<PAGE> 1
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 JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________ TO __________________
COMMISSION FILE NUMBER 000-28430
SS&C TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-1169696
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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 July
31, 2000:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common Stock, par value $.01 per share 15,966,481
</TABLE>
<PAGE> 2
SS&C TECHNOLOGIES, INC.
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Item 1 Financial Statements 2
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 2
Consolidated Statements of Operations for the
three-month and six-month periods ended June 30, 2000
and 1999 3
Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Item 3 Quantitative and Qualitative Disclosures About Market
Risk 11
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 4 Submission of Matters to a Vote of Security Holders 12-13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 14
EXHIBIT INDEX 15
</TABLE>
This Quarterly Report on Form 10-Q may contain 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 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.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,377 $ 14,304
Investments in marketable securities 46,981 36,034
Accounts receivable, net of allowance for doubtful accounts 11,431 11,079
Income taxes receivable 2,520 2,722
Prepaid expenses and other current assets 2,331 2,360
Deferred income taxes 4,077 4,271
-------- --------
Total current assets 77,717 70,770
-------- --------
Property and equipment:
Building and leasehold improvements 2,955 2,872
Equipment, furniture, and fixtures 15,164 14,145
-------- --------
18,119 17,017
Less accumulated depreciation (8,824) (7,105)
-------- --------
Net property and equipment 9,295 9,912
-------- --------
Accounts receivable 264 301
Deferred income taxes 7,211 7,211
Goodwill, net of accumulated amortization 161 296
Intangible and other assets, net of accumulated amortization 2,178 1,227
-------- --------
Total assets $ 96,826 $ 89,717
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 131 $ 131
Accounts payable 1,741 1,503
Accrued employee compensation and benefits 1,554 1,695
Other accrued expenses 2,047 2,448
Deferred maintenance and other revenue 13,738 11,376
-------- --------
Total current liabilities 19,211 17,153
Long-term debt 8 11
-------- --------
Total liabilities 19,219 17,164
-------- --------
Stockholders' equity:
Common stock 161 161
Treasury stock (220) --
Additional paid in capital 88,447 88,119
Accumulated other comprehensive income 3,865 (461)
Accumulated deficit (14,646) (15,266)
-------- --------
Total stockholders' equity 77,607 72,553
-------- --------
Total liabilities and stockholders' equity $ 96,826 $ 89,717
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
2
<PAGE> 4
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 4,068 $ 4,383 $ 8,206 $ 12,389
Maintenance and other recurring revenue 6,599 6,390 13,171 12,248
Professional services 3,261 5,306 6,671 10,064
Outsourcing 1,475 542 2,475 1,367
-------- -------- -------- --------
Total revenues 15,403 16,621 30,523 36,068
-------- -------- -------- --------
Cost of revenues:
Software licenses 257 1,078 495 2,090
Maintenance and other recurring revenue 1,664 1,630 3,305 3,121
Professional services 2,264 3,833 5,090 7,155
Outsourcing 1,669 908 3,129 1,685
-------- -------- -------- --------
Total cost of revenues 5,854 7,449 12,019 14,051
-------- -------- -------- --------
Gross profit 9,549 9,172 18,504 22,017
-------- -------- -------- --------
Operating expenses:
Selling and marketing 2,920 4,626 6,463 9,240
Research and development 3,729 4,960 7,810 9,402
General and administrative 2,813 3,555 5,434 6,217
Litigation settlement costs -- 9,330 -- 9,330
-------- -------- -------- --------
Total operating expenses 9,462 22,471 19,707 34,189
-------- -------- -------- --------
Operating income (loss) 87 (13,299) (1,203) (12,172)
-------- -------- -------- --------
Interest income, net 692 530 1,306 1,094
Other income, net 77 95 770 378
-------- -------- -------- --------
Income (loss) before income taxes 856 (12,674) 873 (10,700)
Provision (benefit) for income taxes 247 (836) 253 (344)
-------- -------- -------- --------
Net income (loss) $ 609 $(11,838) $ 620 $(10,356)
======== ======== ======== ========
Basic earnings (loss) per share $ 0.04 $ (0.76) $ 0.04 $ (0.67)
======== ======== ======== ========
Basic weighted average number of common shares
outstanding 16,103 15,627 16,073 15,503
