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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
<TABLE>
<C> <S>
(Mark One)
/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
</TABLE>
Commission file number: 000-21319
LIGHTBRIDGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3065140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
67 SOUTH BEDFORD STREET
BURLINGTON, MASSACHUSETTS 01803
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(781) 359-4000
(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 / /
As of August 7, 2000, there were 17,077,324 shares of the registrant's
common stock, $.01 par value, outstanding.
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LIGHTBRIDGE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of June 30, 2000 and December 31, 1999.... 3
Income Statements for the three months ended June 30, 2000
and June 30, 1999......................................... 4
Income Statements for the six months ended June 30, 2000 and
June 30, 1999............................................. 5
Statements of Cash Flows for the six months ended June 30,
2000 and June 30, 1999.................................... 6
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 9
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES........ 16
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 17
SIGNATURE............................................................ 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $37,602,727 $35,477,909
Accounts receivable, net.................................. 21,187,381 16,785,873
Other current assets...................................... 1,860,136 1,970,393
----------- -----------
Total current assets.................................... 60,650,244 54,234,175
Property and equipment, net................................. 18,968,865 17,367,173
Acquired intangible assets, net............................. 1,847,635 2,347,217
Other assets, net........................................... 1,639,782 1,908,165
----------- -----------
Total assets........................................ $83,106,526 $75,856,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $13,409,004 $14,049,209
Short-term borrowings and current portion of notes
payable................................................. 458,922 500,000
Deferred revenues......................................... 3,360,009 2,914,155
----------- -----------
Total current liabilities............................... 17,227,935 17,463,364
Other long-term liabilities............................... 900,498 910,463
Notes payable............................................. -- 191,109
----------- -----------
Total liabilities....................................... 18,128,433 18,564,936
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding at June 30,
2000 or December 31, 1999............................... -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 17,957,372 and 17,510,661 shares issued and
17,065,467 and 16,618,756 shares outstanding at
June 30, 2000 and December 31, 1999, respectively....... 179,572 175,105
Additional paid-in capital................................ 60,242,511 58,297,842
Warrants.................................................. 331,375 398,875
Retained earnings......................................... 6,969,018 1,164,355
----------- -----------
Total................................................... 67,722,476 60,036,177
Less: treasury stock, at cost............................ (2,744,383) (2,744,383)
----------- -----------
Total stockholders' equity.............................. 64,978,093 57,291,794
----------- -----------
Total liabilities and stockholders' equity.......... $83,106,526 $75,856,730
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Transaction............................................... $21,680,002 $14,738,840
Software licensing and maintenance........................ 3,612,082 3,160,008
Consulting services....................................... 2,930,402 4,341,195
----------- -----------
Total revenues.......................................... 28,222,486 22,240,043
----------- -----------
Cost of revenues:
Transaction............................................... 11,909,150 7,460,824
Software licensing and maintenance........................ 1,570,527 1,013,484
Consulting services....................................... 1,734,002 2,162,695
----------- -----------
Total cost of revenues.................................. 15,213,679 10,637,003
----------- -----------
Gross profit................................................ 13,008,807 11,603,040
----------- -----------
Operating expenses:
Development costs......................................... 3,942,600 3,242,598
Sales and marketing....................................... 1,933,750 2,039,931
General and administrative................................ 2,433,535 2,961,534
Amortization of goodwill and acquired workforce........... 190,868 348,256
----------- -----------
Total operating expenses................................ 8,500,753 8,592,319
----------- -----------
Income from operations...................................... 4,508,054 3,010,721
Other income (expense):
Interest income........................................... 398,804 164,408
Interest expense.......................................... (21,406) (32,341)
Other non-operating income................................ 120,394 461,226
----------- -----------
Income before provision for income taxes.................... 5,005,846 3,604,014
Provision for income taxes.................................. 2,042,000 1,766,000
----------- -----------
Net income.................................................. $ 2,963,846 $ 1,838,014
=========== ===========
Basic earnings per common share............................. $ 0.18 $ 0.11
=========== ===========
Diluted earnings per common share........................... $ 0.16 $ 0.10
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Transaction............................................... $42,107,349 $28,819,200
Software licensing and maintenance........................ 6,762,551 5,010,309
Consulting services....................................... 5,630,959 7,753,670
----------- -----------
Total revenues.......................................... 54,500,859 41,583,179
----------- -----------
Cost of revenues:
Transaction............................................... 20,972,361 14,077,854
Software licensing and maintenance........................ 3,275,934 1,964,032
Consulting services....................................... 3,385,384 3,797,620
----------- -----------
Total cost of revenues.................................. 27,633,679 19,839,506
----------- -----------
Gross profit................................................ 26,867,180 21,743,673
----------- -----------
Operating expenses:
Development............................................... 8,028,872 5,738,987
