<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to __________________
Commission File 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)
80 Lamberton Road
Windsor, CT 06095
(Address of principal executive offices including zip code)
860-298-4500
(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, 1999:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, par value $.01 per share 15,620,957
Page 1
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SS&C TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
December 31, 1998 and March 31, 1999 3
Consolidated Statements of Operations for
the three-month periods ended March 31, 1998 and 1999 4
Consolidated Statements of Cash Flows for
the three-month periods ended March 31, 1998 and 1999 5
Notes to Consolidated 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
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 16
EXHIBIT INDEX 17
</TABLE>
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.
Page 2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
March 31, Dec. 31,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,299 $ 13,047
Restricted cash 1,230 1,230
Investments in marketable securities 43,344 42,263
Accounts receivable, net 25,388 24,441
Note receivable - 2,250
Prepaid expenses and other current assets 2,082 1,709
Deferred income taxes 584 434
------------- ------------
Total current assets 88,927 85,374
------------- ------------
Property and equipment:
Land 106 106
Building and leasehold improvements 2,833 2,748
Equipment, furniture and fixtures 11,530 10,740
------------- ------------
14,469 13,594
Less accumulated depreciation (6,309) (5,806)
------------- ------------
Net property and equipment 8,160 7,788
------------- ------------
Accounts receivable 531 549
Deferred income taxes 6,207 6,266
Goodwill, net 615 722
Intangible and other assets, net 3,815 4,615
------------- ------------
Total assets $ 108,255 $ 105,314
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 130 $ 171
Accounts payable 2,914 2,124
Taxes payable 1,498 1,059
Accrued employee compensation and benefits 1,980 6,941
Other accrued expenses 2,422 2,492
Deferred maintenance and other revenues 15,356 13,301
------------- ------------
Total current liabilities 24,300 26,088
Long-term debt 161 303
------------- ------------
Total liabilities 24,461 26,391
------------- ------------
Stockholders' equity:
Common stock 156 153
Additional paid-in capital 84,975 81,509
Cumulative translation adjustment (178) (121)
Accumulated deficit (1,159) (2,618)
------------- ------------
Total stockholders' equity 83,794 78,923
============= ============
Total liabilities and stockholders' equity $ 108,255 $ 105,314
============= ============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
Page 3
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
----------- ------------
<S> <C> <C>
Revenues:
Software licenses $ 8,006 $ 5,936
Maintenance and other recurring revenues 6,683 4,153
Professional services 4,758 2,479
---------- -----------
Total revenues 19,447 12,568
---------- -----------
Cost of revenues:
Software licenses 1,062 429
Maintenance and other recurring revenues 2,421 1,507
Professional services 3,170 1,640
---------- -----------
Total cost of revenues 6,653 3,576
---------- -----------
Gross profit 12,794 8,992
---------- -----------
Operating expenses:
Selling and marketing 4,413 3,635
Research and development 4,641 3,289
General and administrative 2,614 1,741
Write-off of purchased in-process
research and development - 5,387
---------- -----------
Total operating expenses 11,668 14,052
---------- -----------
Operating income (loss) 1,126 (5,060)
Interest income, net 563 590
Other income 284 64
---------- -----------
Income (loss) before income taxes 1,973 (4,406)
Provision (benefit) for income taxes 492 (1,481)
========== ===========
Net income (loss) $ 1,481 (2,925)
========== ===========
Basic earnings (loss) per share $ 0.10 $ (0.20)
========== ===========
Weighted average number of common
shares outstanding 15,380 14,405
========== ===========
Diluted earnings (loss) per share $ 0.09 $ (0.20)
========== ===========
Weighted average number of common
and common equivalent shares outstanding 16,102 14,405
========== ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
Page 4
<PAGE>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,481 $ (2,925)
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,482 537
Deferred income taxes (91) (1,908)
Purchased in-process research and development - 5,387
Provision for doubtful accounts 286 214
Changes in operating assets and liabilities, excluding effects from
acquisitions:
Accounts receivable (1,272) (1,689)
Prepaid expenses and other current assets (373) -
Accounts payable 705 (402)
Accrued expenses (1,987) (2,044)
Taxes payable 439 (1,278)
Deferred maintenance and other revenues 2,055 2,347
--------- ---------
Total adjustments 1,244 1,164
--------- ---------
Net cash provided by (used in) operating activities 2,725 (1,761)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (781) (820)
Acquisition of Quantra, net of cash received - (2,281)
Additions to capitalized software and other intangibles (88) (1,434)
Proceeds from note receivable 2,250 -
Purchases of marketable securities (7,200) (25,884)
Sales of marketable securities 6,119 31,397
--------- ---------
Net cash provided by investing activities 300 978
--------- ---------
Cash flows from financing activities:
Repayment of debt (183) (919)
Proceeds from note payable - 280
Exercise of options 410 675
--------- ---------
Net cash provided by financing activities 227 36
--------- ---------
Net increase(decrease) in cash and cash equivalents 3,252 (747)
Cash and cash equivalents, beginning of period 13,047 5,026
========= =========
Cash and cash equivalents, end of period $ 16,299 $ 4,279
========= ========
</TABLE>
Supplemental disclosure of non-cash investing activities:
As more fully described in Note 3, effective March 20, 1998, the Company
purchased substantially all the assets of Quantra Corporation for $15.3 million.