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.04 $ (0.76) $ 0.04 $ (0.67)
======== ======== ======== ========
Diluted weighted average number of common and common
equivalent shares outstanding 16,125 15,627 16,110 15,503
======== ======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
3
<PAGE> 5
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 620 $(10,356)
-------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 2,137 3,089
Non-cash expense related to litigation settlement -- 1,300
Deferred income taxes 194 (116)
Provision for doubtful accounts 784 1,601
Changes in operating assets and liabilities, excluding effects
from acquisitions:
Accounts receivable (1,248) 3,525
Prepaid expenses and other current assets 29 174
Accrued litigation settlement costs -- 8,030
Income taxes receivable 202 --
Accounts payable 238 (542)
Accrued expenses (542) (2,737)
Income taxes payable -- (1,059)
Deferred maintenance and other revenues 2,363 1,962
-------- --------
Total adjustments 4,157 15,227
-------- --------
Net cash provided by operating activities 4,777 4,871
-------- --------
Cash flow from investing activities:
Additions to property and equipment (1,194) (2,150)
Proceeds from sale of property and equipment 10 --
Proceeds from note receivable (Note 15) -- 2,250
Issuance of convertible note receivable (1,000) --
Additions to capitalized software and other intangibles (152) (88)
Purchases of marketable securities (17,906) (8,700)
Sales of marketable securities 11,433 6,364
-------- --------
Net cash used in investing activities (8,809) (2,324)
-------- --------
Cash flow from financing activities:
Repayment of debt (3) (227)
Transfer of cash from restricted cash equivalents -- 1,230
Issuance of common stock 328 446
Purchase of common stock for treasury (220) --
Proceeds from exercise of options -- 532
-------- --------
Net cash provided by financing activities 105 1,981
-------- --------
Net (decrease) increase in cash and cash equivalents (3,927) 4,528
Cash and cash equivalents, beginning of period 14,304 13,047
-------- --------
Cash and cash equivalents, end of period $ 10,377 $ 17,575
======== ========
</TABLE>
Supplemental disclosure of non-cash investing activities:
As more fully described in Note 4, effective March 11, 1999, SS&C
Technologies, Inc. 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.
4
<PAGE> 6
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 financial
statements contain all adjustments (consisting of only normal recurring
adjustments, except as noted elsewhere in the notes to the consolidated
financial statements) necessary to present fairly its financial position as of
June 30, 2000 and the results of its operations for the three months and
six-months ended June 30, 2000 and 1999. These statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements contained
herein should be read in conjunction with the consolidated financial statements
and footnotes as of and for the year ended December 31, 1999 which were included
in the Company's Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000. The December 31, 1999 consolidated balance sheet data were
derived from audited financial statements, but the December 1999 consolidated
balance sheet does not include all disclosures required by generally accepted
accounting principles. The results of operations for the three-months and
six-months ended June 30, 2000 are not necessarily indicative of the expected
results of operations 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". 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 by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares are comprised of stock options using
the treasury stock method. Common equivalent shares are excluded from the
computations of earnings per share if the effect of including such common
equivalent shares is antidilutive. Outstanding options to purchase 3.2 million
and 3.0 million shares at June 30, 2000 and 1999, respectively, were not
included in the computation of diluted earnings per share because the effect of
including such 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>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding 16,103 15,627 16,073 15,503
Weighted average common stock equivalents -- options 22 -- 37 --
------ ------ ------ ------
Diluted weighted average shares outstanding 16,125 15,627 16,110 15,503
====== ====== ====== ======
</TABLE>
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") requires that items defined as comprehensive income,
such as foreign currency translation adjustments and unrealized gains (losses)
on marketable securities, 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.
