UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-21375
ONTRACK DATA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1521650
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9023 COLUMBINE ROAD, 55347
EDEN PRAIRIE, MINNESOTA (Zip Code)
(Address of principal executive offices)
www.ontrack.com (952) 937-1107
(Web address) (Registrant's telephone number,
including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 April 30, 2000, the Company had 10,049,659 shares of Common Stock, $.01
par value, outstanding.
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
INDEX
PART 1. FINANCIAL INFORMATION PAGE
----
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED):
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income for the
three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,471 $ 14,992
Marketable securities 17,766 13,713
Accounts receivable, net 6,505 6,382
Deferred income taxes and other assets 3,154 2,962
------------ ------------
Total current assets 39,896 38,049
Long-term marketable securities 1,000 3,323
Furniture and equipment, net 6,130 6,002
Intangibles, net 7,790 8,467
------------ ------------
TOTAL ASSETS $ 54,816 $ 55,841
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 4,367 $ 6,810
SHAREHOLDERS' EQUITY:
Common stock (10,049 and 10,023 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively) 100 100
Additional paid-in capital 30,861 30,732
Accumulated other comprehensive income (9) (8)
Retained earnings 19,497 18,207
------------ ------------
Total shareholders' equity 50,449 49,031
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 54,816 $ 55,841
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
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ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Data recovery services and products $ 8,809 $ 7,151
Software 2,975 1,259
------------ ------------
TOTAL REVENUES 11,784 8,410
COST OF REVENUES:
Data recovery services and products 2,033 1,876
Software 900 244
------------ ------------
TOTAL COST OF REVENUES 2,933 2,120
------------ ------------
GROSS MARGIN 8,851 6,290
OPERATING EXPENSES:
Sales and marketing 3,132 2,213
Research and development 2,163 1,437
General and administrative 2,073 1,577
Amortization of goodwill 462 --
Terminated merger costs (579) --
------------ ------------
TOTAL OPERATING EXPENSES 7,251 5,227
------------ ------------
OPERATING INCOME 1,600 1,063
INTEREST AND OTHER INCOME 270 260
------------ ------------
INCOME BEFORE INCOME TAXES 1,870 1,323
PROVISION FOR INCOME TAXES 580 423
------------ ------------
NET INCOME $ 1,290 $ 900
============ ============
BASIC NET INCOME PER SHARE $ 0.13 $ 0.09
DILUTED NET INCOME PER SHARE $ 0.12 $ 0.09
WEIGHTED AVERAGE SHARES
USED IN COMPUTATION OF:
BASIC NET INCOME PER SHARE 10,034 9,697
DILUTED NET INCOME PER SHARE 10,508 9,732
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 1,290 $ 900
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 594 508
Amortization of capitalized software 277 154
Amortization of goodwill 462 --
------------ ------------
Cash flow from operations before changes in
operating assets and liabilities 2,623 1,562
Changes in operating assets and liabilities:
Accounts receivable (123) (449)
Other current assets (198) (159)
Accounts payable and accrued expenses (2,506) (933)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (204) 21
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (716) (164)
Net increase of short-term and long-term
marketable securities (1,730) (7,084)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,446) (7,248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee
stock purchase plan 129 55
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 129 55
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,521) (7,172)
Cash and cash equivalents, beginning of period 14,992 14,724
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,471 $ 7,552
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
ONTRACK Data International, Inc. (the "Company"), a leading provider of
data availability software and service solutions, helps customers
protect, manage, recover and discover their valuable data. The
Company's headquarters are in Eden Prairie, Minnesota, and it has
offices in Los Angeles, California; Washington, D.C.; New York, New
York; Boulder, Colorado; London, England; Stuttgart, Germany and Paris,
France.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted as permitted by such rules and regulations. These
financial statements and related notes should be read in conjunction
with the financial statements and notes thereto included in the
Company's audited consolidated financial statements for the year ended
December 31, 1999 contained in the Company's Annual Report on Form 10-K
for 1999.
