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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, 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 Number 000-28430
SS&C TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1169696
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Corporate Place
705 Bloomfield Avenue
Bloomfield, Connecticut 06002
(Address of principal executive offices) (Zip Code)
860-242-7887
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 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
------ ------
Number of shares outstanding of the issuer's classes of common stock as of April
30, 1998:
Class Number of Shares Outstanding
- -------------------------------------- ----------------------------
Common Stock, par value $.01 per share 14,490,319
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SS&C TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
December 31, 1997 and March 31, 1998 3
Consolidated Condensed Statements of Operations for
the three-month periods ended March 31, 1997 and 1998 4
Consolidated Condensed Statements of Cash Flows for
the three-month periods ended March 31, 1997 and 1998 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15-16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
EXHIBIT INDEX 18
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. The important
factors discussed below under the caption "Certain Factors That May Affect
Future Operating Results," among others, could cause actual results to differ
materially from those indicated by forward-looking statements made herein and
presented elsewhere by management from time to time.
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
---------------------- --------------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,660 $ 12,102
Investments in marketable securities 35,058 40,330
Accounts receivable, net 7,591 11,630
Unbilled accounts receivable, net 5,472 7,176
Income taxes 1,157 2,435
Other 1,563 736
---------------------- --------------------
Total current assets 74,501 74,409
Property and equipment, net 4,018 4,928
Unbilled accounts receivable - related party 420 368
Unbilled accounts receivable, net 828 812
Intangible assets, net 2,336 6,578
Deferred income taxes 3,205 5,673
---------------------- --------------------
Total assets $ 85,308 $ 92,768
====================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt - related party $ 668 $ 216
Current portion of long-term debt 313 -
Accounts payable 1,440 2,489
Accrued bonus payable 1,663 -
Deferred licensing and professional services revenues 1,618 1,676
Accrued expenses 4,077 2,891
Deferred maintenance revenues 7,528 12,022
---------------------- --------------------
Total current liabilities 17,307 19,294
---------------------- --------------------
Long-term debt - related party 250 250
---------------------- --------------------
Total liabilities 17,557 19,544
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Stockholders' equity:
Common stock 137 159
Additional paid-in capital 69,089 78,508
Accumulated deficit (1,475) (5,443)
---------------------- --------------------
Total stockholders' equity 67,751 73,224
---------------------- --------------------
Total liabilities and stockholders' equity $ 85,308 $ 92,768
====================== ====================
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
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SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31, March 31,
1997 1998
--------------------- --------------------
<S> <C> <C>
Revenues:
Software licenses $ 3,004 $ 5,794
Maintenance 2,155 3,207
Professional services 2,371 2,589
--------------------- --------------------
Total revenues 7,530 11,590
--------------------- --------------------
Cost of revenues:
Software licenses 275 271
Maintenance 836 772
Professional services 1,456 1,786
--------------------- --------------------
Total cost of revenues 2,567 2,829
--------------------- --------------------
Gross profit 4,963 8,761
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Operating expenses:
Selling and marketing 2,198 3,819
Research and development 2,249 2,839
General and administrative 1,062 1,445
Write-off of purchased in-process research
and development - 7,259
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Total operating expenses 5,509 15,362
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Operating loss (546) (6,601)
Interest income, net 449 592
--------------------- --------------------
Loss before income taxes (97) (6,009)
Provision (benefit) for income taxes 70 (2,041)
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Net loss $ (167) $ (3,968)
===================== ====================
Basic loss per share $ (0.01) $ (0.29)
===================== ====================
Basic weighted average number of common
shares outstanding 13,418 13,887
===================== ====================
Diluted loss per share $ (0.01) $ (0.29)
===================== ====================
Diluted weighted average number of common
and common equivalent shares outstanding 13,418 13,887
===================== ====================
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
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<TABLE>
<CAPTION>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
-------------------------------------------
March 31, March 31,
1997 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (167) $ (3,968)
------------------- ------------------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 462 516
Purchased in-process research and development - 7,259
Deferred income taxes - (2,468)
Provision for doubtful accounts 79 168
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable 1,205 (62)
Unbilled accounts receivable 358 (1,636)
Other (161) 890
Accounts payable 23 (451)
Accrued expenses (699) (2,957)
Deferred revenues 1,323 2,257
Income taxes (7) (1,278)
------------------- ------------------
Total adjustments 2,583 2,238
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Net cash provided by (used in) operating activities 2,416 (1,730)
------------------- ------------------
Cash flows from investing activities:
Additions to other assets (64) (1,432)
Cash paid for Quantra acquisition - (2,281)
Additions to property and equipment (321) (753)
Investments in marketable securities, net 4,737 (5,272)
------------------- ------------------
Net cash provided by (used in) investing activities 4,352 (9,738)
------------------- ------------------
Cash flows from financing activities:
Exercise of options 65 675
Transfer of cash from restricted cash equivalents 505 -
Repayment of debt, net (409) (765)
------------------- ------------------
Net cash provided by (used in) financing activities 161 (90)
------------------- ------------------
Net increase (decrease) in cash and cash equivalents 6,929 (11,558)
Cash and cash equivalents, at beginning of period 36,286 23,660
------------------- ------------------
Cash and cash equivalents, at end of period $ 43,215 $ 12,102
=================== ==================
</TABLE>
Supplemental disclosure of non-cash investing activities:
As more fully described in Note 3, effective March 20, 1998, the Company
purchased substantially all of the assets of Quantra Corporation for
$15.0 million.