The following table sets forth the components of comprehensive income (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- ---------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 609 $(11,838) $ 620 $(10,356)
Foreign currency translation losses (58) (188) (148) (245)
Unrealized gains on marketable securities 1,164 -- 4,474 --
-------- -------- -------- --------
Total comprehensive income (loss) $ 1,715 $(12,026) $ 4,946 $(10,601)
======== ======== ======== ========
</TABLE>
5
<PAGE> 7
Recent Accounting Pronouncements
In November 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 100. Restructuring and Impairment Charges ("SAB
100"). In December 1999, the SEC issued SAB No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB No. 100 expresses views of the SEC staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. The
Company does not expect the provisions of SAB No. 100 to have a material impact
on its financial statements. SAB No. 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. The Company does not expect the provisions of SAB No. 101 to have a
material impact on its financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, however, for certain transactions the guidance is
effective after December 15, 1998 and January 12, 2000. In June 2000, SAB 101B
was issued by the SEC delaying the implementation date of SAB 101 to the fourth
quarter of 2000. The Company does not expect the application of FIN 44 to have a
material impact on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the 1999 consolidated financial statements have been
reclassified to be comparable with the 2000 presentation. These
reclassifications have had no effect on net income, working capital or net
equity.
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. David L. Blankenship, the president of
Aegon also relinquished his seat on the board of directors of the Company as of
May 23, 2000. During the first quarter ended March 31, 1999 Aegon purchased a
license for 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 May 7, 1999, the Company announced that it had entered into an agreement for
the settlement of the consolidated securities class action lawsuit pending
against the Company. The settlement provided that all claims against the
Company, certain of its officers and directors, and underwriters would be
dismissed. Under the terms of the settlement, in exchange for the dismissal and
release of all claims, the Company paid to the class $7.5 million in cash,
together with shares of Common Stock of the Company valued at $1.3 million. The
Company recorded a charge for the settlement of approximately $9.3 million,
including legal fees, in the quarter ended June 30, 1999.
From time to time, the Company is subject to legal proceedings and claims that
arise in the normal course of its business. The Company is not a party to any
other litigation that management believes could have a material effect on the
Company or its business.
4. Acquisitions:
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, in exchange 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. In connection with the acquisition, the
Company, HedgeWare and the former stockholders of HedgeWare entered into an
escrow agreement providing, among other things, that 89,139 shares of Common
Stock were initially 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. In
accordance with the terms of the escrow agreement, on April 12, 2000, 61,506 of
the 89,139 shares of common stock were released from escrow. Currently, 27,633
shares of common stock remain in escrow pursuant to the escrow agreement.
6
<PAGE> 8
HedgeWare had elected to be treated as a Subchapter S Corporation for income tax
purposes and, as such, income taxes are provided beginning 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 stockholder and employee-related accrued expenses that existed as of
the effective date of the acquisition. All periods prior to March 11, 1999 have
been restated to reflect the acquisition of HedgeWare, as a pooling-of-interests
acquisition.
On March 31, 1999, the Company acquired all of the outstanding stock of The
Brookside Corporation (Brookside). Pursuant to the stock purchase agreement, all
of the outstanding shares of common stock of Brookside held by its sole
stockholder were exchanged for 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE AND SIX MONTHS ENDED June 30, 2000 and 1999
Revenues
The Company's revenues are derived from software licenses, related maintenance
and professional services and outsourcing services provided by SS&C Direct.
Revenues for the three-months ended June 30, 2000 were $15.4 million,
representing a decrease of 7% from $16.6 million in the second quarter of 1999.
The decrease of $1.2 million was attributable to a decrease in professional
services and license revenue, which was partially offset by, increases in
outsourcing and maintenance revenues. Revenues for the six months ended June 30,
2000 were $30.5 million, a decrease of 15% from $36.1 million in the same period
in 1999. The decrease of $5.5 million was attributable to a decrease in license
and professional service revenues which was partially offset by increases in
outsourcing and maintenance revenues.