Sales and marketing....................................... 4,169,192 4,043,657
General and administrative................................ 5,357,752 5,571,618
Amortization of goodwill and acquired workforce........... 381,736 696,514
----------- -----------
Total operating expenses................................ 17,937,552 16,050,776
----------- -----------
Income from operations...................................... 8,929,628 5,692,897
Other income (expense):
Interest income........................................... 668,902 319,086
Interest expense.......................................... (46,146) (74,062)
Other non-operating income................................ 189,279 469,302
----------- -----------
Income before provision for income taxes.................... 9,741,663 6,407,223
Provision for income taxes.................................. 3,937,000 3,140,000
----------- -----------
Net income.................................................. $ 5,804,663 $ 3,267,223
=========== ===========
Basic earnings per common share............................. $ 0.35 $ 0.20
=========== ===========
Diluted earnings per common share........................... $ 0.31 $ 0.19
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 5,804,663 $ 3,267,223
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,955,070 4,337,383
Gain on sale of investment.............................. -- (414,725)
Changes in assets and liabilities:
Accounts receivable and other current assets.......... (4,401,508) 1,964,040
Other assets.......................................... 94,378 344,216
Accounts payable and accrued liabilities.............. (640,204) 1,776,831
Deferred revenues..................................... 445,854 549,525
Other liabilities..................................... (9,966) (55,067)
----------- -----------
Net cash provided by operating activities................. 6,248,287 11,769,426
----------- -----------
Cash Flows From Investing Activities:
Principal payment--note receivable from officer......... -- 15,328
Proceeds from sale of investment........................ -- 550,378
Purchases of property and equipment..................... (5,764,012) (3,629,603)
----------- -----------
Net cash used in investing activities..................... (5,764,012) (3,063,897)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on notes payable..................... -- (377,508)
Principal payments under capital lease obligations...... -- (37,636)
Proceeds from issuance of common stock.................. 1,630,543 235,147
Proceeds from exercise of warrants...................... 10,000 125,000
----------- -----------
Net cash provided by (used in) financing activities....... 1,640,543 (54,997)
----------- -----------
Net increase in cash and cash equivalents................... 2,124,818 8,650,532
Cash and cash equivalents, beginning of period.............. 35,477,909 16,436,995
----------- -----------
Cash and cash equivalents, end of period.................... $37,602,727 $25,087,527
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
include the accounts of Lightbridge, Inc. and its subsidiaries ("Lightbridge").
Lightbridge believes that the unaudited condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of Lightbridge's financial
position, results of operations and cash flows at the dates and for the periods
indicated. Although certain information and disclosures normally included in
Lightbridge's annual financial statements have been omitted, Lightbridge
believes that the disclosures provided are adequate to make the information
presented not misleading. Results of interim periods may not be indicative of
results for the full year or any future periods. These financial statements
should be read in conjunction with the consolidated financial statements and
related notes included in Lightbridge's Annual Report on Form 10-K for the year
ended December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Lightbridge generates revenue from the processing of qualification and
activation transactions; granting of software licenses; services (including
maintenance, installation and training); development and consulting contracts;
and certain hardware sold in conjunction with certain software licenses.
Revenues from processing of qualification and activation transactions for
wireless telecommunications carriers are recognized in the period in which
services are performed. Lightbridge's software license agreements have typically
provided for an initial license fee and annual maintenance fees based on a
defined number of subscribers or users, as well as additional license and
maintenance fees for net subscriber or user additions. Lightbridge has also
entered into license agreements that provide for either a one-time license fee
or a monthly license fee with no additional fees based on incremental subscriber
or user growth.
Revenue from software license sales is recognized when persuasive evidence
of an arrangement exists, delivery of the product has been made, and a fixed fee
and collectibility has been determined; to the extent that obligations exist for
other services, Lightbridge allocates revenue between the license and the
services based upon their relative fair value. Revenue from customer maintenance
support agreements is deferred and recognized ratably over the term of the
agreements. Revenue from consulting and training services is recognized as those
services are rendered. Hardware is sold in conjunction with software licenses
only when required by the customer and such revenue is deferred until the
related license revenue is recognized.
EARNINGS PER SHARE
Basic earnings per share 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 reflects the potential dilution that could
occur if outstanding dilutive options and warrants were exercised and resulted
in the issuance of common stock.
7
<PAGE>
A reconciliation of the denominators of the basic and diluted earnings per
share computations is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares for basic earnings per
share....................... 16,949,638 16,115,364 16,787,043 16,037,421
Effect of dilutive options and
warrants.................... 1,525,407 1,469,221 1,700,737 1,334,152
---------- ---------- ---------- ----------
Shares for diluted earnings
per share................... 18,475,045 17,584,585 18,487,780 17,371,573
========== ========== ========== ==========
</TABLE>
No adjustments were made to net income in computing diluted earnings per
share.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards
applicable to the manner in which Lightbridge accounts for derivative
instruments in its annual financial statements commencing with the first quarter
of 2001. Lightbridge has not yet determined the effect that adoption will have
on its consolidated financial statements.
Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3,
1999 and provides the SEC staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. Lightbridge
believes that its revenue recognition practices are substantially in compliance
with SAB 101 and does not expect that SAB 101 will have a material effect on the
consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. 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
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING THE FACTORS SET FORTH UNDER "ITEM 1A. RISK FACTORS" IN
THE ANNUAL REPORT ON FORM 10-K OF LIGHTBRIDGE, INC. FOR THE YEAR ENDED
DECEMBER 31, 1999, THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND
ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY
THE FORWARD-LOOKING STATEMENTS.
Information set forth under the heading "ITEM 1A. Risk Factors" in the Annual
Report on Form 10-K of Lightbridge, Inc. for the year ended December 31, 1999 is
incorporated as an exhibit to this Form 10-Q. Unless the context otherwise
requires, "Lightbridge" and the "Company" refer collectively to Lightbridge and
its subsidiaries.
ALIAS, FRAUDBUSTER, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo,
PROFILE, and TELESTO are registered trademarks of Lightbridge, and @RISK,
ALLEGRO, CUSTOMER ACQUISITION SYSTEM, CREDIT DECISION SYSTEM, FRAUD CENTURION,
INSIGHT, POPS,
8
<PAGE>
and RETAIL MANAGEMENT SYSTEM are trademarks of Lightbridge. All other trademarks
or trade names appearing in this Form 10-Q are the property of their respective
owners.
OVERVIEW
Lightbridge develops, markets and supports a network of integrated products
and services that enable telecommunications carriers to improve their customer
acquisition, service provisioning, retention and fraud management processes.
Lightbridge's transaction services revenues are derived primarily from the
processing of applications for qualification of subscribers for
telecommunications services and the activation of service for those subscribers.
Lightbridge's offerings include credit evaluation services, screening for
subscriber fraud, evaluating carriers' existing accounts, interfacing with
carrier and third-party systems and providing call center services. These
services are provided pursuant to contracts with carriers which specify the
services to be utilized and the markets to be served. Lightbridge's clients are
charged for these services on a per transaction basis. Pricing varies depending
primarily on the volume of transactions, the type and number of other products
and services selected for integration with the services and the term of the
contract under which services are provided. The volume of processed transactions
varies depending on industry, seasonal and retail trends, the success of the
carriers utilizing Lightbridge's services in attracting subscribers and the
markets served by Lightbridge's clients. Transaction services revenues are
recognized in the period in which the services are performed.
Lightbridge's software licensing and maintenance revenues consist of
revenues attributable to the licensing of Lightbridge's Channel Solutions and
Fraud Management software. Lightbridge's Channel Solutions products are designed
to assist customers in interfacing with Lightbridge's transaction processing
systems as well as to perform other point-of-sale and channel functionality.
Lightbridge's Fraud Management products are designed to assist carriers in
monitoring subscriber accounts to identify activity that may indicate fraud.
While Lightbridge's software products are licensed as packaged software
products, each of these products generally requires insignificant customization
and integration with other products and systems to varying degrees. Software
licensing revenues are recognized when persuasive evidence of an arrangement
exists, delivery of the product has been made, and a fixed fee and
collectibility has been determined. Revenues from software maintenance contracts
are recognized ratably over the term of the maintenance agreement.
Lightbridge's consulting services revenues are derived from solution
development and deployment consulting and business advisory services in the
areas of customer acquisition, retention and fraud management. Revenues from
consulting services are generally recognized as the services are performed,
using the percentage-of-completion method, measured by labor hours.
During the first six months of 2000, Lightbridge continued its efforts to
complete development of in-process technology obtained through the acquisition
of Coral Systems Inc. ("Coral") in November 1997. Lightbridge completed beta
testing of FraudBuster 5.0, which contains enhancements in performance,
scalability and functionality during the second quarter of 2000. Lightbridge
commenced Beta testing of Alias 2.0 and @Risk, which are complimentary to
FraudBuster and contain new subscription fraud detection tools. Both products
are currently scheduled to be generally released in the third quarter of 2000.
If Lightbridge is unsuccessful in completing these projects, Lightbridge's
business, financial condition, results of operations and cash flows could be
materially adversely affected.
Substantially all of Lightbridge's revenues historically have been derived
from clients located in the United States, and Lightbridge expects that domestic
sales will continue to account for a substantial portion of its revenues for the
remainder of 2000.
