<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, 2000
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 MAY 5, 2000
----- -----------------------------
Common stock
Par value $.01 per share 17,594,203
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,063 $ 6,901
Trade accounts receivable, net 25,579 33,407
Income tax receivable 1,702 --
Deferred income taxes 5,965 5,614
Other current assets 1,669 1,714
-------- --------
Total current assets 41,978 47,636
-------- --------
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net 3,626 3,839
-------- --------
OTHER ASSETS
Computer software development costs, net 5,685 5,653
Other intangible assets 1,848 2,381
Deferred income taxes 1,254 1,254
Deposits 246 246
-------- --------
Total other assets 9,033 9,534
-------- --------
$ 54,637 $ 61,009
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 14,394 $ 15,666
Deferred revenue 23,263 25,562
-------- --------
Total current liabilities 37,657 41,228
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LONG-TERM LIABILITIES
Other long-term liabilities 473 475
-------- --------
Total long-term liabilities 473 475
-------- --------
STOCKHOLDERS' EQUITY
Common stock 175 174
Additional paid-in capital 31,302 30,890
Accumulated deficit (14,932) (11,722)
Cumulative translation adjustment (38) (36)
-------- --------
Total stockholders' equity 16,507 19,306
-------- --------
$ 54,637 $ 61,009
======== ========
</TABLE>
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,
2000 1999
-------- --------
<S> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
REVENUES:
Software licenses $ 2,131 $ 8,569
Professional services 4,920 7,573
Hardware 695 4,045
Maintenance and other 7,676 5,562
Resource management 670 433
-------- --------
Total revenues 16,092 26,182
-------- --------
OPERATING EXPENSES:
Cost of software licenses 1,315 1,848
Cost of professional services 3,692 4,288
Cost of hardware 659 3,276
Cost of maintenance and other 2,724 2,313
Cost of resource management 371 259
Research and development 4,346 4,326
Sales and marketing 3,740 4,652
General and administrative 3,468 3,982
Employee termination benefits and other costs 1,103 1,809
-------- --------
Total operating expenses 21,418 26,753
-------- --------
OPERATING LOSS (5,326) (571)
INTEREST INCOME, net 63 45
-------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (5,263) (526)
BENEFIT FOR INCOME TAXES (2,053) (205)
-------- --------
NET LOSS (3,210) (321)
Foreign currency translation adjustments (2) --
-------- --------
COMPREHENSIVE LOSS $ (3,212) $ (321)
======== ========
NET LOSS PER SHARE:
Basic $ (0.18) $ (0.02)
======== ========
Diluted $ (0.18) $ (0.02)
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
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<PAGE> 4
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,210) $ (321)
Adjustments to reconcile net loss to net cash provided by )
(used in operating activities--
Depreciation and amortization 1,454 1,410
Loss on disposal of computer equipment, furniture and fixtures 18 --
Loss on write-off of other intangible assets 184 --
Deferred income taxes (351) --
Compensation related to stock transactions 19 --
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net 7,828 23
Income tax receivable (1,702) (205)
Other current assets 45 25
Deposits -- (6)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (1,272) (3,564)
Deferred revenue (2,299) (1,441)
Other liabilities (2) 49
------- -------
Net cash provided by (used in) operating activities 712 (4,030)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (232) (103)
Computer software development costs (710) (1,004)
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Net cash used in investing activities (942) (1,107)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 394 648
------- -------
Net cash provided by financing activities 394 648
------- -------
Effect of foreign currency exchange rate changes on cash and
cash equivalents (2) --
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 162 (4,489)
CASH AND CASH EQUIVALENTS, beginning of period 6,901 7,553
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 7,063 $ 3,064
======= =======
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 31 $ 4
Cash paid for income taxes 33 23
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
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<PAGE> 5
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(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, 1999, 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, HTE-Vanguard Systems, Inc., a Florida corporation, and
DemandStar.com, Inc. (DSI), 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 $15,000 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
On April 9, 1999, the City of Tacoma, Washington filed a demand for binding
arbitration and claim for damages against the Company with the American