Software License Revenues. Software license revenues for the three and six
months ended June 30, 2000 were $4.1 million and $8.2 million, respectively,
representing decreases of 7% and 34% from the $4.4 million and $12.4 million,
respectively, in the comparable periods of the prior year. The decrease in the
license revenues for the three months ended June 30, 2000 was primarily the
result of lower sales of AdvisorWare 2000 which was partially offset by
increases in sales of Antares 2000 and Skyline for Windows. The decrease for the
six months ended June 30, 2000 was mainly due to lower revenue for CAMRA 2000,
AdvisorWare 2000 and LMS 2000 which was partially offset by increase in sales of
Antares 2000 and Skyline for Windows.
Maintenance and Other Recurring Revenues. Maintenance and other recurring
revenues for the three and six months ended June 30, 2000 were $6.6 million and
$13.2 million, respectively, representing increases of 3% and 8% over the $6.4
million and $12.2 million, respectively, in the comparable periods of the prior
year. The increase in both periods was primarily due to growth in the Company's
installed base of CAMRA 2000 clients requiring maintenance services.
Professional Services Revenues. Professional services revenues for the three and
six months ended June 30, 2000 were $3.3 million and $6.7 million, respectively,
representing decreases of 39% and 34% from the $5.3 million and $10.1 million,
respectively, in the comparable periods of the prior year. Demand for the
Company's implementation, conversion and training services has decreased
primarily due to the decrease in sales of the Company's software products which
require such services. The professional services revenues will continue to be
affected by the overall license revenue levels.
Outsourcing Services Revenues. Outsourcing services revenues for the three and
six months ended June 30, 2000 were $1.5 million and $2.5 million, respectively,
representing increases of 172% and 81% over the $0.5 million and $1.4 million,
respectively, in the comparable periods of the prior year. The increase is due
primarily to greater market demand for the company's outsourcing services.
Cost of Revenues
Total cost of revenues for the three and six months ended June 30, 2000 were
$5.9 million and $12.0 million, respectively, representing decreases of 21% and
14%, respectively, from the $7.4 million and $14.1 million, respectively, in the
comparable periods of the prior year. The gross margin increased to 62% in the
three months ended June 30, 2000 from 55% in the comparable period of the prior
year. This increase was primarily due to an increase in the license revenue
margins. For the six months ended June 30, 2000, the gross margin was 61%,
comparable to the prior year period.
7
<PAGE> 9
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 and the amortization of
completed technology. The cost of software licenses decreased 76% from $1.1
million in the three-month period ended June 30, 1999 to $0.3 million for the
same period in 2000, representing 25% and 6% of license revenues in each of
those quarters, respectively. Cost of software licenses in the six-month period
ended June 30, 1999 and 2000 were $2.1 million and $0.5 million, respectively
and represented 17% and 6% of license revenues in each of those periods,
respectively. The decreases in costs, for both the three and six month periods
ended June 30, 2000, were due primarily to the reduction in amortization for
completed technology. The completed technology amortization, which was related
to the Quantra acquisition, was ended in the fourth quarter of 1999.
Cost of Maintenance and Other Recurring Revenues. Cost of maintenance and other
recurring revenues consists primarily of technical customer support and
development costs associated with product and regulatory updates. The cost of
maintenance and other recurring revenue increased from $1.6 million in the three
months ended June 30, 1999 to $1.7 million in the three months ended June 30,
2000. The cost of maintenance and other recurring revenues increased from $3.1
million in the six months ended June 30, 1999 to $3.3 million in the six months
ended June 30, 2000. The cost of maintenance and other recurring revenues
remained relatively constant as a percentage of such revenues for the three and
six-month periods ended June 30, 2000 and 1999.