As more fully described in Note 3, effective March 11, 1999, the Company
purchased all the outstanding stock of HedgeWare, Inc. for 685,683 shares of the
Company's common stock.
See accompanying notes to Consolidated Financial Statements.
Page 5
<PAGE>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated 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, 1999 and the results of its operations for
the three months ended March 31, 1998 and 1999. 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, 1998 included
in the Company's Form 10-K filed with the Securities and Exchange Commission.
The December 31, 1998 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, 1999 are not necessarily indicative of the results
to be expected for the full year.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with 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. Diluted earnings per share is computed by dividing net income
(loss) 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 0.7
million and 2.3 million shares at March 31, 1999 and 1998, respectively, were
not included in the computation of diluted earnings per share because the effect
of including the options would be antidilutive. Income available to stockholders
is the same for basic and diluted earnings per share. A reconciliation of the
shares outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Basic weighted average shares outstanding 15,380 14,401
Weighted average common stock equivalents--options 722 -
------ ------
Diluted weighted average shares outstanding 16,102 14,401
====== ======
</TABLE>
Comprehensive Income (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 income (loss) and comprehensive income (loss) for the
three months ended March 31, 1998 and 1999.
2. Related Party Transactions:
Aegon USA Realty Advisors, Inc. ("Aegon") is the parent company of QSC Holding
Inc.(formerly known as Quantra Corporation), which sold substantially all of its
assets to the Company in March 1998. The president of Aegon also retains a seat
on the board of directors of the Company. During the first quarter ended March
1999 Aegon licensed certain of the Company's products for $1.68 million. This
amount was paid in full during the quarter ended March 31, 1999.
3. 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 in which the Complaints
were consolidated and amended.
Page 6
<PAGE>
On May 7, 1999, the Company announced that it had entered into an agreement that
provides for the settlement of the consolidated securities class action lawsuit
pending against the Company. The settlement provides that all claims against the
Company, certain of its officers and directors and underwriters will be
dismissed. Under the terms of the settlement, in exchange for the dismissal and
release of all claims, the Company will pay to the class $7.5 million in cash,
together with shares of Common Stock of the Company valued at $1.3 million. The
Company will record a charge of approximately $9.2 million, including legal
fees, in the quarter ending June 30, 1999. The settlement is subject to certain
customary conditions, including notice to the class and approval by the Court.
4. 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 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 approximately 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):
<TABLE>
<S> <C>
Accounts receivable $ 4,145
Equipment and furniture 412
Other assets 63
Complete technology 4,943
Incomplete technology 5,387
-------
Total purchase price $14,950
=======
</TABLE>
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 bear 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.
The unaudited pro forma condensed consolidated results of operations presented
below for the three months ended March 31, 1998, assumes the Quantra Acquisition
occurred at the beginning of the period (in thousands):
<TABLE>
<S> <C>
Total revenues $14,295
Net loss (2,764)
Basic loss per share (.19)
Diluted loss per share (.19)
</TABLE>
These pro forma results are not necessarily indicative of results of operations
that would have actually occurred had the acquisition taken place at the
beginning of the period, or of future operations of the combined companies.
