489) (4,533)
CASH AND CASH EQUIVALENTS, beginning of period 7,553 18,634
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 3,064 $14,101
======= =======
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 4 $ 1
Cash paid for income taxes 23 666
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
4
<PAGE> 5
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(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, 1998, and the notes
thereto, included in the Company's Form 10-K (File No. 0-22657).
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, HTE-Bellamy Ltd.
(Bellamy), a Canadian corporation, HTE-Kb Systems, Inc. (Kb Systems), a Florida
corporation, HTE-Jalan, Inc. (Jalan), a Florida corporation, HTE-Phoenix
Systems, Inc. (Phoenix), a Florida corporation, 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 UCS,
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. LITIGATION AND OTHER CONTINGENCIES
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.
The Company is a party to some contracts, which may result in financial
penalties in the event of non-performance. Management anticipates that these
penalties will not have a material adverse effect on the Company's financial
position or operating results.
5
<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
2. EARNINGS PER SHARE
Basic and diluted weighted average shares outstanding were as follows (amounts
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------ ------
<S> <C> <C>
Basic weighted-average shares outstanding 17,153 16,532
Common shares applicable to stock options using
the treasury stock method -- 652
------ ------
Diluted weighted average shares outstanding 17,153 17,184
====== ======
</TABLE>
Options to purchase approximately 1.9 million shares were outstanding as of
March 31, 1999, but were not included in the computation of diluted earnings
per share because they are antidilutive. All 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.
Pro forma net income has been presented to reflect tax expense based on
statutory rates for a subsidiary included in the consolidated results of
operations that had previously been taxed as a Sub-S corporation.
Pro forma basic net income per share has been calculated by dividing pro forma
net income by the weighted average number of common shares outstanding during
the period. Pro forma diluted net income per share was calculated by dividing
pro forma net income by the sum of the weighted average number of common shares
outstanding plus all additional common shares that would have been outstanding
if potentially dilutive common shares had been issued.
3. BUSINESS COMBINATIONS
PURCHASES
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 $420 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 five
years and was granted offset rights for royalties due under this agreement of
$63. This acquisition was accounted for as a purchase in the accompanying
consolidated financial statements.
6
<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
3. BUSINESS COMBINATIONS (CONTINUED)
Revenues, net income and earnings per share presented for the quarter ended
March 31, 1998, on a pro forma basis, as if the acquisitions had occurred at
the beginning of the quarter, are as follows (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
<S> <C>
Revenues $20,094
Net income 1,368
Basic earnings per share $ 0.08
Diluted earnings per share $ 0.08
</TABLE>
4. OPERATING SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) in 1998. SFAS 131 establishes standards for reporting information about
operating segments. As this statement pertains to disclosure and informational
requirements, it has no impact on the Company's operating results or financial
position. Although the Company has five operating segments, separate segment
data has not been presented as they meet the criteria set forth in SFAS 131 for
aggregation.
5. EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
During the three months ended March 31, 1999, the Company incurred employee
termination benefits and other costs of $1,809, which include employee
severance packages and termination of unnecessary lease obligations of the
Company. After reviewing its staffing requirements, the Company terminated 52
employees across all areas of the Company. The employee severance package
benefits related to these terminations were $909. As of March 31, 1999, $187 of
employee termination benefits remain accrued in accounts payable and accrued
liabilities. The Company also incurred $482 for the termination of unnecessary
lease obligations of the Company, of which $250 remain accrued at March 31,
1999. Earnings per share, excluding the after tax effect of these employee
termination benefits and other costs, was $0.05.
7
<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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 March 31, 1999
and March 31, 1998," 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, 1998 (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 MARCH 31,
----------------------------
1999 1998
----- -----
<S> <C> <C>
REVENUES:
Software licenses 32.7% 42.9%
Professional services 28.9 21.6
Hardware 15.5 13.1
Maintenance and other 21.2 20.6
Resource management 1.7 1.8
----- -----
Total revenues 100.0 100.0
----- -----
EXPENSES:
Cost of software licenses 7.1 6.6
Cost of professional services 16.4 12.9
Cost of hardware 12.5 9.7
Cost of maintenance and other 8.8 10.0
Cost of resource management 1.0 1.2
Research and development 16.5 14.5
Sales and marketing 17.8 18.2
General and administrative 15.2 16.7
Employee termination benefits and other costs 6.9 --
----- -----
Total expenses 102.2 89.8
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OPERATING INCOME (LOSS) (2.2) 10.2
INTEREST INCOME, net 0.2 0.7
----- -----
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (2.0) 10.9
PROVISION (BENEFIT) FOR INCOME TAXES (0.8) 4.2
----- -----
NET INCOME (LOSS) (1.2)% 6.7%
===== =====
</TABLE>
8
<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
Comparison of Three Months Ended March 31, 1999 and March 31, 1998 (Amounts in
thousands)
Revenues
The Company's total revenues increased by 31% to $26,182 for the three
months ended March 31, 1999, from $19,940 for the three months ended March 31,
1998.