9
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Transaction services...................................... 76.8% 66.3% 77.3% 69.3%
Software licensing and maintenance........................ 12.8 14.2 12.4 12.1
Consulting services....................................... 10.4 19.5 10.3 18.6
----- ----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Transaction services...................................... 42.2 33.5 38.5 33.9
Software licensing and maintenance........................ 5.6 4.6 6.0 4.7
Consulting services....................................... 6.1 9.7 6.2 9.1
----- ----- ----- -----
Total cost of revenues.................................... 53.9 47.8 50.7 47.7
----- ----- ----- -----
Gross profit................................................ 46.1 52.2 49.3 52.3
----- ----- ----- -----
Operating expenses:
Development............................................... 14.0 14.6 14.7 13.8
Sales and marketing....................................... 6.9 9.2 7.7 9.7
General and administrative................................ 8.5 13.3 9.8 13.4
Amortization of goodwill and acquired workforce........... 0.7 1.6 0.7 1.7
----- ----- ----- -----
Total operating expenses................................ 30.1 38.7 32.9 38.6
----- ----- ----- -----
Income from operations...................................... 16.0 13.5 16.4 13.7
Other income, net........................................... 1.7 2.7 1.5 1.7
----- ----- ----- -----
Income before provision for income taxes.................... 17.7 16.2 17.9 15.4
Provision for income taxes.................................. 7.2 7.9 7.2 7.6
----- ----- ----- -----
Net income.................................................. 10.5% 8.3% 10.7% 7.8%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1999
REVENUES. Revenues increased by 26.9% to $28.2 million in the three months
ended June 30, 2000 from $22.2 million in the three months ended June 30, 1999.
Transaction revenues increased by 47.1% to $21.7 million in the three months
ended June 30, 2000 from $14.7 million in the three months ended June 30, 1999,
while increasing as a percentage of total revenues to 76.8% from 66.3%. The
increase in transaction revenues for the three months ended June 30, 2000 was
primarily due to increased volume of qualification and activation transactions
processed for carrier clients, including new clients, and an increase in special
program efforts through Lightbridge's TeleServices Call Center, which are
generally not provided under a long-term contract. Lightbridge believes that its
transaction revenues also benefited directly from client promotional activities
generally attributable to the current competitive market for wireless services.
Lightbridge anticipates that the volume of transaction-based activities
during the quarter ended September 30, 2000 will be consistent with the level of
activity for the three months ended June 30, 2000 and that the volume of
transaction-based activities will increase in the quarter ending December 31,
2000. However, the volume of transaction-based activities may vary based on
special program efforts through Lightbridge's TeleServices Call Center or other
factors. Lightbridge's transaction revenues will continue to reflect in large
part the industry's rate of growth of new subscribers and seasonal trends as
well as the rate of switching among carriers by subscribers (subscriber churn).
Lightbridge believes, based in part on reports of wireless telecommunication
industry analysts, that the rate of subscriber growth will slow in upcoming
years while the rate of subscriber churn will remain fairly constant.
10
<PAGE>
Software licensing and maintenance revenues increased by 14.3% to
$3.6 million in the three months ended June 30, 2000 from $3.2 million in the
three months ended June 30, 1999, while decreasing as a percentage of total
revenues to 12.8% from 14.2%. The increase in software licensing and maintenance
revenues for the three months ended June 30, 2000 resulted from increases in
both licensing and maintenance revenues.
Lightbridge currently anticipates that its software licensing and
maintenance revenues will experience modest growth for the remainder of 2000
when compared to 1999, as Lightbridge continues to integrate its Fraud
Management products with its other offerings and to build its international
sales capability. Actual results for 2000 will, however, be subject to a number
of uncertainties, some of which are not within Lightbridge's control. In
particular, Lightbridge believes that software licensing revenues at least
through 2000 will be subject to fluctuation and will be more difficult to
anticipate than Lightbridge's other types of revenues, principally due to the
relatively large dollar magnitude and relatively long sales cycles of the
software licenses. The sales cycles for domestic software licenses generally
extend from three to six months and may extend as long as twelve months; sales
cycles for software licenses sold to international clients often are longer. The
predictability of software licensing revenue is further impeded because
Lightbridge's licensed software is a discretionary purchase for most customers.
As a result of the foregoing, a small number of licensing transactions may have
a significant effect on Lightbridge's software licensing revenues within a given
quarter.
Consulting services revenues decreased by 32.5% to $2.9 million in the three
months ended June 30, 2000 from $4.3 million in the three months ended June 30,
1999, while decreasing as a percentage of total revenues to 10.4% from 19.5%.
The decrease in consulting services revenues for the three months ended
June 30, 2000 was principally due to a decrease in demand for the Company's
consulting services. In addition, consulting services revenues for the three
months ended June 30, 1999 were higher than expected principally as a result of
one large engagement during the quarter. Lightbridge currently anticipates that
its consulting services revenue for the year 2000 as a whole will be
approximately $1.0 million less than the level achieved in 1999 as Lightbridge
continues to standardize its consulting services offerings and to build its
consulting capabilities.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of purchasing and maintaining systems and networks used in processing
qualification and activation transactions (including depreciation and
amortization of systems and networks) and amortization of capitalized software
and acquired technology. Cost of revenues may vary as a percentage of total
revenues as a result of a number of factors, including changes in the mix of
transaction revenues between revenues from on-line transaction processing and
revenues from processing transactions through Lightbridge's TeleServices Group
and changes in the mix of total revenues among transaction revenues, software
licensing revenues and consulting services revenues.