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 service revenues decreased 41% from $3.8 million in the
three months ended June 30, 1999 to $2.3 million for the same period in 2000,
representing 72% and 69% of professional service revenues in each of those
quarters, respectively. Cost of professional services revenue in the six-month
period ended June 30, 1999 and 2000 were $7.2 million and $5.1 million
respectively, and represented 71% and 76% of professional services revenues in
each of those periods, respectively. The dollar decrease in the cost of
professional services was primarily attributable to lower personnel related and
travel costs due to the corresponding decrease in implementation and conversion
services.
Cost of Outsourcing Services. Cost of outsourcing services revenues consists
primarily of the cost related to personnel utilized in servicing our outsourcing
clients. The cost of outsourcing revenues increased 84% from $0.9 million in the
three months ended June 30, 1999 to $1.7 million for the same period in 2000,
representing 168% and 113% of outsourcing revenues in each of those quarters,
respectively. Cost of outsourcing in the six-month period ended June 30,1999 and
2000 was $1.7 million and $3.1 million, respectively, representing 123% and 126%
of outsourcing revenues in each of those periods, respectively. The dollar
increase in the cost of outsourcing services is due to the expansion of the
Company's outsourcing resources, including personnel and infrastructure costs.
The Company expects that the outsourcing costs as a percentage of the
outsourcing revenue will continue to be high as the company invests substantial
resources in this area.
Operating Expenses
Selling and Marketing Expenses. 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 decreased 37% from $4.6 million in the three months ended
June 30, 1999 to $2.9 million in the three months ended June 30, 2000,
representing 28% and 19%, respectively, of total revenues for those periods.
These expenses decreased 30% from $9.2 million in the six months ended June 30,
1999 to $6.5 million in the same period in 2000, representing 26% and 21%,
respectively, of total revenue for those periods. The quarter and year-to-date
dollar decrease are largely attributable to lower personnel related costs due to
a reduction of personnel and reduced spending in advertising, promotional and
marketing costs.
Research and Development Expenses. 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 decreased 25% from $5.0 million in the three months ended June 30, 1999
to $3.7 million in the three months ended June 30, 2000, representing 30% and
24%, respectively, of those revenues for those periods. These expenses decreased
17% from $9.4 million in the six months ended June 30, 1999 to $7.8 million in
the same period in 2000, representing 26% and 26%, respectively, of total
revenue for those periods. The quarter and year-to-date dollar decrease was
mainly due to lower personnel related costs due to a reduction in research and
development employees. The Company believes that due to the sophistication of
its products, research and development spending should remain at approximately
these levels as a percentage of revenue.
8
<PAGE> 10
General and Administrative Expenses. General and administrative expenses consist
primarily of personnel costs related to management, accounting, information
technology, human resources and administration and associated overhead costs, as
well as fees for professional services. General and administrative expenses
decreased 21% from $3.6 million in the three months ended June 30, 1999 to $2.8
million in the three months ended June 30, 2000, representing 21% and 18%,
respectively, of total revenues for those periods. These expenses decreased 13%
from $6.2 million in the six months ended June 30, 1999 to $5.4 million in the
same period in 2000, representing 17% and 18%, respectively, of total revenues
for those periods. The quarter and year-to-date dollar decreases are due mainly
to lower bad debt expenses which are partially offset by higher professional
services costs.
Litigation Settlement Costs. In the three-month period ended June 30, 1999, the
Company recorded a $9.3 million charge for the settlement of a consolidated
securities class action lawsuit.
Interest and Other Income Net. Interest and other income, net consist primarily
of interest income and other non-operational income and expenses. Interest
income, net increased 31% from $530,000 in the three months ended June 30, 1999
to $692,000 in the same period in 2000. Interest, net increase 19% from $1.1
million in the six months ended June 30, 1999 to $1.3 million in the same period
in 2000. The dollar increase was due to the Company purchasing taxable
investments, which have a higher expected yield. Included in other income, net
for the six months ended June 30, 2000 was a non-operational gain of $482,000
resulting from the sale of Caminus common stock in the first quarter of 2000.