Software License Revenues. Revenues from software licenses remained
relatively constant at $8,569 for the three months ended March 31, 1999,
compared to $8,559 for the three months ended March 31, 1998. As a percentage
of total revenues, software license revenues decreased to 32.7% for the three
months ended March 31, 1999, from 42.9% for the three months ended March 31,
1998. The percentage decrease resulted primarily from increased service
revenues resulting from an effort to reduce the services backlog.
Professional Services Revenues. Revenues from professional services
increased 76% to $7,573 for the three months ended March 31, 1999, from $4,313
for the three months ended March 31, 1998. As a percentage of total revenues,
professional services revenues increased to 28.9% for the three months ended
March 31, 1999, from 21.6% for the three months ended March 31, 1998. The
dollar and percentage increases in professional services were directly related
to the growth in revenue generating (billable) staff and related revenue
stemming from the increase in license fees and service offerings in 1998 and
1999.
Hardware Revenues. Hardware revenues increased 55% to $4,045 for the
three months ended March 31, 1999, from $2,613 for the three months ended March
31, 1998. As a percentage of total revenues, hardware revenues increased to
15.5% for the three months ended March 31, 1999, from 13.1% for the three
months ended March 31, 1998. 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 36% to $5,562 for the three months ended March 31, 1999, from $4,094
for the three months ended March 31, 1998. As a percentage of total revenues,
maintenance and other revenues increased to 21.2% for the three months ended
March 31, 1999, from 20.6% for the three months ended March 31, 1998. The
dollar and percentage increases were primarily due to maintenance contracts
associated with new software licenses, customer system upgrades and price
increases in the fees charged for annual maintenance.
Resource Management Revenues. Revenues from resource management
increased 20% to $433 for the three months ended March 31, 1999, from $361 for
the three months ended March 31, 1998. As a percentage of total revenues,
resource management revenues remained relatively constant at 1.7% for the three
months ended March 31, 1999, compared to 1.8% for the three months ended March
31, 1998. The dollar increase was primarily related to the sale of additional
services.
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 41% to $1,848 for the three months ended
March 31, 1999, compared to $1,309 for the three months ended March 31, 1998.
As a percentage of software license revenues, cost of software licenses
increased to 21.6% for the three months ended March 31, 1999, from 15.3% for
the three months ended March 31, 1998. The dollar and percentage increases
resulted primarily from an increased number of third-party software licenses,
specifically module enhancements such as report writers and imaging products
and third-party software related to public safety applications which typically
carries a higher cost of sale than other third-party products.
9
<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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 67% to $4,288 for the three
months ended March 31, 1999, from $2,566 for the three months ended March 31,
1998. As a percentage of professional services revenues, cost of professional
services decreased to 56.6% for the three months ended March 31, 1999, from
59.5% for the three months ended March 31, 1998. The dollar increase was
directly related to increased professional services revenues and expanded
offerings of full service professional services. The decrease in the cost of
professional services as a percentage of professional services revenues was
primarily due to higher utilization rates of billable consultants.
Cost of Hardware Revenues. Cost of hardware consists primarily of
costs payable to vendors for hardware. Cost of hardware increased 68% to $3,276
for the three months ended March 31, 1999, from $1,946 for the three months
ended March 31, 1998. As a percentage of hardware revenues, cost of hardware
increased to 81.0% for the three months ended March 31, 1999, from 74.5% for
the three months ended March 31, 1998. 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, which typically results
in smaller hardware margins.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
consists primarily telephone support, 7 days a week, 24 hours a day,
documentation and related administrative and personnel expenses. Cost of
maintenance and other increased 16% to $2,313 for the three months ended March
31, 1999, from $2,001 for the three months ended March 31, 1998. As a
percentage of maintenance and other revenues, cost of maintenance and other
decreased to 41.6% for the three months ended March 31, 1999, from 48.9% for
the three months ended March 31, 1998. The dollar increase was primarily due to
investment in a new customer interaction software system and increased
personnel to enhance products and support a larger client base. The decrease in
the cost of maintenance and other as a percentage of maintenance and other
revenue was related to more efficient use of existing resources and improved
processes.
Cost of Resource Management Revenues. Cost of resource management
increased 7% to $259 for the three months ended March 31, 1999, from $241 for
the three months ended March 31, 1998. As a percentage of resource management
revenues, cost of resource management decreased to 59.8% for the three months
ended March 31, 1999, from 66.8% for the three months ended March 31, 1998. The
dollar increase was primarily related to costs associated with additional
services. The decrease in the cost of resource management as a percentage of
resource management revenues was related to the leveraging of existing
resources.