Transaction cost of revenues increased by 59.6% to $11.9 million in the
three months ended June 30, 2000 from $7.5 million in the three months ended
June 30, 1999, while increasing as a percentage of total transaction revenues to
54.9% from 50.6%. The increase in transaction cost of revenues for the three
months ended June 30, 2000 resulted principally from increases in transaction
volume and costs attributable to expansion of Lightbridge's staff and systems
capacity and an increase in the level of temporary labor used, particularly for
Lightbridge's TeleServices Call Center. Transaction cost of revenues was also
affected by a shift in the mix of services provided during the quarter.
Lightbridge anticipates that transaction cost of revenues will decline as a
percentage of transaction revenues during each of the quarters ending
September 30, 2000 and December 31, 2000.
Software licensing and maintenance cost of revenues increased by 55.0% to
$1.6 million in the three months ended June 30, 2000 from $1.0 million in the
three months ended June 30, 1999, while increasing as a percentage of total
software licensing and maintenance revenues to 43.5% from 32.1%. The increase in
software licensing and maintenance cost of revenues for the three months ended
June 30, 2000 was
11
<PAGE>
primarily due to an increase in personnel in connection with ongoing maintenance
in support of our software products.
Consulting services cost of revenues decreased by 19.8% to $1.7 million in
the three months ended June 30, 2000 from $2.2 million in the three months ended
June 30, 1999, while increasing as a percentage of total consulting services
revenues to 59.2% from 49.8%. The decrease in consulting services cost of
revenues was attributable primarily to the allocation of consulting resources to
other areas of the Company due to a decrease in utilization of the consulting
services group.
DEVELOPMENT. Development expenses include software development costs, which
consist primarily of personnel and outside technical services costs related to
developing new products and services, enhancing existing products and services,
and implementing and maintaining new and existing products and services.
Development expenses increased by 21.6% to $3.9 million in the three months
ended June 30, 2000 from $3.2 million in the three months ended June 30, 1999,
while decreasing as a percentage of total revenues to 14.0% from 14.6%. The
increase in costs for the three months ended June 30, 2000 resulted primarily
from the addition of engineering personnel necessary to support Lightbridge's
product development plans. Included in these development efforts were the
development of enhanced versions of its Fraud Management software product,
FraudBuster, the continued enhancement of its Customer Acquisition System and
Retail Management System and development of its Fraud Management software
products, Alias and @Risk. In addition, Lightbridge continued deployment of its
Customer Acquisition System for its first international client in Brazil, which
is scheduled to be generally completed in the first half of 2001. Lightbridge
expects to continue to increase the dollar amount of its engineering and
development efforts in order to continue enhancing its existing products and
services, including its Channel Solutions and Fraud Management products and
services, as well as to develop new products and services. As a result,
Lightbridge expects that its development expenses, as a percentage of total
revenues, will be higher during the last six months of 2000 than in the last six
months of 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel expenses of direct sales and marketing
personnel, as well as costs associated with advertising, trade shows and
conferences.
Sales and marketing expenses decreased slightly by 5.2% to $1.9 million for
the three months ended June 30, 2000 from $2.0 million in the three months ended
June 30, 1999, while decreasing as a percentage of total revenues to 6.9% from
9.2%. Lightbridge expects to further invest in sales and marketing efforts, both
domestically and internationally, in order to increase its penetration of
existing accounts and to add new clients and markets. As a result, Lightbridge
expects that its sales and marketing expenses as a percentage of total revenues
will be slightly higher for the remainder of 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries of executive, finance, human resources and
administrative personnel and fees for outside professional services.
General and administrative expenses decreased by 17.8% to $2.4 million in
the three months ended June 30, 2000 from $3.0 million in the three months ended
June 30, 1999, while decreasing as a percentage of total revenues to 8.5% from
13.3%. The decrease was primarily due to a decrease in fees for professional
services and recruiting fees. Lightbridge expects that its general and
administrative expenses as a percentage of total revenues will not significantly
change for the remainder of 2000.
AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill
and acquired workforce consists of amortization expense of certain acquired
intangible assets from the acquisition of Coral Systems, Inc.