Provision for Income Taxes. The Company had an effective tax rate of 29% in the
six-month period ending June 30, 2000. Excluding the one-time litigation
expense, the effective tax rate was 25% in the six-month period ended June 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities at June 30, 2000
were $57.4 million compared with $50.3 million at December 31, 1999. The
increase in marketable securities during the six months ended June 30, 2000
includes an unrealized gain of $4.5 million.
Cash provided by operations was $4.8 million for the six months ended June 30,
2000. Cash provided by operating activities was primarily due to earnings,
depreciation and amortization and an increase in deferred revenues partially
offset by an increase in accounts receivable and a decrease in accrued expenses.
Investing activities used cash of $8.8 million for the six months ended June 30,
2000. Cash used in investing activities was primarily due to additions to
property and equipment of $1.2 million, a net purchase of marketable securities
of $6.5 million and a loan of $1.0 million to WealthMetrics.com, Inc.
Financing activities provided cash of $105 thousand for the six months ended
June 30, 2000. Cash provided in financing activities was primarily due to the
issuance of Common Stock under the Company's Employee Stock Purchase Plan which
was partially offset by the purchase of 47,000 of the Company's common stock for
treasury.
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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Fluctuations in Quarterly Performance. Historically, the Company's revenues and
operating results 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 the Financial Services Industry. The Company's clients include a
range of organizations in the financial services industry. The success of these
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
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<PAGE> 11
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.
Business Model Change. The Company is in the process of modifying its business
model from one based on license fees derived from licensing proprietary software
to a business model based on both licensing its software and transaction fees
for the use of SS&C Direct outsourcing services. Due to this change in the
business model, the Company's revenues will increasingly depend on its ability
to attract customers to SS&C Direct and on the number and volume of uses of the
Company's outsourcing services. The number of users and the volume of their
activity are largely outside of the Company's control. Thus, the Company's past
operating results may not be a meaningful indicator of its future performance.
Product Concentration. To date, substantially all of the Company's revenues have
been attributable to the licensing of its CAMRA 2000, AdvisorWare 2000, Total
Return 2000, LMS 2000, and SKYLINE software and the provision of maintenance and
consulting services in support of such software. The Company expects that the
licensing of CAMRA 2000, AdvisorWare 2000, Total Return 2000, LMS 2000, SKYLINE,
and Antares 2000 software products will continue to account for a significant
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.
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 greater name recognition than 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 due to 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 used 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 ability to protect 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 protect its proprietary technology will be adequate to prevent
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 are difficult to detect and correct. Errors,
bugs or viruses may result in loss of or delay in market acceptance of the
Company's software products or loss of client data. Although the Company has
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<PAGE> 12
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 an inability to achieve market acceptance and thus could have a
material adverse effect 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. Over the last 12 months, three senior vice
presidents terminated their employment with the Company. 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, is 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 be able to 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 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 the risk associated with foreign exchange fluctuations; however, significant
fluctuations in the value of foreign currencies could have a material adverse
effect on the earnings of the Company. In addition, the Company's international
business may be subject to a variety of other 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 third-party 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 generally places its marketable security investments in high credit
quality instruments, such as 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.
From time to time, the Company purchases forward contracts to attempt to
minimize the impact that exchange rate fluctuations have on its international
sales transactions. 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 June 30, 2000, foreign currency fluctuations have not had a
material effect 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
from these projected results due to unforeseen developments in global financial
markets. The analytical methods used by the Company to assess and minimize risk
discussed above should not be considered projections of future events or losses.
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<PAGE> 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
d. 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, is May 30, 1996.