See accompanying notes to Consolidated Condensed Financial Statements.
5
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SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Summary of Significant Accounting Policies:
Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments, except as noted elsewhere in the notes to the
consolidated condensed financial statements) necessary to present fairly its
financial position as of March 31, 1998 and the results of its operations for
the three months ended March 31, 1997 and 1998. These statements are condensed
and therefore do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
statements should be read in conjunction with the consolidated financial
statements and footnotes as of and for the year ended December 31, 1997 included
in the Company's Form 10-K filed with the Securities and Exchange Commission.
The December 31, 1997 consolidated condensed balance sheet data were derived
from audited financial statements, but do not include all disclosures required
by generally accepted accounting principles. The results of operations for the
three months ended March 31, 1998 are not necessarily indicative of the results
to be expected for the full year.
Basic and Diluted Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share, in 1997. Basic earnings per share includes no dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. The standard also
requires companies with complex capital structures to disclose diluted earnings
per share and, among other things, a reconciliation of the numerator and
denominator for purposes of the calculation. Diluted earnings per share is
computed based on net income (loss) divided by the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares comprise stock options using the treasury stock method. Common
equivalent shares are excluded from the computation if their effect is
antidilutive. Outstanding options to purchase 1.3 million and 2.1 million shares
at March 31, 1997 and March 31, 1998, respectively, were not included in the
computation of diluted earnings per share because the effect of including the
options would be antidilutive.
Comprehensive Loss
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130"), effective January 1, 1998. SFAS
No. 130 requires that items defined as comprehensive income, such as foreign
currency translation adjustments, be separately classified in the financial
statements and that the accumulated balance of other comprehensive income be
reported separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. There were no material differences between
net loss and comprehensive loss for the three months ended March 31, 1997 and
1998.
Accounting Standards
In June 1997, Statement of Financial Accounting Standards No. 131, Reporting
Comprehensive Income ("SFAS No. 131") was issued. SFAS No. 131 requires public
companies to report all financial and descriptive information about operating
segments in their financial statements and requires selected information about
operating segments to be reported in interim financial reports issued to
shareholders. Operating segment financial information is required to be reported
on the basis that is used internally for evaluating segment performance and
allocation of resources. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. SFAS No. 131 does not need
to be applied to interim financial statements in 1998. The adoption of SFAS No.
131 is expected to impact the way the Company reports information about its
operating segments.
The Company adopted Statement of Position No. 97-2, Software Revenue Recognition
("SOP 97-2"), which is effective in fiscal years beginning after December 15,
1997. Retroactive application of the provisions of SOP 97-2 from the previously
issued SOP on software revenue recognition is prohibited. The adoption of SOP
97-2 did not have a material impact on the Company's business,
financial condition, and results of operations.
6
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2. Commitments and Contingencies:
On March 18, 1997 and April 8, 1997, two separate purported class action
lawsuits ("Complaints") were filed against the Company, certain of its officers
and the two leading managers of the Company's initial public offering. On July
8, 1997, a Consolidated Amended Class Action Complaint was filed in the United
States District Court for the District of Connecticut (the "Consolidated
Complaint") in which the Complaints were consolidated and amended. The
Consolidated Complaint claims that the Prospectus for the Company's initial
public offering allegedly made material misrepresentations in violation of
Sections 11 and 12(2) of the Securities Act of 1933. The plaintiffs in the suit
are seeking an undetermined amount of damages, and costs and expenses of the
litigation. The matter is currently proceeding into the discovery phase. The
Company believes it has meritorious defenses to the claims made in the lawsuit
and intends to contest the Consolidated Complaint vigorously; however, legal
counsel for the Company is unable to predict, with any degree of certainty, the
outcome of such claims. While the resolution of these claims could affect the
Company's results of operations in future periods, the Company does not expect
these matters to have a material adverse effect on its consolidated financial
position. However, the Company is unable to predict the ultimate outcome or the
potential financial impact of these claims.