Amortization of goodwill and acquired workforce expense decreased by 45.2%
to $0.2 million in the three months ended June 30, 2000 from $0.3 million in the
three months ended June 30, 1999 and also
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decreased as a percentage of total revenues to 0.7% from 1.6%. The decrease was
due to the write-off during the fourth quarter of 1999 of the remainder of the
net goodwill balance and a portion of the acquired workforce asset to reflect
the return of a portion of the shares escrowed at the time of the Coral
acquisition in settlement of claims made by Lightbridge. As a result,
Lightbridge expects that acquired workforce amortization expense will be
approximately $0.2 million for the remainder of 2000.
OTHER INCOME, NET. Other income, net for the three months ended June 30,
2000 consisted predominately of interest income and interest expense. Interest
expense remained constant at approximately $0.05 million for the three months
ended June 30, 2000 and 1999. Interest income increased to $0.4 million in the
three months ended June 30, 2000 from $0.2 million in the three months ended
June 30, 1999 due to higher average cash balances during this period of time.
Other non-operating income decreased to $0.1 million in the three months ended
June 30, 2000 from $0.5 million in the three months ended June 30, 1999 due to a
nonrecurring gain on the sale of investments of approximately $0.4 million
during the three months ended June 30, 1999.
PROVISION FOR INCOME TAXES. Lightbridge's effective tax rate was 40.0% and
49.0% for the three months ended June 30, 2000 and 1999, respectively. The
relatively high effective tax rate for 1999 resulted from the amortization of
goodwill related to Lightbridge's acquisition of Coral, which is recognized as
an expense for accounting purposes, but is not deductible for tax purposes.
Lightbridge anticipates that its effective tax rate for the year ending
December 31, 2000 will be approximately 40%. The actual effective tax rate for
2000 may vary significantly from Lightbridge's estimates as the result of a
number of factors, including any and all factors that cause Lightbridge's actual
pretax book income for the year to vary from Lightbridge's internal estimates.
Lightbridge has net operating loss carryforwards for federal income tax purposes
which were acquired from Coral. These net operating loss carryforwards are
limited in use and therefore a valuation allowance has been established against
a portion of the deferred tax assets as their full realization is not assured.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased by 31.1% to $54.5 million in the six months
ended June 30, 2000 from $41.6 million in the six months ended June 30, 1999.
Transaction revenues increased by 46.1% to $42.1 million in the six months
ended June 30, 2000 from $28.8 million in the six months ended June 30, 1999.
The increase in transaction revenues for the six months ended June 30, 2000 was
primarily due to increased volume of qualification and activation transactions
processed for carrier clients, including new clients, and an increase in special
program efforts through Lightbridge's TeleServices Call Center, which are
generally not provided under a long-term contract.
Software licensing and maintenance revenues increased by 35.0% to $6.8
million in the six months ended June 30, 2000 from $5.0 million in the six
months ended June 30, 1999. The increase in software licensing revenues for the
six months ended June 30, 2000 resulted from increases in both licensing and
maintenance revenues.
Consulting services revenues decreased by 27.4% to $5.6 million in the six
months ended June 30, 2000 from $7.8 million in the six months ended June 30,
1999. The decrease in consulting services revenues for the six months ended
June 30, 2000 was principally due to a decrease in demand for the Company's
consulting services. In addition, consulting services revenues for the six
months ended June 30, 1999 were higher than expected principally as a result of
one large engagement during the second quarter of 1999.
COST OF REVENUES. Transaction cost of revenues increased by 49.0% to $21.0
million in the six months ended June 30, 2000 from $14.1 million in the six
months ended June 30, 1999, while increasing as a percentage of total
transaction revenues to 49.8% from 48.8%. The increase in transaction cost of
revenues for the six months ended June 30, 2000 resulted principally from
increase in transaction volume and costs
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attributable to expansion of the Company's staff and systems capacity. The
increase in transaction cost of revenues as a percentage of total transaction
revenues for the six months ended June 30, 2000 principally resulted from
increases in transaction volume and costs attributable to expansion of
Lightbridge's staff and systems capacity, particularly for Lightbridge's
TeleServices Call Center. Transaction cost of revenues was also affected by an
increase in the level of temporary labor used and a shift in the mix of services
provided during the six months ended June 30, 2000.
Software licensing and maintenance cost of revenues increased by 66.8% to
$3.3 million in the six months ended June 30, 2000 from $2.0 million in the six
months ended June 30, 1999, while increasing as a percentage of total software
licensing and maintenance revenues to 48.4% from 39.2%. The dollar increase in
software licensing and maintenance cost of revenues for the six months ended
June 30, 2000 was primarily due to an increase in personnel in connection with
beta testing of FraudBuster 5.0., Alias 2.0 and @Risk. The increase in software
licensing and maintenance cost of revenues as a percentage of total software
licensing and maintenance revenues for the six months ended June 30, 2000
principally resulted from a higher percentage of software maintenance revenues
during that period when compared to the same period in the prior year. The
software maintenance component of software licensing and maintenance revenues
generally has lower margins than the software licensing component.