On March 11, 1999, the Company acquired all of the outstanding stock of
HedgeWare, Inc. ("HedgeWare"), a provider of portfolio, financial, partnership
and tax accounting software and service support to hedge fund managers and
traders, for 685,683 shares of Common Stock of the Company in a business
combination accounted for as a pooling-of-interests. Accordingly, the financial
statements for all periods prior to the combination have been restated to
reflect the combined operations. The Company, HedgeWare and the former
stockholders of HedgeWare have entered into an Escrow Agreement providing, among
other things, that 89,139 shares of Common Stock will be held in escrow to
reimburse the Company in connection with breaches of representations, warranties
or covenants, if any, as well as potential rental obligations and sales tax
liabilities of HedgeWare. The results of operations presented below for the
quarters ended March 31, 1998 and 1999 present the Company and HedgeWare as
stand-alone entities. There were no intercompany transactions and no adjustments
to net assets of the combining companies to adopt the same accounting practices.
Page 7
<PAGE>
<TABLE>
<CAPTION>
Total
Company HedgeWare Company
------- --------- -------
(in thousands)
<S> <C> <C> <C>
For the three months ended March 31, 1998:
Revenues $ 11,528 $ 1,040 $ 12,568
Net loss $ (2,656) $ (269) $ (2,925)
For the three months ended March 31, 1999:
Revenues $ 16,778 $ 2,669 $ 19,447
Net income $ 85 $ 1,396 $ 1,481
</TABLE>
HedgeWare had elected to be treated as a Subchapter S Corporation for income tax
purposes and, as such, income taxes are provided from March 11, 1999 for
HedgeWare's results of operations.
During the quarter ended March 31, 1999, the Company issued stock valued at $3.1
million in satisfaction of certain HedgeWare's shareholder and employee-related
accrued expenses that existed as of the effective date of the merger.
On March 31, 1999, the Company acquired all of the outstanding stock of The
Brookside Corporation, a Rhode Island corporation ("Brookside"), pursuant to a
Stock Purchase Agreement, dated as of March 31, 1999 (the "Purchase Agreement"),
by and among the Company, Brookside, and John M. Boyle (the "Stockholder").
Pursuant to the Purchase Agreement, all of the outstanding shares of common
stock of Brookside held by the Stockholder were exchanged for an aggregate of
27,600 shares of Common Stock of the Company. The consolidated results of
operations for the three months ended March 31, 1999 include the results of
operations of Brookside from the beginning of the quarter. The consolidated
financial statements for prior periods have not been restated since the impact
of such restatement would not be material.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED March 31, 1999 and 1998
Revenues
The Company's revenues are derived from software licenses and related
maintenance and professional services. Total revenues increased 55% from $12.6
million in the three months ended March 31, 1998 to $19.4 million in the three
months ended March 31, 1999.
Software Licenses. Software license revenues increased 35% from $5.9 million
in the three months ended March 31, 1998 to $8.0 million in the three months
ended March 31, 1999. This increase was primarily due to an increase in
LMS 2000 and Advisorware software license revenues.
Maintenance and Other Recurring Revenue. Maintenance and other recurring
revenue increased 61% from $4.2 million in the three months ended March 31, 1998
to $6.7 million in the three months ended March 31, 1999. The increase was
primarily due to growth in the Company's installed base of clients requiring
maintenance services.
Professional Services. Professional services revenues increased 92% from $2.5
million in the three months ended March 31, 1998 to $4.8 million in the three
months ended March 31, 1999. Demand for the Company's implementation, conversion
and training services has increased primarily due to the Company's increasing
services resulting from additional license sales and an increase in billing
rates.
Cost of Revenues
Total cost of revenues increased 86% from $3.6 million in the three months
ended March 31, 1998 to $6.7 million in the three months ended March 31, 1999.
The gross margin decreased from 72% for the three months ended March 31, 1998 to
66% for the three months ended March 31, 1999, primarily due to the amortization
of completed technology related to the Quantra and Savid acquisitions.