In the opinion of management, the interim financial statements reflect
adjustments, consisting of normal recurring accruals, which are
necessary to present fairly the Company's financial position, results
of operations and cash flow for the periods indicated. The results of
operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
NET INCOME PER SHARE
Basic net income per share includes no dilution and is computed by
dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net
income per share reflects the potential dilution of securities that
could share in the net income of the Company. The difference between
the Company's basic and diluted net income per share data as presented
is due to the dilutive impact from stock options whose exercise price
was below the average common stock price for the respective period
presented.
COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March
31, 2000 and 1999 are foreign currency translation adjustments.
Comprehensive income is not separately reported, as amounts were not
significant.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER ENDED MARCH 31, 2000 AND 1999
REVENUES
DATA RECOVERY SERVICES AND PRODUCTS:
Data recovery services and products revenues for the first quarter of 2000
increased 23% compared to the first quarter of 1999. Data recovery services and
products revenues consist of the following:
Three Months
Ended March 31
--------------------
2000 1999 % Increase
-------- -------- ----------
(Amounts in thousands)
In-lab recovery services $ 6,404 $ 6,096 5%
Remote recovery services 761 322 136%
Do-it-yourself data recovery software 593 333 78%
Electronic Information Management 1,051 400 163%
-------- -------- ----------
Total $ 8,809 $ 7,151 23%
======== ======== ==========
The increase in Remote Recovery services is due to the Company's increased data
recovery capabilities to work with customers' large server based storage devices
over a modem or through the internet. The increase in Do-it-yourself data
recovery software is due principally to better market awareness as the product
was introduced in the first quarter of 1999. The increase in Electronic
Information Management is due to an increase in merger and acquisition discovery
projects as well as increased awareness of our capabilities through expanded
sales and marketing activities.
SOFTWARE:
Software revenues for the first quarter of 2000 increased 136%, or $1.7 million,
compared to the first quarter of 1999. The increase is principally due to $1.9
million of sales of retail software utility products by the Company's Boulder
division.
GROSS MARGINS
DATA RECOVERY SERVICES AND PRODUCTS:
Gross margins on data recovery services and products revenues for the first
quarter ended March 31, 2000 was 77%, compared to 74% for the comparable period
of 1999. The increase is due to the Company's more favorable mix of new higher
margin services, remote data recovery and Electronic Information Management.
7
<PAGE>
SOFTWARE:
Gross margins on software revenues for the first quarter ended March 31, 2000
was 70%, compared to 81% for the comparable period of 1999. As revenues from the
Boulder division products make up a larger portion of software revenues,
software gross margins have declined to their expected level.
OPERATING EXPENSES
SALES AND MARKETING:
Sales and marketing expenses for the first quarter of 2000 increased 42%
compared to the first quarter of 1999. As a percentage of revenues, sales and
marketing expenses were 27% and 26% for the first quarter ended March 31, 2000
and 1999, respectively. The increases are due to the activities of the Boulder
division and investments made in Electronic Information Management and
RapidRecall(TM), the Company's online backup product.
RESEARCH AND DEVELOPMENT:
Research and development expenses for the first quarter of 2000 increased 51%
compared to the first quarter of 1999. As a percentage of revenues, research and
development expenses were 18% and 17% for the first quarter ended March 31, 2000
and 1999, respectively. The increases are due primarily to research and
development expenditures incurred by the Boulder division and investments in new
data recovery and backup tools and technology.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses for the first quarter of 2000 increased 31%
compared to the first quarter of 1999. The increase is due mainly to the
expenses of the Boulder division. As a percentage of revenues, general and
administrative expenses were 18% and 19% for the first quarter ended March 31,
2000 and 1999, respectively. The decline in percentage is due to such expenses
not increasing proportionately to increases in revenues.
GOODWILL
Goodwill relates to the Company's Boulder division acquisition, which develops,
markets, and supports computer software utility products to enhance performance
of personal computers. Goodwill is being amortized on a straight-line basis over
a period of 60 months.
TERMINATED MERGER COSTS
In November 1999, the Company agreed to be acquired by Legato Systems, Inc. In
January 2000, the merger agreement was terminated. The Company's expenses
related to the merger totaled $675,000 and were treated as operating expenses in
the fourth quarter 1999. In the first quarter ended March 31, 2000, $579,000 was
reimbursed by Legato Systems, Inc. and treated as a reduction of operating
expenses in the Company's income statement.