Arbitration Association, alleging that the Company had breached certain
contractual duties and obligations under a Software License and Service
Agreement, which contained a narrowly drawn arbitration clause. On May 3, 1999,
the Company filed counterclaims in the Superior Court for Pierce County,
Washington alleging, among other things, that the City of Tacoma breached its
contractual duties and obligations under a Hardware Purchase Agreement, which
did not contain an arbitration clause. The trial court granted the City of
Tacoma's motion to compel arbitration of all allegations arising from both
contracts. On January 13, 2000, an arbitration panel composed of three
Washington State attorneys ("Arbitrators") rendered a final award ("Award")
against the Company for $5,174. A judgment for the Award was entered against
the Company by the Superior Court for Pierce County, Washington on January 15,
2000. As a result of the Award, the Company has filed a direct appeal to the
Washington State Supreme Court contesting the Award on a variety of grounds
including, but not limited to, the fact that the Arbitrators acted in "manifest
disregard of the law." The Company maintains that the terms of the binding
arbitration clause of the software contract was limited to only disputes
arising under that contract and, further, that the Arbitrators inappropriately
disregarded the damages limitation clause in both contracts and illegally
awarded Tacoma speculative "benefit of the bargain damages" -- which
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<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. LITIGATION (CONTINUED)
damages were well beyond the scope of the agreements. One of the Arbitrators
dissented as to the "benefit of the bargain damages" in the Award. Further, as
a result of this Award, the Company subsequently sought coverage and a defense
from its insurance carriers (The Chubb Group of Insurance Companies,
hereinafter the "Chubb Carriers"), which claims were denied. Thereafter, the
Company instituted a "Declaratory Judgment Action" on January 28, 2000 in the
Circuit Court of the Eighteenth Judicial Circuit for Seminole County, Florida
against the Chubb Carriers who provided the relevant insurance policies for the
Company. The Company seeks insurance coverage, and a defense, pursuant to a
variety of policies purchased by the Company for computer software errors and
omissions coverage, a multi-media liability insurance policy and an umbrella
policy for coverage amounts in excess of the underlying limits for the
aforementioned policies. After the Company filed its case against the Chubb
Carriers, they responded by instituting a separate cause of action on January
31, 2000 seeking a Declaratory Judgment against the Company in the United
States District Court for the Middle District of Florida. In light of the
diversity of citizenship issues presented, both matters have been transferred
to the United States District Court and are awaiting the appropriate magistrate
order setting down a schedule for the case(s). Finally, on February 29, 2000,
the Company instituted a cause of action in the Circuit Court of the Eighteenth
Judicial Circuit for Seminole County, Florida, contesting, and/or seeking a
stay of enforcement of the foreign judgment rendered in the State of Washington
regarding the Award, which was domesticated in Florida in April 2000 upon an
agreement of the parties. Further, pursuant to such agreement of the parties,
enforcement of the domesticated judgement will be stayed until the ruling of
the court on the Company's motion contesting and/or seeking a stay of
enforcement or other relief as to the posting of a supersedeas bond to stay
enforcement during the pendency of the appeal in an evidentiary hearing
scheduled in the Florida Circuit Court on June 12, 2000. The Company in its
Florida Circuit Court Complaint, put forth similar arguments as to that
presently on appeal in the State of Washington. In addition, the Company
pointed out that one of the Company's contracts with the City of Tacoma did not
even contain an arbitration clause and that the remaining contract contained
only a narrowly drawn arbitration clause, limiting arbitration only to disputes
under the terms of such contract. The Company maintains that despite the
limited agreement to arbitrate certain matters, the Arbitrators proceeded to
hear and decide matters under both contracts, as well as extra contractual
matters which, once again, would clearly constitute a "manifest disregard of
the law." The Company maintains that this is a clear and reversible error.
During the year ended December 31, 1999, the Company recorded a charge for the
original judgment of $5,174, which remains in accrued liabilities in the
accompanying consolidated balance sheet as of December 31, 1999. While the
Company intends to vigorously pursue these cases and believes its positions
have merit, it is unable to predict the ultimate outcome at this time.