Cost of Software Licenses. Cost of software license revenues relates primarily
to royalties, the costs of product media, packaging, documentation and labor
involved in the distribution of the Company's software as well as amortization
of completed technology. The cost of software licenses increased 148% from
$429,000 in the three months ended March 31, 1998 to $1.0 million in the three
months ended March 31, 1999.
Page 9
<PAGE>
The cost of software license revenues as a percentage of such revenues increased
from 7% in the three months ended March 31, 1998 to 13% in the three months
ended March 31, 1999. The increase in costs was due primarily to the
amortization of completed technology related to the Quantra and Savid
acquisitions.
Cost of Maintenance and Other Recurring Revenue. Cost of maintenance and other
recurring revenue primarily consists of technical customer support and
development costs associated with product and regulatory updates. The cost of
maintenance and other recurring revenue increased 61% from $1.5 million in the
three months ended March 31, 1998 to $2.4 million in the three months ended
March 31, 1999. The change was primarily due to increased headcount for the
infrastructure to support the expanded installed client base.
Cost of Professional Services. Cost of professional service 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 93% from $1.6 million in the
three months ended March 31, 1998 to $3.2 million in the three months ended
March 31, 1999. The cost of professional services revenues as a percentage of
revenues remained approximately the same. The increase in the cost of
professional services was primarily attributable to the addition of personnel
required to support the corresponding increase in 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. These expenses increased 21% from
$3.6 million in the three months ended March 31, 1998 to $4.4 million in the
three months ended March 31, 1999 representing 29% and 23%, respectively, of
total revenues for those periods. The increase was largely attributable to costs
associated with the hiring of additional sales and marketing personnel,
including recruiting fees, and the expansion of international operations,
including a dedicated international sales and marketing operation.
Page 10
<PAGE>
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 41% from $3.3 million in the three months ended March 31, 1998 to $4.6
million in the three months ended March 31, 1999. Research and development
expenses in the three months ended March 31, 1998 and 1999 represented 26% and
24%, respectively, of total revenues for those periods. The Company believes
that due to the sophistication of its products, research and development
spending should remain at these levels. The dollar increase quarter over quarter
was mainly due to additional hiring and sub-contracted personnel.
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 50% from $1.7 million in
the three months ended March 31, 1998 to $2.6 million in the three months ended
March 31, 1999, representing 14% and 13%, respectively, of total revenues for
those periods. This increase was primarily due to staff additions necessary to
improve the Company's administrative infrastructure, allowing the Company to
better manage growth through the implementation of systems and controls.
Write-off of Purchased In-Process Research and Development. In the three months
ended March 31, 1998, the Company expensed $5.4 million, or 43% of total
revenues for the period, of purchased in-process research and development
associated with the products acquired in connection with the Quantra Acquisition
compared to zero in the three months ended March 31, 1999. Since 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 charged
to expense.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company financed its
operations primarily through cash flows generated from operations of $2.7
million. Cash provided by operations was $2.7 million in the three months ended
March 31, 1999 compared to cash used in operations of $1.8 million in the three
months ended March 31, 1998. The net increase in cash provided by operating
activities of approximately $4.5 million was primarily attributable to an
improvement in operating income and working capital.
Investing activities provided cash of $0.3 million for the three months
ended March 31, 1999 compared to cash provided in investing activities of $1.0
million in the three months ended March 31, 1998. Investing activities in the
three months ended March 31, 1999 consisted primarily of the payment of a $2.2
million note receivable associated with the Caminus Energy Ventures, LLC ("CEV")
transaction, offset by $0.8 million in additions to property, plant and
equipment and a net purchase of $1.1 million in marketable securities.
Financing activities provided cash of $0.2 million for the three months
ended March 31, 1999 compared to approximately zero in the three months ended
March 31, 1998. Cash provided by financing activities during the three months
ended March 31, 1999 consisted primarily of the proceeds from the exercise of
stock options of $0.4 million and partially offset by repayment of debt.
As of March 31, 1999, the Company had $60.9 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 at least
the next 12 months.