Research and Development Expenses. Research and development expenses
are comprised primarily of salaries, 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 50% to $4,326 for the three months ended March 31, 1999,
from $2,889 for the three months ended March 31, 1998. As a percentage of total
revenues, research and development increased to 16.5% for the three months
ended March 31, 1999, from 14.5% for the three months ended March 31, 1998. The
dollar and percentage increases were primarily 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 increased 28% to $4,652 for the three months ended March 31,
1999, from $3,638 for the three months ended March 31, 1998. As a percentage of
total revenues, sales and marketing decreased to 17.8% for the three months
ended March 31, 1999, from 18.2% for the three months ended March 31, 1998. The
dollar increase was attributable to the Company's expansion of its direct sales
force, increased marketing efforts, travel and other expenses related to
increased sales activity. The decrease in sales and marketing expenses as a
percentage of total revenues was primarily due to an effort to control costs,
which resulted in revenues growing at a higher rate than the associated costs.
10
<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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 20% to $3,982 for the three months ended
March 31, 1999, from $3,325 for the three months ended March 31, 1998. As a
percentage of total revenues, general and administrative expenses decreased to
15.2% for the three months ended March 31, 1999, from 16.7% for the three
months ended March 31, 1998. 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 the leveraging of existing
resources.
Employee Termination Benefits and Other Costs. Employee termination
benefits and other costs were $1,809, or 6.9% of total revenues, for the three
months ended March 31, 1999. These costs consist of $909 for employee severance
packages and $482 for termination of unnecessary lease obligations of the
Company. Earnings per share, excluding the after tax effect of these costs, was
$0.05. There were no comparable expenses for the three months ended March 31,
1998.
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.
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 one year, 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.
11
<PAGE> 12
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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 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. The Company
has no contingency plan as such, however, the Company believes it should be
able to identify alternative vendors if the need arises.
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 $4,030 and $2,875 during the
three months ended March 31, 1999 and 1998, respectively. The increase in cash
used in operating activities is primarily due to the decrease in accounts
payable and accrued liabilities.
Cash used in investing activities (capital expenditures, software development
investments and acquisitions) totaled $1,107 and $1,930 during the three months
ended March 31, 1999 and 1998, respectively. Capital expenditures were
primarily comprised of the Company's investments in equipment and related
software development costs. In 1998, the Company acquired JALAN, Inc. and
Vanguard Management and Information Systems, Inc.
Net cash provided by financing activities was $648 and $294 during the three
months ended March 31, 1999 and 1998, respectively. The 1999 period reflects
the proceeds from the sale of common stock in conjunction with the Company's
employee stock purchase plan. The 1998 period reflects the proceeds from the
sale of common stock in conjunction with the Company's employee stock purchase
plan, partially offset by the payment of the amounts due to stockholders
related to the UCS acquisition.
12
<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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. 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 $420. The letter of
intent, dated February 10, 1999, between World Commerce Online, Inc. and the
Company automatically terminated on March 31, 1999, as a definitive agreement
was not reached between the two parties.
13
<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 1999
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 outstanding claims and actions
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 three months ended March 31, 1999, the Company continued to
use the net proceeds of the initial public offering for working capital
purposes and investments, which totaled $4,030 and $1,107 respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No information has been presented pursuant to Item 3 as the Company does not
have any financial instruments outstanding as of March 31, 1999, requiring
market risk disclosure or material foreign currency exposure requiring market
risk disclosure.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBITS
Number Name
------ -------------------------------------------------------------
<S> <C>
27.0 Financial Data Schedule (submitted only in electronic format)
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K on January 14, 1999, indicating the increase of
shares of common stock registered on the Company's outstanding Form S-8
registration statements for its employee benefit plans, which resulted from the
Company's stock split.
14
<PAGE> 15
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: May 13, 1999
/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)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Name
- ------ -----------------------------------------------------------------
<S> <C>
27.0 Financial Data Schedule (submitted only in electronic format)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE THREE MONTHS ENDED MARCH 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,064
<SECURITIES> 0
<RECEIVABLES> 40,612
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,738
<PP&E> 4,288
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,202
<CURRENT-LIABILITIES> 28,987
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 33,094
<TOTAL-LIABILITY-AND-EQUITY> 65,202
<SALES> 0
<TOTAL-REVENUES> 26,182
<CGS> 0
<TOTAL-COSTS> 26,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45)
<INCOME-PRETAX> (526)
<INCOME-TAX> (205)
<INCOME-CONTINUING> (321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (321)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