From the effective date of the Registration Statement through June 30, 2000, the
Company has used the net offering proceeds to the Company as follows:
<TABLE>
<S> <C>
Corporate move and equipment $ 13,654,000
purchases
Acquisition of other business 5,333,000
Repayment of indebtedness 3,498,000
Working capital 3,534,000
Marketable securities 26,781,000
</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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2000 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
held on May 23, 2000, the following matters were acted upon by the stockholders
of the Company:
1. The election of Jonathan M. Schofield and William W. Wyman as Class I
directors for the ensuing three years and the election of Patrick J. McDonnell
as a Class III director for the remaining two years of the term for Class III
directors;
2. The approval of the amendment to the Company's 1998 Stock Incentive Plan, as
amended, to increase the number of shares of Common Stock authorized for
issuance thereunder from 1,500,000 to 2,000,000 shares;
3. The approval of the amendment to the Company's 1996 Employee Stock Purchase
Plan, as amended, to increase the number of shares of Common Stock authorized
for issuance thereunder from 400,000 to 600,000 shares;
4. The approval of the amendment to the Company's 1996 Director Stock Option
Plan, as amended, to increase (i) the number of shares of Common Stock
authorized for issuance thereunder from 150,000 to 300,000 shares and (ii) the
number of shares of Common Stock issuable upon the exercise of options granted
to each non-employee director upon initial election to the Board of Directors
and at each annual meeting of stockholders from 5,000 to 10,000 shares; and
5. Ratification of the appointment of PricewaterhouseCoopers LLP as the
independent public accountants of the Company for the current fiscal year.
The number of shares of Common Stock outstanding and entitled to vote at the
Annual Meeting was 15,424,691. The other directors of the Company, whose terms
of office as directors continued after the Annual Meeting, are Joseph H. Fisher,
Stephen P. Reynolds, David W. Clark, Jr. and William C. Stone. The results of
the voting on each of the matters presented to stockholders at the Annual
Meeting are set forth below:
<TABLE>
<CAPTION>
Votes Votes Broker
Matter Votes For Withheld Against Abstentions Non-Votes
------ --------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Election of Directors:
James M. Schofield (Class I) 14,721,259 703,432 N/A N/A N/A
William W. Wyman (Class I) 14,439,693 984,998 N/A N/A N/A
Patrick J. MCDonnell (Class III) 14,741,259 683,432 N/A N/A N/A
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C>
Approval of Amendment to 1998 Stock Incentive Plan 9,178,161 N/A 1,512,659 3,583 4,730,288
Approval of Amendment to 1996 Employee Stock Purchase 10,154,848 N/A 535,723 3,832 4,730,288
Plan
Approval of Amendment to 1996 Director Stock Option 9,304,734 N/A 1,385,644 4,025 4,730,288
Plan
Ratification of PricewaterhouseCoopers LLP 14,933,700 N/A 487,165 3,826 N/A
</TABLE>
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 May 31, 2000, the Company filed a Current Report on Form 8-K, dated
May 23, 2000, to report under item 5 (other events) that the Company
had been authorized to repurchase shares of the Common Stock of the
Company with an aggregate value of up to $20,000,000. No Financial
Statements were required to be filed with such report.
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<PAGE> 15
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: August 14, 2000 By:/s/ Anthony R. Guarascio
Anthony R. Guarascio
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.1 1998 Stock Incentive Plan, as amended (Filed as Appendix B to
the Registrant's Definitive Proxy Statement on Schedule 14A
for the Registrant's Annual Meeting of Stockholders held May
23, 2000 (File No. 000-28430), and incorporated herein by
reference.)
10.2 1996 Employee Purchase Plan, as amended (Filed as Appendix C
to the Registrant's Definitive Proxy Statement on Schedule 14A
for the Registrant's Annual Meeting of Stockholders held May
23, 2000 (File No. 000-28430), and incorporated herein by
reference.)
10.3 1996 Director Stock Option Plan, as amended (Filed as Appendix
D to the Registrant's Definitive Proxy Statement on Schedule
14A for the Registrant's Annual Meeting of Stockholders held
May 23, 2000 (File No. 000-28430), and incorporated herein by
reference.)
27.1 Financial Data Schedule for the six months ended June 30,
2000.
27.2 Restated Financial Data schedule for the six months ended June
30, 1999.
</TABLE>
15