Year 2000 Compliance
The so-called "Year 2000" problem relates to computer systems that have
time-sensitive programs containing two-digit fields for the year and that may
confuse the year 2000 with the year 1900. If the Company or a third party
dealing with the Company uses a computer system or software application which
partly or fully fails as a result of its inability to recognize the year 2000,
the results could conceivably have a material adverse effect on the Company. The
Company has utilized both in-house and outside consultants to test whether its
products are Year 2000 compliant. Most of the Company's key products have
already passed testing to be certified as Year 2000 compliant. In the event that
any Year 2000-compliance issues with its supported products arise, it is the
Company's intention to rectify those problems through the software support
process. Costs associated with the testing and modifications to make the
Company's products Year 2000 compliant have not had, and are not expected to
have, a material adverse effect on the Company's business, financial condition
or results of operations and cash flows. The Company is in the process of
identifying anticipated costs, problems and uncertainties associated with making
its internal-use computer systems Year 2000 compliant. The Company currently
utilizes a computing network comprised of a series of local-area-networks
("LANs") that are connected via a wide-area-network ("WAN"). Important computer
systems used by operations include those used in developing products and in
communicating with and servicing customers. Important computer systems used in
financial and administrative management include general ledgers, time and
project management systems and a human resource system. Substantially all
operating systems, the LANs, the WAN, the general ledgers and the human resource
system have either been updated to be and/or were certified by the vendor to be
Year 2000 compliant. In general, the Company expects to resolve any remaining
Year 2000 issues with respect to its internal-use computer systems and software
applications as they arise through upgrade, conversion, modification or
replacement of non-compliant systems and applications.
Page 11
<PAGE>
The Company is also reviewing the possible impact of Year 2000 problems on
its central and satellite office facilities and their systems. Although there
can be no assurance that the utility (e.g., heat, light, power and phone system)
suppliers will achieve Year 2000-compliance requirements in a timely manner, the
Company presently has no reason to believe they will not. The failure of any of
these key suppliers to properly address their Year 2000 problems could lead to a
shutdown of the affected operations and could delay or halt both development of
Company products and provision of Company services.
There can be no assurance that the systems of other parties upon which the
Company's business relies directly or indirectly will be Year 2000 compliant.
The costs of becoming Year 2000 compliant, or the failure thereof by the Company
or other parties, could have a material adverse effect on the Company's
business, financial condition or results of operations. Given the possibility of
system failure as a result of the century change, the Company is currently in
the process of formulating one or more contingency plans, which it anticipates
implementing during 1999.
The foregoing shall be considered a Year 2000 readiness disclosure to the
maximum extent allowed under the Year 2000 Information and Readiness Disclosure
Act.
Conversion to Euro
On January 1, 1999, 11 of the 15 members of the European Union established
fixed conversion rates between their existing currencies and the "Euro." The
Euro will trade on currency exchanges and the legacy currencies will remain
legal tender for a transition period between January 1, 1999 and January 1,
2002. During the transition period, goods and services may be paid for using the
Euro or the participating country's legacy currency. Participating countries no
longer control their own monetary policies by directing independent interest
rates for their legacy currencies. Instead, the authority to direct monetary
policy, including money supply and official interest rates, will be exercised by
the new European Central Bank. No later than July 1, 2002, the legacy currencies
of the participating countries will no longer be legal tender for any
transaction, making conversion to the Euro complete.
The Company has established plans and has begun developing the necessary
modifications for the technical adaptation of its internal information
technology and other systems to accommodate Euro-denominated transactions. The
Company expects that it will be able to process Euro-denominated transactions on
a timely basis. The Company is also assessing the business implications of the
conversion to the Euro, including long-term competitive implications and the
effect of market risk with respect to financial instruments. The Company is
currently unable to determine the ultimate financial impact of these matters, if
any, on its business, financial condition and results of operations. However,
the Company will continue to assess the impact of Euro conversion issues as the
applicable accounting, tax, legal and regulatory guidance evolves.
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, REMS, MLMS,
Telesales, Antares and Total Return software and the provision of maintenance
and consulting services in connection therewith. The Company currently expects
that the licensing of such software products, as well as certain other products
acquired by the Company in connection with recent acquisitions 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.