3. Acquisitions:
On March 20, 1998, the Company completed its acquisition (the "Quantra
Acquisition") of substantially all of the assets of Quantra Corporation
("Quantra") pursuant to an Asset Purchase Agreement, dated as of March 20, 1998,
among the Company, Quantra and AEGON USA Realty Advisors, Inc., the sole
stockholder of Quantra. The purchase price for the Quantra Acquisition consisted
of 546,019 unregistered shares of the Company's Common Stock, $2.3 million in
cash and the assumption of certain liabilities of Quantra of $3.9 million, plus
the costs of effecting the transaction. The Company and Quantra also entered
into an Escrow Agreement pursuant to which an additional $1.2 million will be
held in escrow to reimburse the Company in connection with certain acquisition
costs and the breaches of representations, warranties or covenants, if any, by
Quantra.
The Quantra Acquisition was accounted for as a purchase and, accordingly, the
net assets and results of operations of Quantra have been included in the
consolidated condensed financial statements from the acquisition date. The
purchase price was allocated to tangible and intangible assets based on their
fair market value on the date of the acquisition.
The following summarizes the allocation of the purchase price (in thousands):
Accounts receivable $ 4,145
Equipment and furniture 412
Other assets 63
Complete technology 3,071
Incomplete technology 7,259
------
Total purchase price $14,950
======
The allocation to complete technology is based on future risk-adjusted cash
flows. Complete technology has been capitalized and included in the caption
"Intangible assets, net" in the accompanying consolidated condensed balance
sheets. Complete technology will be amortized over two to six years based on the
ratio that current gross revenues of the products bears to the total of current
and anticipated future gross revenues of the products. The allocation to
incomplete technology is also based on future risk-adjusted cash flows and has
been expensed in 1998, in accordance with generally accepted accounting
principles. The incomplete technology had not achieved technological feasibility
and had no alternative uses.
On April 9, 1998, the Company completed its acquisition (the "Savid
Acquisition") of the outstanding shares of Savid International Inc. and The
Savid Group, Inc. (together "Savid")
7
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pursuant to a Stock Purchase Agreement, dated as of April 9, 1998, between the
Company, Savid and the sole stockholder ("Stockholder") of Savid. The purchase
price for the Savid Acquisition consisted of $821,500. An additional cash
payment of $750,000 shall be paid provided that the aggregate revenues, as
defined in the Stock Purchase Agreement, for the period from and including April
15, 1998 through and including April 14, 2001 are greater than or equal to
$3,000,000.
Also, in connection with the Savid Acquisition, the Company has agreed to pay
royalty payments equal to 10% of the license fees with respect to the Savid
System to the Stockholder during the five-year period ending April 14, 2003. The
Company also entered into an employment agreement with the Stockholder and one
other key employee of Savid for a period of three years.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED March 31, 1997 and 1998
Revenues
The Company's revenues are derived from software licenses and related
maintenance and professional services. Total revenues increased 54% from $7.5
million in the three months ended March 31, 1997 to $11.6 million in the three
months ended March 31, 1998.
Software Licenses. Software license revenues increased 93% from $3.0 million
in the three months ended March 31, 1997 to $5.8 million in the three months
ended March 31, 1998. The increase in software license revenues was primarily
due to an increase in CAMRA software license revenues, both domestically and
internationally. Domestic CAMRA license revenues increased 56% from $1.6 million
in the three months ended March 31, 1997 to $2.5 million in the three months
ended March 31, 1998. International CAMRA software license revenues increased
207% from $358,000 in the three months ended March 31, 1997 to $1.1 million in
the three months ended March 31, 1998. The remaining increase in software
license revenues was attributable to revenues associated with the products
acquired in connection with the Quantra Acquisition and an increase in the
license revenues from the Company's Shepro Braun products.
Maintenance. Maintenance revenues increased 49% from $2.2 million in the three
months ended March 31, 1997 to $3.2 million in the three months ended March 31,
1998. The increase was primarily due to an increase in the Company's installed
base of clients with maintenance contracts as a result of the Company's license
sales for all products. The largest increases are due to the CAMRA clients, both
domestically and internationally, and the Shepro Braun products.
Professional Services. Professional services revenues increased 9% from $2.4
million in the three months ended March 31, 1997 to $2.6 million in the three
months ended March 31, 1998. The increase was primarily due to the increase in
demand for the Company's implementation, conversion and training services for
CAMRA, both domestically and internationally, and an increase in the Company's
outsourcing business. The increase in these areas was partially offset by the
decrease in implementation services for the Shepro Braun products and a decrease
in the actuarial consulting practice.
Cost of Revenues
Total cost of revenues increased 10% from $2.6 million in the three months
ended March 31, 1997 to $2.8 million in the three months ended March 31, 1998.