The Company is involved in various other legal actions arising in the normal
course of business, both as claimant and 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.
2. LOSS PER SHARE
Basic and diluted weighted average shares outstanding were as follows (amounts
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
------ ------
<S> <C> <C>
Basic weighted-average shares outstanding 17,523 17,153
Common shares applicable to stock options using
the treasury stock method -- --
------ ------
Diluted weighted average shares outstanding 17,523 17,153
====== ======
</TABLE>
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<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
2. LOSS PER SHARE (CONTINUED)
Options to purchase approximately 1.7 million shares were outstanding as of
March 31, 2000, but were not included in the computation of diluted loss per
share because they are antidilutive.
3. BUSINESS COMBINATIONS
PURCHASES
In June 1999, the Company created HTE-IOD, Inc. (IOD), a wholly-owned
subsidiary, which later changed its name to DemandStar.com, Inc. IOD purchased
certain assets of Information On Demand, Inc. for $900 in cash and an escrow
payable of $100. The Company could pay up to an additional $2,000 for the
purchase if IOD meets certain financial targets set forth in the Agreement for
Sale and Purchase of Assets. The assets purchased consisted of developed
technology, which was recorded as other intangible assets in the accompanying
consolidated financial statements. As part of the purchase, HTE also assumed
various customer service liabilities. This acquisition was accounted for as a
purchase in the accompanying consolidated financial statements.
Revenues, net loss and loss per share presented for the three months ended
March 31, 2000 and 1999, on a pro forma basis, as if the acquisition had
occurred at the beginning of the applicable period, are as follows (unaudited):
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
---------- ------
Revenues $ 16,092 26,244
Net loss (3,210) (422)
Basic loss per share (0.18) (0.02)
Diluted loss per share (0.18) (0.02)
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. LINE OF CREDIT
The Company's line of credit with SunTrust Bank, Central Florida, National
Association has been terminated. The Company has never borrowed under this line
of credit, and based on the Company's current operating projections for the
year 2000, it does not anticipate a need for additional cash for at least the
next 12 months. However, the Company is seeking alternative credit facilities.
- 7 -
<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
6. EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
During the three months ended March 31, 1999, the Company recorded 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.
During the three months ended September 30, 1999, the Company recorded employee
termination benefits and other costs of $3,625, which include employee
severance packages, capitalized software development cost write-offs and other
costs related to the discontinuation of product lines. This charge was the
result of a change in management and the Company's strategy. The employee
severance package benefits were $1,720.
During the three months ended March 31, 2000, the Company recorded employee
termination benefits and other costs of $1,103, which include $622 for employee
severance packages related to a workforce reduction and $481 for the
discontinuation of various product lines and closing of offices.
As of March 31, 2000, employee termination benefits and other costs of $1,295
remain accrued in accounts payable and accrued liabilities.
7. SUBSEQUENT EVENTS
Pursuant to a registration statement on Form S-1 (File No.333-93445), as
amended, filed with the Securities and Exchange Commission and which became
effective March 27, 2000, DSI's rights offering of its common stock was
completed on May 5, 2000. Rights to purchase an aggregate of 6,374,080 shares
of common stock were exercised for an aggregate purchase price of $6,374. After
deducting the estimated total expenses incurred in connection with the offering
of $660, the Company's net proceeds from the offering were $5,714.