Page 12
<PAGE>
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 its recent
acquisitions, including HedgeWare, 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
acquired companies will require, among other things, integration of the acquired
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 that may temporarily
distract attention from the day-to-day business of the combined Company. The
inability of management to successfully integrate the operations of acquired
companies could have a material adverse effect on the business, financial
condition, and results of operations of the Company.
Competition. The market for financial service 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 all of the
markets served by the Company, there can be no assurance that such competitors
will not compete against the Company in the future in additional markets. 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
continue to expand its international sales activity as part of its business
strategy. To accomplish such continued expansion, the Company must establish
additional foreign operations and hire additional personnel requiring
significant management attention and financial resources that could materially
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 Company's
Page 13
<PAGE>
products more expensive and, therefore, potentially less competitive in those
foreign markets. A portion of the Company's international sales is denominated
in foreign currency. The Company occasionally 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company purchases from time to time forward contracts to attempt to
minimize the impact of exchange rate gains or losses from foreign currency
transactions. The Company generally places its marketable security investments
in high credit quality instruments, primarily U.S. Government and Federal Agency
obligations, tax-exempt municipal obligations and corporate obligations. The
Company does not expect any material loss from its marketable security
investments and therefore believes that its potential interest rate exposure is
not material.
The Company invoices customers primarily in U.S. dollars and in local
currency in those countries in which the Company has branch and subsidiary
operations. The Company is exposed to foreign exchange rate fluctuations from
when customers are invoiced in local currency until collection occurs. Through
March 31,1999, foreign currency fluctuations have not had a material impact on
the Company's financial position or results of operation, and therefore the
Company believes that its potential foreign currency exchange rate exposure is
not material.
The foregoing risk management discussion and the effect thereof are
forward-looking statements. Actual results in the future may differ materially f
from these projected results due to actual developments in global financial
markets. The analytical methods used by the Company to assess and mitigate risk
discussed above should not be considered projections of future events or losses.
Page 14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 7, 1999, the Company announced that it had entered into an agreement that
provides for the settlement of the consolidated securities class action lawsuit
pending against the Company. The settlement provides that all claims against the
Company, certain of its officers and directors and underwriters will be
dismissed. Under the terms of the settlement, in exchange for the dismissal and
release of all claims, the Company will pay to the class $7.5 million in cash,
together with shares of Common Stock of the Company valued at $1.3 million. The
Company will record a charge of approximately $9.2 million, including legal
fees, in the quarter ending June 30, 1999. The settlement is subject to certain
customary conditions, including notice to the class and approval by the Court.
Item 2. Changes in Securities and Use of Proceeds
On March 11, 1999, the Company acquired HedgeWare pursuant to an Agreement and
Plan of Merger, dated as of March 11, 1999 (the "Merger Agreement"), among the
Company, HedgeWare, Asset Management Acquisition Corp., a wholly owned
subsidiary of the Company (the "Merger Subsidiary"), Michael J. Lazarcheck,
Robert H. Pontbriand and Matthew J. Cosciello (collectively, the"Stockholders")
and Andrew Appell, Eugene Barra, Ellis Horowitz, Ronald Kashden, Brook F. Seitz,
Mark E. Tarantina and Alan Zenreich (collectively, the "Performance Unit
Holders"). The Stockholders and Performance Unit Holders are referred to
collectively as the "Holders." Pursuant to the Merger Agreement, the Merger
Subsidiary was merged with and into HedgeWare (the "Merger"), whereupon
HedgeWare became a wholly owned subsidiary of the Company. In connection with
the Merger, (i) all of the outstanding shares of common stock of HedgeWare held
by the Stockholders were converted into an aggregate of 499,718 shares of Common
Stock of the Company, (ii) all of the outstanding performance units under
HedgeWare's Performance Unit Plan held by the Performance Unit Holders were
converted into an aggregate of 124,930 shares of Common Stock and (iii)
outstanding loans, interest and dividends aggregating approximately $1,000,000
and owed by HedgeWare to the Stockholders were converted into an aggregate of
61,035 shares of Common Stock. The shares of Common Stock were issued and sold
to the Holders 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 of Common
Stock.