The gross profit increased from 66% for the three months ended March 31, 1997 to
76% for the three months ended March 31, 1998, primarily due to an increase in
the software license revenues. Software license revenues carry the highest gross
profit of all of the Company's sources of revenue. The increase in the overall
gross profit was primarily attributable to the large increase in software
license revenues without a corresponding increase in the cost of software
licenses.
Cost of Software Licenses. Cost of software license revenues relates primarily
to royalties, as well as to the costs of product media, packaging, documentation
and labor involved in the distribution of the Company's software. The cost of
software licenses decreased 1% from $275,000 in the three months ended March 31,
1997 to $271,000 in the three months ended March 31, 1998. The cost of software
license revenues as a percentage of such revenues decreased from 9% in the three
months ended March 31, 1997 to 5% in the three months ended March 31, 1998. The
1998 cost of software license revenues was lower than the 1997 cost of software
license revenues primarily due to the decrease in third-party hardware and
software costs associated with the sales of the Shepro Braun products.
Cost of Maintenance. Cost of maintenance revenues primarily consists of
technical customer support and development costs associated with product and
regulatory updates. The cost of maintenance revenues decreased 8% from $836,000
in the three months ended March 31, 1997 to $772,000 in the three months ended
March 31, 1998. The cost of maintenance revenues as a percentage of such
revenues decreased from 39% in the three months ended March 31, 1997 to 24% in
the three months ended March 31, 1998. Costs associated with CAMRA, FILMS and
PTS
9
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products remained relatively stable between the two quarterly periods. The
decrease is primarily attributable to a decrease in costs associated with the
Shepro Braun products due to a reallocation of resources from the support group
to the professional services group due to an increase in demand for installation
services.
Cost of Professional Services. Cost of professional services revenues consists
primarily of the cost related to personnel utilized to provide implementation,
conversion and training services to the Company's software licensees, as well as
custom programming, system integration and actuarial consulting services. The
cost of professional services revenues increased 23% from $1.5 million in the
three months ended March 31, 1997 to $1.8 million in the three months ended
March 31, 1998. The cost of professional services revenues as a percentage of
such revenues increased from 61% in the three months ended March 31, 1997 to 69%
in the three months ended March 31, 1998. The increase in the cost of
professional services was primarily attributable to an increase in personnel
costs and processing fees in SS&C Direct and an increase in personnel costs
associated with providing the CAMRA implementation, conversion and training
services.
Operating Expenses
Selling and Marketing. Selling and marketing expenses consist primarily of the
cost of personnel associated with the selling and marketing of the Company's
products, including salaries, commissions, and travel and entertainment. Such
expenses also include the cost of branch sales offices, advertising, trade
shows, marketing and promotional materials. Selling and marketing expenses
increased 74% from $2.2 million in the three months ended March 31, 1997 to $3.8
million in the three months ended March 31, 1998. Selling and marketing expenses
for the three months ended March 31, 1997 and 1998 represented 29% and 33%,
respectively, of total revenues for those periods. The increase in selling and
marketing expenses was primarily due to an increase in personnel expenses
related to the hiring of senior sales executives and technical pre-sales
consulting staff, including expanding the sales staff in the London office. The
increase also includes the addition of the staff of Mabel Systems B.V.
("Mabel"), acquired in November 1997, an increase in sales seminars and travel
expenses related to the sales process, and an increase in advertising and
promotional expenses, including trade shows, brochures and sales incentive
expenses.
Research and Development. Research and development expenses consist primarily
of personnel costs attributable to the development of new software products and
the enhancement of existing products. Research and development expenses
increased 26% from $2.2 million in the three months ended March 31, 1997 to $2.8
million in the three months ended March 31, 1998. Research and development
expenses in the three months ended March 31, 1997 and 1998
represented 30% and 24%, respectively, of total revenues for those periods. The
increase in research and development expenses was primarily due to increases in
personnel costs for new and existing employees and costs for independent
contractors.
General and Administrative. General and administrative expenses primarily
comprise personnel costs related to management, accounting, human resources and
administration and associated overhead costs, as well as fees for professional
services. General and administrative expenses increased 36% from $1.1 million in
the three months ended March 31, 1997 to $1.4 million in the three months ended
March 31, 1998, representing 14% and 12%, respectively, of total revenues for
those periods. The increase in general and administrative expenses was primarily
attributable to an increase in the bad debt reserve and an increase in legal
fees. The increase in the bad debt reserve resulted from the increase in
revenues. The increase in the legal fees was primarily related to activity in
the securities litigation claim.
Write-off of Purchased In-Process Research and Development. In the three months
ended March 31, 1998, the Company expensed $7.3 million, or 63% of total
revenues for the period, of purchased in-process research and development
associated with the products acquired in connection with the Quantra
Acquisition. Because these products had not reached technological feasibility at
the time of the acquisition and, in the Company's judgment, there was no
alternative future use for the related research and development, such in-process
research and development was therefore charged to expense.