Consulting services cost of revenues decreased by 10.9% to $3.4 million in
the six months ended June 30, 2000 from $3.8 million in the six months ended
June 30, 1999, while increasing as a percentage of total consulting services
revenues to 60.1% from 49.0%. The dollar decrease in consulting services cost of
revenues was primarily due to the decrease in consulting services revenue from
the prior year and the allocation of resources to other departments in the
Company. The increase in consulting services cost of revenues as a percentage of
consulting revenues for the six months ended June 30, 2000 principally resulted
from a decrease in consulting revenue and a lower utilization of consulting
resources during the same period.
DEVELOPMENT. Development expenses increased by 39.9% to $8.0 million in the
six months ended June 30, 2000 from $5.7 million in the six months ended
June 30, 1999. The increase in costs for the six months ended June 30, 2000
resulted primarily from the addition of engineering personnel necessary to
support the Company's product development plans.
SALES AND MARKETING. Sales and marketing expenses increased by 3.1% to $4.2
million in the six months ended June 30, 2000 from $4.0 million in the six
months ended June 30, 1999. The increase for the six months ended June 30, 2000
was due to the increased use of marketing programs, including trade shows.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by 3.8% to $5.4 million in the six months ended June 30, 2000 from $5.6 million
in the six months ended June 30, 1999. The decrease for the six months ended
June 30, 2000 was primarily due to a decrease in professional fees and
recruiting fees.
AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill
and acquired work force expense decreased by 45.2% to $0.4 million in the six
months ended June 30, 2000 from $0.7 million in the six months ended June 30,
1999. The decrease in amortization of goodwill and acquired workforce was due to
the write-off during the fourth quarter of 1999 of the remainder of the net
goodwill balance and a portion of the acquired workforce asset to reflect the
return of a portion of the shares escrowed at the time of the Coral acquisition
in settlement of claims made by Lightbridge.
OTHER INCOME, NET. Other income, net in the six months ended June 30, 2000
consisted predominantly of interest income and interest expense. Interest
expense remained fairly constant at approximately $0.1 million for the six
months ended June 30, 2000 and 1999. Interest income increased to $0.7 million
in the six months ended June 30, 2000 from $0.3 million in the six months ended
June 30, 1999 due to higher average cash balances during this period of time.
Other non-operating income decreased to
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$0.2 million in the six months ended June 30, 2000 from approximately $0.5
million in the six months ended June 30, 1999 due to a nonrecurring gain on the
sale of investments of $0.4 million during the six months ended June 30, 1999.
PROVISION FOR INCOME TAXES. During the six months ended June 30, 2000 and
1999, the Company's effective tax rate was 40.0% and 49.0%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2000 the Company generated cash flows from
operating and financing activities of $6.2 million and $1.6 million,
respectively, and used $5.8 million in investing activities.
The Company's capital expenditures totalled $3.0 million and $5.8 million,
respectively, for the three and six months ended June 30, 2000 and $2.8 million
and $3.6 million, respectively, for the three and six months ended June 30,
1999. The capital expenditures during these periods consisted of purchases of
fixed assets, principally for the Company's services delivery infrastructure and
computer equipment for development activities and additional personnel added
during these periods. The Company currently estimates that its capital
expenditures for the remainder of 2000 will total approximately $9.0 million to
$11.0 million, reflecting the cost of building out new office space, continued
system improvements and the construction of a third call center, but the actual
amount of those expenditures may vary significantly, depending upon, among other
things, the extent to which the Company determines to update the capacity of its
data center and to acquire additional computer equipment. The Company leases its
facilities and certain equipment under non-cancelable operating lease agreements
that expire at various dates through December 2005.
The Company has a $15.0 million unsecured working capital line of credit
with a bank. Borrowing availability on the working capital line of credit is
based on the amount of qualifying accounts receivable. Advances under the
working capital line of credit bear interest at the bank's prime rate (9.5% at
June 30, 2000). The working capital line of credit also provides for the
issuance of letters of credit, which reduce the amount that may be borrowed
under the line of credit and are limited to $1,250,000 in the aggregate. At
June 30, 2000, there were no borrowings outstanding under the working capital
line of credit. Borrowing availability at June 30, 2000 was $14.0 million for
the working capital line of credit. The Company's agreement with the bank
contains covenants that, among other things, prohibit the declaration or payment
of dividends and require the Company to maintain certain financial ratios which
the Company believes are not restrictive to its business operations. The working
capital line of credit expires in August 2001.