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<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This 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, 2000 and March 31, 1999," and
"Liquidity and Capital Resources," below. 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, 1999 (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 loss items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
----- -----
<S> <C> <C>
REVENUES:
Software licenses 13.2% 32.7%
Professional services 30.6 28.9
Hardware 4.3 15.5
Maintenance and other 47.7 21.2
Resource management 4.2 1.7
----- -----
Total revenues 100.0 100.0
----- -----
OPERATING EXPENSES:
Cost of software licenses 8.2 7.1
Cost of professional services 22.9 16.4
Cost of hardware 4.1 12.5
Cost of maintenance and other 16.9 8.8
Cost of resource management 2.3 1.0
Research and development 27.0 16.5
Sales and marketing 23.2 17.8
General and administrative 21.6 15.2
Employee termination benefits and other costs 6.9 6.9
----- -----
Total operating expenses 133.1 102.2
----- -----
OPERATING LOSS (33.1) (2.2)
INTEREST INCOME, net 0.4 0.2
----- -----
LOSS BEFORE BENEFIT FOR INCOME TAXES (32.7) (2.0)
BENEFIT FOR INCOME TAXES (12.8) (0.8)
----- -----
NET LOSS (19.9)% (1.2)%
===== =====
</TABLE>
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<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
Comparison of Three Months Ended March 31, 2000 and March 31, 1999 (Amounts in
thousands)
Revenues
The Company's total revenues decreased by 39% to $16,092 for the three
months ended March 31, 2000, from $26,182 for the three months ended March 31,
1999.
Software License Revenues. Revenues from software licenses decreased 75%
to $2,131 for the three months ended March 31, 2000, compared to $8,569 for the
three months ended March 31, 1999. As a percentage of total revenues, software
license revenues decreased to 13.2% for the three months ended March 31, 2000,
from 32.7% for the three months ended March 31, 1999. The dollar and percentage
decreases resulted primarily from the long sales cycle associated with
governmental customers, combined with the general slowdown across the software
industry related to Y2K.
Professional Services Revenues. Revenues from professional services
decreased 35% to $4,920 for the three months ended March 31, 2000, from $7,573
for the three months ended March 31, 1999. As a percentage of total revenues,
professional services revenues increased to 30.6% for the three months ended
March 31, 2000, from 28.9% for the three months ended March 31, 1999. The
dollar decrease was related to a decrease in professional services backlog
related to 1998 and 1999 contracts. The increase in professional services as a
percentage of total revenues is due to the lower software license and hardware
revenues.
Hardware Revenues. Hardware revenues decreased 83% to $695 for the three
months ended March 31, 2000, from $4,045 for the three months ended March 31,
1999. As a percentage of total revenues, hardware revenues decreased to 4.3%
for the three months ended March 31, 2000, from 15.5% for the three months
ended March 31, 1999. The dollar and percentage decreases were primarily due to
a smaller number of customers who required additional hardware with software
purchases.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 38% to $7,676 for the three months ended March 31, 2000, from $5,562
for the three months ended March 31, 1999. As a percentage of total revenues,
maintenance and other revenues increased to 47.7% for the three months ended
March 31, 2000, from 21.2% for the three months ended March 31, 1999. The
dollar and percentage increases were primarily due to maintenance contracts
associated with new software licenses booked in 1998, new software licenses
booked in 1999, customer system upgrades and price increases in the fees
charged for annual maintenance. In addition, the increase as a percentage of
total revenues was due to lower software license and hardware revenues.
Resource Management Revenues. Revenues from resource management increased
55% to $670 for the three months ended March 31, 2000, from $433 for the three
months ended March 31, 1999. As a percentage of total revenues, resource
management revenues increased to 4.2% for the three months ended March 31,
2000, from 1.7% for the three months ended March 31, 1999. The dollar and
percentage increases were primarily related to the sale of a new outsourcing
contract in July 1999, along with the sale of additional services and an annual
price increase on the existing contract.
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 decreased 29% to $1,315 for the three months ended
March 31, 2000, from $1,848 for the three months ended March 31, 1999. As a
percentage of software license revenues, cost of software licenses increased to
61.7% for the three months ended March 31, 2000, from 21.6% for the three
months ended March 31, 1999. The dollar decrease was primarily due to lower
software license revenues. The increase in the cost of software licenses as a
percentage of software license revenues was primarily due to relatively fixed
computer software development amortization costs with lower software license
revenues and sales of third party products related to public safety
applications, which typically carry a higher cost of sale.