Interest Income. The Company recorded net interest income of $449,000 in the
three months ended March 31, 1997 as compared to net interest income of $592,000
in the three months ended
10
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March 31, 1998. The increase in net interest income was primarily attributable
to a decrease in interest expense on loans assumed by the Company in connection
with the Shepro Acquisition that the Company paid in full in early 1998 and an
increase in the rate of return as the average length of maturity in marketable
securities was increased.
Provision for Income Taxes. Despite a loss for the three months ended
March 31, 1997, the Company recorded a provision for income taxes for $70,000.
Losses from Shepro Braun, an S Corporation at that time, offset the pre-tax
income from the Company's other operations, but such losses were not deductible
for income tax purposes. The Company had an effective tax rate of 41% for the
period, excluding the losses incurred by Shepro Braun. The effective tax rate
was 34% for the three months ended March 31, 1998. The effective tax rate
decrease was primarily due to a larger percentage of tax-exempt interest income
earned during the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, the Company financed its
operations primarily through cash flows generated from operations of $2.4
million. During the three months ended March 31, 1998, the Company used cash in
operating activities of $1.7 million. The decrease in the cash provided by
operations was primarily due to payments of accrued expenses, including
performance bonuses based on 1997 financial results, and an increase in tax
payments, also due to the 1997 financial results. Unbilled accounts receivable
increased $1.6 million primarily due to billing terms associated with contracts
signed in March 1998 and the contracts related to Quantra sales signed
subsequent to the acquisition date.
Investing activities provided cash of $4.4 million and used cash of $9.7
million for the three months ended March 31, 1997 and 1998, respectively.
Investing activities during the three months ended March 31, 1998 consisted
primarily of a change in the Company's investment portfolio whereby the Company
increased its positions in investments which matured in more than 90 days and
had fewer investments in securities with maturities less than 90 days. The
Company also used cash to partially finance the acquisition of Quantra for $2.3
million and transferred an additional $1.2 million of cash to an escrow account
in connection with the acquisition.
Financing activities provided cash of $161,000 for the three months ended
March 31, 1997 and used cash of $90,000 for the three months ended March 31,
1998. Financing activities during the three months ended March 31, 1997
consisted primarily of the repayment of $409,000 of debt, offset by the release
of a letter of credit of $505,000. Financing activities during the three months
ended March 31, 1998 consisted primarily of the repayment of $765,000 of debt,
offset by the proceeds from the exercise of options of $675,000.
As of March 31, 1998, the Company had $52.4 million in cash, cash
equivalents and marketable securities. The Company believes that its current
cash balances and net cash provided by operating activities will be sufficient
to meet its working capital and capital expenditure requirements for the next 12
months.
Year 2000 Compliance
The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by the so-called "Year 2000" systems and software
failures which can arise in certain time sensitive functions. The Company is
currently testing its products and expects them to be Year 2000 compliant in
1998. Costs associated with the testing and modifications, to make the Company's
products Year 2000 compliant, if any, are not expected to have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, the Company is in the process of identifying
anticipated costs, problems and uncertainties associated with making its
internal-use operating systems Year 2000 compliant. In general, the Company
expects to resolve the Year 2000 issue with respect to its internal-use computer
systems and software applications through upgrade, conversion, modification or
replacement of non-compliant systems and applications. There can be no
assurance, however, that the systems of other parties upon which the Company's
business also relies will be Year 2000 compliant. The costs of becoming Year
2000 compliant, or the failure
11
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thereof by the Company or other parties, could have a material adverse effect on
the Company's business, financial condition or results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Fluctuations in Quarterly Performance. The Company's revenues and operating
results historically have varied substantially from quarter to quarter. The
Company's quarterly operating results may continue to fluctuate due to a number
of factors, including the timing, size and nature of the Company's individual
license transactions; the timing of the introduction and the market acceptance
of new products or product enhancements by the Company or its competitors; the
relative proportions of revenues derived from license fees, maintenance,
consulting and other recurring revenues and professional services; changes in
the Company's operating expenses; personnel changes and fluctuations in economic
and financial market conditions. The timing, size and nature of individual
license transactions are important factors in the Company's quarterly operating
results. Many such license transactions involve large dollar amounts, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that the Company will be successful in closing large license
transactions on a timely basis or at all.