Lightbridge considers earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to be meaningful given the impact on operating income
from non-cash expenses such as depreciation of property and equipment and the
amortization of intangible assets. EBITDA and after-tax cash flow should not be
considered in isolation from, or as a substitute for, operating income, net
income or cash flow and other consolidated income or cash flow statement data
computed in accordance with generally accepted accounting principles or as a
measure of Lightbridge's profitability or liquidity. Although these measures of
performance are not calculated in accordance with generally accepted accounting
principles, Lightbridge believes they are widely used in the telecommunications
industry as a measure of a company's operating performance because they assist
in comparing companies on a more consistent basis without regard to depreciation
and amortization which can vary significantly depending on accounting methods
(particularly when acquisitions are involved). EBITDA increased by 44.4% to
$7.5 million in the three months ended June 30, 2000, from $5.2 million in the
three months ended June 30, 1999. For the six months ended June 30, 2000 EBITDA
increased 38.4% to $13.9 million from $10.0 million for the six months ended
June 30, 1999. The increase for the three and six months ended June 30, 2000
resulted primarily from an increase in operating income.
As of June 30, 2000, Lightbridge had cash and cash equivalents of
$37.6 million and working capital of $43.4 million. Lightbridge believes that
the current cash balances and funds available under the existing
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line of credit, together with cash flows provided by operations, will be
sufficient to finance Lightbridge's operations and capital expenditures for at
least the next twelve months.
INFLATION
Although certain of Lightbridge's expenses increase with general inflation
in the economy, inflation has not had a material impact on Lightbridge's
financial results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards
applicable to the manner in which Lightbridge accounts for derivative
instruments in its annual financial statements commencing with the first quarter
of 2001. Lightbridge has not yet determined the effect that adoption will have
on its consolidated financial statements.
Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3,
1999 and provides the SEC staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. Lightbridge
believes that its revenue recognition practices are substantially in compliance
with SAB 101 and does not expect that SAB 101 will have a material effect on its
consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
The market risk exposure inherent in Lightbridge's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. Lightbridge is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed- and variable-rate debt to fund its acquisitions of property
and equipment in past years.
Market risk for cash and cash equivalents and fixed-rate borrowings is
estimated as the potential change in the fair value of the assets or obligations
resulting from a hypothetical ten percent adverse change in interest rates,
which would not have been significant to Lightbridge's financial position or
results of operations during 2000. The effect of a similar hypothetical change
in interest rates on Lightbridge's variable-rate debt also would have been
insignificant due to the immaterial amounts of borrowings outstanding under
Lightbridge's credit arrangements.
For additional information about Lightbridge's financial instruments and
debt obligations, see Notes to Consolidated Financial Statements in
Lightbridge's Annual Report on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting in Lieu of Annual Meeting of Stockholders
on May 25, 2000 at which Debora J. Wilson was re-elected at Class I director.
Ms. Wilson received 14,557,919 votes for re-election and 165,074 votes were
withheld. The other directors of the Company consist of D. Quinn Mills and
Andrew G. Mills who are Class II Directors and whose terms expire in 2001 and
Pamela D.A. Reeve and Torrence C. Harder, who are Class III Directors and whose
terms expire in 2002.
In addition, separate proposals to amend the Company's 1996 Incentive and
Nonqualified Stock Option Plan and 1996 Employee Stock Purchase Plan were
approved. The proposal to increase the number of shares available for the grant
of options under the 1996 Incentive and Nonqualified Stock Option Plan from
1,000,000 shares to 2,350,000 shares received 7,601,058 votes for, 3,445,673
votes against and 37,906 votes abstained. The proposal to increase the number of
shares available under the 1996 Employee Stock
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<PAGE>
Purchase Plan from 100,000 shares to 200,000 shares, received 10,591,952 votes
for, 463,995 votes against and 28,690 votes abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION
--------------------- -----------
<S> <C>
10.1 Employment Agreement dated as of May 25, 2000 between the
Company and Harlan Plumley.
10.2 Loan Agreement dated August 11, 2000 between the Company and
Silicon Valley Bank
10.3* 1996 Incentive and Non-Qualified Stock Option Plan (as
amended)
10.4** 1996 Employee Stock Purchase Plan (as amended)
10.5 1998 Non-Statutory Stock Option Plan (as amended)
27.1 Financial Data Schedule for the three months ended June 30,
2000
99.1 Information set forth under the heading "ITEM 1A. Risk
Factors" in the Annual Report on Form 10-K of the Company
for the year ended December 31, 1999 is incorporated herein
by reference
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration number 333-43588), as filed with the Securities and
Exchange Commission on August 11, 2000.
** Incorporated by reference to the Company's Registration Statement on
Form S-8 (Registration number 333-43586), as filed with the Securities and
Exchange Commission on August 11, 2000.
(b) Reports on Form 8-K
Lightbridge did not file any Current Report on Form 8-K during the three
months ended June 30, 2000.
17
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
LIGHTBRIDGE, INC.
BY: /S/ HARLAN PLUMLEY
-----------------------------------------
Harlan Plumley
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting
Officer)
Date: August 14, 2000
</TABLE>
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