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<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
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 decreased 14% to $3,692 for the three
months ended March 31, 2000, from $4,288 for the three months ended March 31,
1999. As a percentage of professional services revenues, cost of professional
services increased to 75.0% for the three months ended March 31, 2000, from
56.6% for the three months ended March 31, 1999. The dollar decrease was
directly related to decreased professional services revenues. The increase in
the cost of professional services as a percentage of professional services
revenues is primarily due to lower professional services revenues with a
limited decrease in employee related costs.
Cost of Hardware Revenues. Cost of hardware consists primarily of costs
payable to vendors for hardware. Cost of hardware decreased 80% to $659 for the
three months ended March 31, 2000, from $3,276 for the three months ended March
31, 1999. As a percentage of hardware revenues, cost of hardware increased to
94.8% for the three months ended March 31, 2000, from 81.0% for the three
months ended March 31, 1999. The dollar decrease was directly related to
decreased hardware revenues. The increase in the cost of hardware as a
percentage of hardware revenues was primarily due to the mix of equipment sold
and the lower margins associated with smaller contracts.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
consists of primarily telephone support, documentation and related
administrative and personnel expenses. Cost of maintenance and other increased
18% to $2,724 for the three months ended March 31, 2000, from $2,313 for the
three months ended March 31, 1999. As a percentage of maintenance and other
revenues, cost of maintenance and other decreased to 35.5% for the three months
ended March 31, 2000, from 41.6% for the three months ended March 31, 1999. The
dollar increase was primarily due to 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 revenues was primarily related
to more efficient use of existing resources and improved processes.
Cost of Resource Management Revenues. Cost of resource management
increased 43% to $371 for the three months ended March 31, 2000, from $259 for
the three months ended March 31, 1999. As a percentage of resource management
revenues, cost of resource management decreased to 55.4% for the three months
ended March 31, 2000, from 59.8% for the three months ended March 31, 1999. The
dollar increase was primarily related to costs associated with a new
outsourcing contract, which began in July 1999 and additional services. The
decrease in the cost of resource management as a percentage of resource
management revenues was primarily 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 remained relatively constant at $4,346 for the three months ended
March 31, 2000, compared to $4,326 for the three months ended March 31, 1999.
As a percentage of total revenues, research and development increased to 27.0%
for the three months ended March 31, 2000, from 16.5% for the three months
ended March 31, 1999. The percentage increase was primarily due to lower
software license and hardware revenues.
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 decreased 20% to $3,740 for the three months ended March 31,
2000, from $4,652 for the three months ended March 31, 1999. As a percentage of
total revenues, sales and marketing increased to 23.2% for the three months
ended March 31, 2000, from 17.8% for the three months ended March 31, 1999. The
dollar decrease was primarily related to lower sales and a decrease in the
resources required to support the sales effort. The increase as a percentage of
total revenues was primarily due to lower software license and hardware
revenues. The Company's sales team has recently initiated programs to refocus
attention on its existing base of 1,600 customers in selected traditionally
higher opportunity states.
- 11 -
<PAGE> 12
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
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 decreased 13% to $3,468 for the three months ended
March 31, 2000, from $3,982 for the three months ended March 31, 1999. As a
percentage of total revenues, general and administrative expenses increased to
21.6% for the three months ended March 31, 2000, from 15.2% for the three
months ended March 31, 1999. The dollar decrease was primarily due to an effort
by management to reduce and control expenses by improving efficiencies. The
increase in general and administrative expenses as a percentage of total
revenues was due to lower software license and hardware revenues.
Employee Termination Benefits and Other Costs. Employee termination
benefits and other costs were $1,103, or 6.9% of total revenues, for the three
months ended March 31, 2000. These costs consisted primarily of $622 for
employee severance packages related to a workforce reduction and $481 for the
discontinuance of various product lines and closing of offices. During the
three months ended March 31, 1999, employee termination benefits and other
costs were $1,809, or 6.9% of total revenues. These costs consisted primarily
of $909 for employee severance packages and $482 for termination of unnecessary
lease obligations of the Company.