Dependence on Financial Services Industry. The Company's clients include a range
of organizations in the financial services industry, and the success of such
clients is intrinsically linked to the health of the financial markets. In
addition, because of the capital expenditures required in connection with an
investment in the Company's products, the Company believes that demand for its
products could be disproportionately affected by fluctuations, disruptions,
instability or downturns in the financial markets, which may cause clients and
potential clients to exit the industry or delay, cancel or reduce any planned
expenditures for investment management systems and software products. Any
resulting decline in demand for the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Product Concentration. To date, substantially all of the Company's revenues have
been attributable to the licensing of its CAMRA, PTS, FILMS and Total Return
software and the provision of maintenance and consulting services in connection
therewith. The Company currently expects that the licensing of CAMRA, PTS,
FILMS and Total Return software and certain products acquired by the Company in
connection with the Quantra Acquisition, and the provision of related services,
will account for a substantial portion of its revenues for the foreseeable
future. As a result, factors adversely affecting the pricing of or demand for
such products and services, such as competition or technological change, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Management of Growth. The Company's business has grown significantly in size and
complexity over the past several years. The growth in the size and complexity
of the Company's business as well as its client base has placed and is expected
to continue to place a significant strain on the Company's management and
operations. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage its work force. There can be no assurance
that the Company's personnel, systems, procedures and controls will be adequate
to support the Company's operations. If the Company's management is unable to
manage growth effectively, the quality of the Company's products and its
business, financial condition and results of operations could be materially
adversely affected.
Integration of Operations. The Company's success is dependent in part on its
ability to complete its integration of the operations of Mabel, Shepro, Quantra
and Savid in an efficient and effective manner. The successful integration in a
rapidly changing financial services industry may be more difficult to accomplish
than in other industries. The combination of these companies and any future
acquisitions will require, among other things, integration of the companies'
respective product offerings and coordination of their sales and marketing and
research and development efforts. There can be no assurance that such
integration will be accomplished smoothly or successfully. The difficulties of
such integration may be increased by the necessity of coordinating
geographically separated organizations. The integration of certain operations
will require the dedication of management resources which may temporarily
distract attention from the day-to-day business of the combined company. The
inability of management to successfully integrate the operations of
12
<PAGE>
these companies could have a material adverse effect on the business, financial
condition, and results of operations of the Company.
Competition. The market for financial services software is competitive, rapidly
evolving and highly sensitive to new product introductions and marketing efforts
by industry participants. Although the Company believes that none of its
competitors currently competes against the Company in each of the industry
segments served by the Company, there can be no assurance that such competitors
will not compete against the Company in the future in additional industry
segments. In addition, many of the Company's current and potential future
competitors have significantly greater financial, technical and marketing
resources, generate higher revenues and have greater name recognition than does
the Company.
Rapid Technological Change. The market for the Company's products and services
is characterized by rapidly changing technology, evolving industry standards and
new product introductions. The Company's future success will depend in part
upon its ability to enhance its existing products and services and to develop
and introduce new products and services to meet changing client requirements.
The process of developing software products such as those offered by the Company
is extremely complex and is expected to become increasingly complex and
expensive in the future with the introduction of new platforms and technologies.
There can be no assurance that the Company will successfully complete the
development of new products in a timely fashion or that the Company's current or
future products will satisfy the needs of the financial markets.
Dependence on Database Supplier. The relational database design in many of the
Company's software products incorporates PFXplus, a "C"-based database
management system licensed to the Company by POWERflex Corporation Proprietary
Limited, an Australian vendor ("Powerflex"). If Powerflex were to increase its
fees under the license agreement, the Company's results of operations could be
materially adversely affected. Moreover, if Powerflex were to terminate the
license agreement, the Company would have to seek an alternative relational
database for its software products. While the Company believes that it could
migrate its products to an alternative database, there can be no assurance that
the Company would be able to license in a timely fashion a database with similar
features and on terms acceptable to the Company.
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company
relies on a combination of trade secret, copyright and trademark law,
nondisclosure agreements and technical measures to protect its proprietary
technology. There can be no assurance that the steps taken by the Company to
limit access to its proprietary technology will be adequate to deter
misappropriation or independent third-party development of such technology.
Product Defects and Product Liability. The Company's software products are
highly complex and sophisticated and could from time to time contain design
defects or software errors that could be difficult to detect and correct.
Errors, bugs or viruses may result in loss of or delay in market acceptance or
loss of client data. Although the Company has not experienced material adverse
effects resulting from any software defects or errors, there can be no assurance
that, despite testing by the Company and its clients, errors will not be found
in new products, which errors could result in a delay in or inability to achieve
market acceptance and thus could have a material adverse impact upon the
Company's business, financial condition and results of operations.
Key Personnel. The Company's success is dependent in part upon its ability to
attract, train, and retain highly skilled technical, managerial, and sales
personnel. The loss of services of one or more of the Company's key employees
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company continues to hire a significant
number of additional sales, service, and technical personnel. Competition for
the hiring of such personnel in the software industry is intense. Locating
candidates with the appropriate qualifications, particularly in the desired
geographic location, can be difficult. Although the Company expects to continue
to attract and retain sufficient numbers of highly skilled employees for the
foreseeable future, there can be no assurance that the Company will do so.