On March 31, 1999, the Company acquired all of the outstanding stock of
The Brookside Corporation, a Rhode Island corporation ("Brookside"), pursuant to
a Stock Purchase Agreement, dated as of March 31, 1999 (the "Purchase
Agreement"), by and among the Company, Brookside, and John M. Boyle (the
"Stockholder"). Pursuant to the Purchase Agreement, all of the outstanding
shares of common stock of Brookside held by the Stockholder were exchanged for
an aggregate of 27,600 shares of Common Stock of the Company. The shares of
Common Stock were issued and sold to the stockholders in reliance on Section
4(2) of the Securities Act of 1933, as amended, and Regulation D thereunder, as
a sale by the Company not involving a public offering. No underwriters were
involved with the issuance and sale of the shares of Common Stock.
From the effective date of the Registration Statement through March 31,
1999, the Company has used the net Offering proceeds to the Company as follows:
<TABLE>
<S> <C>
Corporate move and equipment purchases $ 8,053,000
Acquisition of other business $ 5,333,000
Repayment of indebtedness $ 3,324,000
Working capital $ 5,471,000
Marketable securities $ 30,619,000
</TABLE>
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.
Page 15
<PAGE>
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 March 23, 1999, the Company filed a Current Report on Form 8-K,
dated March 11, 1999, to report under Item 2 (Acquisition or Disposition of
Assets) the Company's acquisition of HedgeWare, Inc. No financial statements
were required to be filed with such report.
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 17, 1999 By: /s/ Anthony R. Guarascio
Anthony R. Guarascio
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Page 16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.1 Agreement and Plan of Merger, dated as of March 11, 1999, by
and among SS&C Technologies, Inc., HedgeWare, Inc., Asset
Management Acquisition Corp. and Michael J. Lazarcheck, Robert
H. Pontbriand, Matthew J. Cosciello, Andrew Appell, Eugene
Barra, Ellis Horowitz, Ronald Kashden, Brook F. Seitz, Mark E.
Tarantina and Alan Zenreich is incorporated herein by
reference to Exhibit 2 to the Registrant's Current Report on
Form 8-K, dated March 11, 1999 (File No. 000-28430)
2.2 Stock Purchase Agreement, dated as of March 31, 1999, by and
among SS&C Technologies, Inc., The Brookside Corporation and
John M. Boyle is incorporated herein by reference to Exhibit 2
to the Registrant's Current Report on Form 8-K, dated March
31, 1999 (File No. 000-28430)
27.1 Financial Data Schedule for the three months ended
March 31, 1999.
27.2 Restated Financial Data schedule for the three months ended
March 31, 1998.
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,299
<SECURITIES> 43,344
<RECEIVABLES> 25,919
<ALLOWANCES> 3,697
<INVENTORY> 0
<CURRENT-ASSETS> 88,927
<PP&E> 14,469
<DEPRECIATION> 5,770
<TOTAL-ASSETS> 108,255
<CURRENT-LIABILITIES> 21,300
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 83,638
<TOTAL-LIABILITY-AND-EQUITY> 108,255
<SALES> 19,447
<TOTAL-REVENUES> 19,447
<CGS> 0
<TOTAL-COSTS> 6,653
<OTHER-EXPENSES> 11,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,973
<INCOME-TAX> 492
<INCOME-CONTINUING> 1,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,481
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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> 12,153
<SECURITIES> 40,330
<RECEIVABLES> 20,313
<ALLOWANCES> 4,154
<INVENTORY> 0
<CURRENT-ASSETS> 76,100
<PP&E> 9,215
<DEPRECIATION> 4,009
<TOTAL-ASSETS> 94,788
<CURRENT-LIABILITIES> 22,191
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 72,002
<TOTAL-LIABILITY-AND-EQUITY> 94,788
<SALES> 12,568
<TOTAL-REVENUES> 12,568
<CGS> 0
<TOTAL-COSTS> 3,576
<OTHER-EXPENSES> 14,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,406)
<INCOME-TAX> (1,481)
<INCOME-CONTINUING> (2,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,925)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