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. 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
Prior to January 1, 2000, there was considerable concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports today, however, are that computer systems and software programs are
functioning normally and the compliance and remediation work accomplished
during the years leading up to 2000 was effective to prevent any problems. The
Company develops, markets, implements and supports fully integrated
enterprise-wide software applications for public sector organizations and
public and private utilities. The Company has completed the Year 2000 upgrades
of its systems. The Company used existing resources for its Year 2000
compliance efforts, without incurring significant incremental expenses. As of
the date of this Report, the Company has not experienced any significant
disruption in its products as a result of any failure of any of its systems to
function properly as of January 1, 2000 or February 29, 2000. The Company also
has not experienced any Year 2000 failures related to any of its vendors or
suppliers. Based on present trends, the Company does not expect to incur any
significant costs in 2000 related to Year 2000 activities.
Year 2000 compliance has many elements and potential consequences, some
of which may not be foreseeable or may be realized in future periods. In
addition, unforeseen circumstances may arise, and we may not, in the future,
adequately identify equipment or systems that are not Year 2000 compliant.
- 12 -
<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $712 during the three
months ended March 31, 2000, compared to net cash used of $4,030 in the
comparable 1999 period. The increase in cash provided by operating activities
is primarily due to the decrease in trade accounts receivable, partially offset
by an increase in deferred income taxes and a decrease in deferred revenue.
Cash used in investing activities (capital expenditures and software
development investments) totaled $942 and $1,107 during the three months ended
March 31, 2000 and 1999, respectively. During 2000 and 1999, capital
expenditures were primarily comprised of the Company's investments in equipment
and related software development costs.
Net cash provided by financing activities totaled $394 and $648 during
the three months ended March 31, 2000 and 1999, respectively. The 2000 and 1999
periods reflect the proceeds from the sale of common stock in conjunction with
the Company's employee stock purchase plan and the exercise of options under
the Company's executive incentive plan.
Based on current operating projections for the year 2000, the Company
believes its cash balances and cash generated from operations will satisfy the
Company's working capital and capital expenditure requirements for at least the
next 12 months. In the longer term or if the Company's current operating
projections for the year 2000 do not materialize, the Company may require
additional sources of liquidity to fund future growth and operations. 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 June 18, 1999, the Company purchased the net assets of
Information On Demand, Inc. for $1,000.
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, 2000, requiring
market risk disclosure or material foreign currency exposure requiring market
risk disclosure.
- 13 -
<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
PART II - OTHER INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ITEM 1. LEGAL PROCEEDINGS
On April 9, 1999, the City of Tacoma, Washington filed a demand for binding
arbitration and claim for damages against the Company with the American
Arbitration Association, alleging that the Company had breached certain
contractual duties and obligations under a Software License and Service
Agreement, which contained a narrowly drawn arbitration clause. On May 3, 1999,
the Company filed counterclaims in the Superior Court for Pierce County,
Washington alleging, among other things, that the City of Tacoma breached its
contractual duties and obligations under a Hardware Purchase Agreement, which
did not contain an arbitration clause. The trial court granted the City of
Tacoma's motion to compel arbitration of all allegations arising from both
contracts. On January 13, 2000, an arbitration panel composed of three
Washington State attorneys ("Arbitrators") rendered a final award ("Award")
against the Company for $5,174. A judgment for the Award was entered against
the Company by the Superior Court for Pierce County, Washington on January 15,
2000. As a result of the Award, the Company has filed a direct appeal to the
Washington State Supreme Court contesting the Award on a variety of grounds
including, but not limited to, the fact that the Arbitrators acted in "manifest
disregard of the law." The Company maintains that the terms of the binding
arbitration clause of the software contract was limited to only disputes
arising under that contract and, further, that the Arbitrators inappropriately
disregarded the damages limitation clause in both contracts and illegally
awarded Tacoma speculative "benefit of the bargain damages" -- which damages
were well beyond the scope of the agreements. One of the Arbitrators dissented