Risks Associated with International Operations. The Company intends to expand
its international sales activity as part of its business strategy. To accomplish
such expansion, the Company must establish additional foreign operations and
hire additional personnel, requiring significant management attention and
financial resources that could materially
13
<PAGE>
adversely affect the Company's business, financial condition or results of
operations. An increase in the value of the U.S dollar relative to foreign
currencies could make the products more expensive and, therefore, potentially
less competitive in those markets. An increasing portion of the Company's
international sales are denominated in foreign currency. The Company hedges some
of this risk; however, significant fluctuations in the value of foreign
currencies could have an adverse effect on the earnings of the Company. In
addition, the Company's international business may be subject to a variety of
risks, including difficulties in obtaining U.S.export licenses, potentially
longer payment cycles, increased costs associated with maintaining international
marketing efforts, the introduction of non-tariff barriers and higher duty rates
and difficulties in enforcement of contractual obligations and intellectual
property rights. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Because of these and other factors, past financial performance should not be
considered an indication of future performance. The Company's quarterly
operating results may vary significantly, depending on factors such as the
timing, size and nature of licensing transactions and new product introductions
by the Company or its competitors. Investors should not use historical trends
to anticipate future results and should be aware that the trading price of the
Company's common stock may be subject to wide fluctuations in response to
quarterly variations in operating results and other factors, including those
discussed above.
ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 131, Reporting
Comprehensive Income ("SFAS No. 131") was issued. SFAS No. 131 requires public
companies to report all financial and descriptive information about operating
segments in their financial statements and requires selected information about
operating segments to be reported in interim financial reports issued to
shareholders. Operating segment financial information is required to be reported
on the basis that is used internally for evaluating segment performance and
allocation of resources. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. SFAS No. 131 does not need
to be applied to interim financial statements in 1998. The adoption of SFAS No.
131 is expected to impact the way the Company reports information about its
operating segments.
The Company adopted Statement of Position No. 97-2, Software Revenue Recognition
("SOP 97-2"), which is effective in fiscal years beginning after December 15,
1997. Retroactive application of the provisions of SOP 97-2 from the previously
issued SOP on software revenue recognition is prohibited. The adoption of SOP
97-2 did not have a material impact on the Company's business,
financial condition, and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On March 18, 1997, Elery G. Montagna and Marjory G. Montagna filed a
purported class action lawsuit in the United States District Court for the
Southern District of New York (the "New York Complaint") against the Company and
certain of its executive officers, as well as against BT Alex. Brown
Incorporated (as successor to Alex. Brown & Sons Incorporated, "Alex. Brown")
and Hambrecht & Quist LLC ("Hambrecht & Quist"), the lead managers of the
Company's initial public offering. On April 8, 1997, Marc A. Feiner filed a
purported class action lawsuit in the United States District Court for the
District of Connecticut (the "Connecticut Complaint") against the Company, its
directors and certain of its executive officers, as well as against
Alex.Brown and Hambrecht & Quist. On July 8, 1997, Marc A. Feiner, Joseph
Aogiere, Arthur S. Davis, Theodore S. Davis, James Gregory, Brian Kreidler,
Daniel Kreidler, Robert Miller, Elery Montagna, Marjory Montagna and Gilda
Shapiro Trust filed a Consolidated Amended Class Action Complaint in the United
States District Court for the District of Connecticut (the "Consolidated
Complaint") in which the New York Complaint and the Connecticut Complaint were
consolidated and amended. The Consolidated Complaint claims that the Prospectus
for the Company's initial public offering allegedly made material
misrepresentations in violation of Sections 11 and 12(2) of the Securities Act
of 1933. The plaintiffs are seeking an undetermined amount of damages and costs
and expenses of the litigation. On October 3, 1997, the Company filed a motion
to dismiss the Consolidated Complaint on the grounds that it failed to state a
claim against the Company or the individual defendants. On October 7, 1997,
Alex.Brown and Hambrecht & Quist filed a similar motion to dismiss the
Consolidated Complaint on the grounds that it failed to state a claim against
them. On November 14, 1997, the plaintiffs filed an opposition to the motions to
dismiss. On December 10, 1997, Alex.Brown and Hambrecht & Quist filed a reply to
such opposition, and on December 11, 1997 the Company similarly filed a reply to
such opposition. The motions to dismiss were heard by the court on December 16,
1997 and on March 30, 1998 the court denied the motions to dismiss. The matter
is now proceeding into the discovery phase. Although the Company believes that
it has meritorious defenses to the claims made in the lawsuit and intends to
contest the lawsuit vigorously, an adverse resolution of the lawsuit could have
a material adverse effect on the Company's financial condition and results of
operations in the period in which the litigation is resolved.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On March 20, 1998, the Company acquired substantially all of the assets of
Quantra pursuant to an Asset Purchase Agreement, dated as of March 20, 1998 (the
"Purchase Agreement"), by and among the Company, Quantra and AEGON USA Realty
Advisors, Inc., the sole stockholder of Quantra ("AEGON"). The assets included
Quantra's inventory, accounts receivable, assumed contracts, fixed assets,
intellectual property and software. The purchase price consisted of 546,019
shares (the "Shares") of the Company's Common Stock, $.01 par value per share,
$2.3 million in cash and the assumption of certain liabilities of Quantra of
$3.9 million, plus the costs of effecting the transaction. The Shares were
issued and sold to AEGON in reliance on Section 4(2) of the Securities Act of
1933, as amended, as a sale by the Company not involving a public offering. No
underwriters were involved with the issuance and sale of the Shares.