8
<PAGE>
PROVISION FOR INCOME TAXES
For the first quarter ended March 31, 2000 and 1999, the Company provided for
taxes at effective rates of 31% and 32%, respectively. The effective rate is
lower than the statutory rate because of the impact of tax-exempt interest
income earned on investments and research and development credits.
NET INCOME PER SHARE
The changes in basic and diluted net income per share for the first quarter
ended March 31, 2000 and 1999 are due to changes in net income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations was ($204,000) and $21,000 for the three months
ended March 31, 2000 and 1999, respectively. Cash used in investment activities
was primarily for the purchase of furniture and equipment.
Net cash flow from operations before changes in operating assets and liabilities
was $2.6 million in the first quarter of 2000 compared to $1.6 million in the
first quarter of 1999.
The Company has invested its cash principally in high-grade taxable and tax
exempt government securities. As of March 31, 2000 $1.0 million is classified as
long-term, with the remaining $30.2 million classified as cash and cash
equivalents or short-term marketable securities.
FORWARD-LOOKING STATEMENTS
Information included in this Form 10-Q, in Ontrack's Annual Report, in future
filings with the SEC and in Ontrack's press releases, which uses forward-looking
terminology such as "may," "will," "expect," "plan," "intend," "anticipate,"
"estimate," or "continue" or other variations thereon constitutes
forward-looking information. The factors set forth below and other risk factors
described elsewhere in this Form 10-Q, in Ontrack's Annual Report, in future
filings with the SEC and in Ontrack's press releases constitute cautionary
statements identifying important factors with respect to such forward looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements: (1)
the computer industry is characterized by rapid technological changes and
frequent introductions of new enhanced products and Ontrack must constantly
adapt its data recovery techniques, its data recovery hardware and software
tools and its commercial software products to keep pace with these technological
changes; (2) Ontrack intends to invest in product development, joint ventures,
acquisitions and other projects to enhance its revenues, and there is no
assurance that these projects will yield the desired growth in revenues and
earnings; (3) future technological developments in computer operating systems,
automatic data backup systems and other data protection techniques have the
potential to eliminate or reduce the risk of data loss; (4) Ontrack's software
revenues depend on disk drive shipments by OEM's; trends in the disk drive
industry; and the risks inherent in the retail product markets (including
product returns and changing customer demands), which Ontrack cannot control;
(5) Ontrack has introduced and intends to introduce new products (such as
RapidRecall(TM)) and there can be no assurance of market acceptance of any such
product; and (6) Ontrack depends to a large degree on its ability to attract and
retain technical personnel.
9
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since
December 31, 1999. Please refer to Item 7A (Quantitative and Qualitative
Disclosures about Market Risk) of the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, for more information.
10
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibit 27.1, Financial Data Schedule
(b). Reports on Form 8-K.
On January 28, 2000, the Company filed a Current
Report on Form 8-K to report under Item 5 (Other
Events) that the proposed merger between the Company
and Legato Systems, Inc. had been terminated by
mutual agreement.
11
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
SIGNATURES
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.
ONTRACK DATA INTERNATIONAL, INC.
--------------------------------
(Registrant)
Date: May 12, 2000 By: /s/ Michael W. Rogers
------------------------------------
Michael W. Rogers
Chairman and Chief Executive Officer
Date: May 12, 2000 By: /s/ Thomas P. Skiba
------------------------------------
Thomas P. Skiba
Vice President & Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,471
<SECURITIES> 17,766
<RECEIVABLES> 7,434
<ALLOWANCES> 929
<INVENTORY> 434
<CURRENT-ASSETS> 39,896
<PP&E> 16,145
<DEPRECIATION> 10,015
<TOTAL-ASSETS> 54,816
<CURRENT-LIABILITIES> 4,367
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 50,349
<TOTAL-LIABILITY-AND-EQUITY> 54,816
<SALES> 2,975
<TOTAL-REVENUES> 11,784
<CGS> 900
<TOTAL-COSTS> 2,933
<OTHER-EXPENSES> 7,251
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,870
<INCOME-TAX> 580
<INCOME-CONTINUING> 1,290
<DISCONTINUED> 0
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<NET-INCOME> 1,290
<EPS-BASIC> .13
<EPS-DILUTED> .12
</TABLE>