as to the "benefit of the bargain damages" in the Award. Further, as a result
of this Award, the Company subsequently sought coverage and a defense from its
insurance carriers (The Chubb Group of Insurance Companies, hereinafter the
"Chubb Carriers"), which claims were denied. Thereafter, the Company instituted
a "Declaratory Judgment Action" on January 28, 2000 in the Circuit Court of the
Eighteenth Judicial Circuit for Seminole County, Florida against the Chubb
Carriers who provided the relevant insurance policies for the Company. The
Company seeks insurance coverage, and a defense, pursuant to a variety of
policies purchased by the Company for computer software errors and omissions
coverage, a multi-media liability insurance policy and an umbrella policy for
coverage amounts in excess of the underlying limits for the aforementioned
policies. After the Company filed its case against the Chubb Carriers, they
responded by instituting a separate cause of action on January 31, 2000 seeking
a Declaratory Judgment against the Company in the United States District Court
for the Middle District of Florida. In light of the diversity of citizenship
issues presented, both matters have been transferred to the United States
District Court and are awaiting the appropriate magistrate order setting down a
schedule for the case(s). Finally, on February 29, 2000, the Company instituted
a cause of action in the Circuit Court of the Eighteenth Judicial Circuit for
Seminole County, Florida, contesting, and/or seeking a stay of enforcement of
the foreign judgment rendered in the State of Washington regarding the Award,
which was domesticated in Florida in April 2000 upon an agreement of the
parties. Further, pursuant to such agreement of the parties, enforcement of the
domesticated judgement will be stayed until the ruling of the court on the
Company's motion contesting and/or seeking a stay of enforcement or other
relief as to the posting of a supersedeas bond to stay enforcement during the
pendency of the appeal in an evidentiary hearing scheduled in the Florida
Circuit Court on June 12, 2000. The Company in its Florida Circuit Court
Complaint, put forth similar arguments as to that presently on appeal in the
State of Washington. In addition, the Company pointed out that one of the
Company's contracts with the City of Tacoma did not even contain an arbitration
clause and that the remaining contract contained only a narrowly drawn
arbitration clause, limiting arbitration only to disputes under the terms of
such contract. The Company maintains that despite the limited agreement to
arbitrate certain matters, the Arbitrators proceeded to hear and decide matters
under both contracts, as well as extra contractual matters which, once again,
would clearly constitute a "manifest disregard of the law." The Company
maintains that this is a clear and reversible error. During the year ended
December 31, 1999, the Company recorded a charge for the original judgment of
$5,174, which remains in accrued liabilities in the accompanying consolidated
balance sheet as of December 31, 1999. While the Company intends to vigorously
pursue these cases and believes its positions have merit, it is unable to
predict the ultimate outcome at this time.
- 14 -
<PAGE> 15
H.T.E., INC. AND SUBSIDIARIES
MARCH 31, 2000
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
The Company is involved in various other legal actions arising in the
normal course of business, both as claimant and 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 three months ended March 31, 2000, the Company continued to
use the net proceeds of the initial public offering for investments, which
totaled $942.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Name
---------- ----------------------------------------------------------
27.0 Financial Data Schedule (submitted only in electronic
format)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
- 15 -
<PAGE> 16
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 12, 2000
/s/ Joseph M. Loughry III
-------------------------------------
Joseph M. Loughry III
Chief Executive Officer/President
/s/ Susan D. Falotico
-------------------------------------
Susan D. Falotico
Chief Financial Officer
- 16 -
<PAGE> 17
EXHIBIT INDEX
Number Name
---------- ----------------------------------------------------------
27.0 Financial Data Schedule (submitted only in electronic
format)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE THREE MONTHS ENDED MARCH 31, 2000,
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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,063
<SECURITIES> 0
<RECEIVABLES> 25,579
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,978
<PP&E> 3,626
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,637
<CURRENT-LIABILITIES> 37,657
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 16,332
<TOTAL-LIABILITY-AND-EQUITY> 54,637
<SALES> 0
<TOTAL-REVENUES> 16,092
<CGS> 0
<TOTAL-COSTS> 21,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (63)
<INCOME-PRETAX> (5,263)
<INCOME-TAX> (2,053)
<INCOME-CONTINUING> (3,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,210)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
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