The following information relates to the use of proceeds from the Company's
initial public offering of Common Stock (the "Offering").
The effective date of the Company's Registration Statement on Form S-1 (File
No. 333-3094) (the "Registration Statement") relating to the Offering, for which
the following use of proceeds information is being disclosed, was May 30, 1996.
From the effective date of the Registration Statement through March 31,
1998, the Company has used the net Offering proceeds to the Company as follows:
Acquisition of other businesses $ 3,975,000
Repayment of indebtedness $ 1,215,000
Working capital $ 8,814,425
Municipal bonds $30,694,789
Municipal bond funds $ 6,074,623
Corporate bonds $ 2,000,000
15
<PAGE>
All of the above-listed payments were direct or indirect payments to persons
other than: directors, officers, general partners of the Company or their
associates; persons owning ten percent or more of any class of equity securities
of the Company; or affiliates of the Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. The exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of or are included in this report.
b. On January 8, 1998, the Company filed a Current Report on Form 8-K,
dated December 31, 1997, to report under Item 2 (Acquisition or Disposition of
Assets) the Company's acquisition of Shepro Braun Systems, Inc. No financial
statements were required to be filed with such report.
On January 28, 1998, the Company filed Amendment No. 1 to Current
Report on Form 8-K/A, dated November 14, 1997, for the purpose of filing the
financial statements of Mabel Systems B.V. ("Mabel") required by Item 7(a) and
the pro forma financial information required by Item 7(b) with respect to the
Company's acquisition of Mabel on November 14, 1997.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SS&C TECHNOLOGIES, INC.
Date: May 14, 1998 By:/s/ John S. Wieczorek
------------------------
John S. Wieczorek
Vice President, Chief
Financial Officer and
Treasurer
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2 Asset Purchase Agreement, dated as of March 20, 1998, by and
among SS&C Technologies, Inc., AEGON USA Realty Advisors, Inc.
and Quantra Corporation is incorporated herein by reference to
Exhibit 2 to the Registrant's Current Report on Form 8-K, dated
March 20, 1998 (File No. 000-28430)
10.1 1998 Stock Incentive Plan is incorporated herein by reference to
Annex A to the Registrant's Definitive Schedule 14A filed April
6, 1998. (File No. 000-28430)
10.2 Amendment No. 2 to 1996 Employee Stock Purchase Plan, as amended
27 Financial Data Schedule
18
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 2
TO
1996 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
OF
SS&C TECHNOLOGIES, INC.
March 19, 1998
The 1996 Employee Stock Purchase Plan, as amended (the "Plan"), of SS&C
Technologies, Inc. is hereby amended as follows (capitalized terms used herein
and not defined herein shall have the respective meaning ascribed to such terms
in the Plan):
1. Section 2(b) of the Plan shall be deleted in its entirety and replaced with
the following:
"(b) Intentionally Deleted."
2. The first sentence of Section 4 of the Plan shall be deleted in its
entirety and replaced with the following:
"An employee eligible on the Offering Commencement Date of any Offering may
participate in such Offering by completing and forwarding a payroll
deduction authorization form to the Treasurer of the Company prior to the
applicable Offering Commencement Date."
Except as aforesaid, the Plan shall remain in full force and effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,102
<SECURITIES> 40,330
<RECEIVABLES> 21,250
<ALLOWANCES> 2,444
<INVENTORY> 0
<CURRENT-ASSETS> 74,409
<PP&E> 9,020
<DEPRECIATION> 4,092
<TOTAL-ASSETS> 92,768
<CURRENT-LIABILITIES> 19,294
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 73,065
<TOTAL-LIABILITY-AND-EQUITY> 92,768
<SALES> 11,590
<TOTAL-REVENUES> 11,590
<CGS> 0
<TOTAL-COSTS> 2,829
<OTHER-EXPENSES> 10,098
<LOSS-PROVISION> 168
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,009)
<INCOME-TAX> (2,041)
<INCOME-CONTINUING> (3,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,968)
<EPS-PRIMARY> (.29)
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