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 September 30, 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 October 31, 2000, the Company had 10,122,289 shares of Common Stock, $.01
par value, outstanding.
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED):
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 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 7-10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
( IN THOUSANDS )
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,001 $ 14,992
Marketable securities 13,423 13,713
Accounts receivable, net 7,448 6,382
Prepaid expenses and other assets 3,773 2,962
------------ ------------
Total current assets 42,645 38,049
Long-term marketable securities 1,781 3,323
Furniture and equipment, net 6,000 6,002
Intangibles, net 6,558 8,467
------------ ------------
TOTAL ASSETS $ 56,984 $ 55,841
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 3,985 $ 6,810
SHAREHOLDERS' EQUITY:
Common stock (10,122 and 10,023 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively) 101 100
Additional paid-in capital 31,114 30,732
Accumulated other comprehensive income (58) (8)
Retained earnings 21,842 18,207
------------ ------------
Total shareholders' equity 52,999 49,031
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 56,984 $ 55,841
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
( IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Data recovery services and products $ 9,603 $ 9,522 $ 28,416 $ 24,480
Software 3,722 2,525 9,622 5,042
---------- ---------- ---------- ----------
TOTAL REVENUES 13,325 12,047 38,038 29,522
COST OF REVENUES:
Data recovery services and products 2,308 2,319 6,565 6,264
Software 1,043 515 2,684 939
---------- ---------- ---------- ----------
TOTAL COST OF REVENUES 3,351 2,834 9,249 7,203
---------- ---------- ---------- ----------
GROSS MARGIN 9,974 9,213 28,789 22,319
OPERATING EXPENSES:
Sales and marketing 3,668 2,721 10,201 7,135
Research and development 2,442 1,994 6,822 4,914
General and administrative 2,300 2,037 6,583 5,398
Amortization of goodwill 463 357 1,388 357
Terminated merger costs -- -- (579) --
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 8,873 7,109 24,415 17,804
---------- ---------- ---------- ----------
OPERATING INCOME 1,101 2,104 4,374 4,515
INTEREST AND OTHER INCOME 237 303 856 823
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,338 2,407 5,230 5,338
PROVISION FOR INCOME TAXES 408 819 1,595 1,773
---------- ---------- ---------- ----------
NET INCOME $ 930 $ 1,588 $ 3,635 $ 3,565
========== ========== ========== ==========
BASIC NET INCOME PER SHARE $ 0.09 $ 0.16 $ 0.36 $ 0.36
DILUTED NET INCOME PER SHARE $ 0.09 $ 0.16 $ 0.35 $ 0.36
WEIGHTED AVERAGE SHARES
USED IN COMPUTATION OF:
BASIC NET INCOME PER SHARE 10,082 9,911 10,055 9,774
DILUTED NET INCOME PER SHARE 10,698 9,966 10,518 9,810
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( IN THOUSANDS )
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 3,635 $ 3,565
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 1,847 1,512
Amortization of capitalized software 827 758
Amortization of goodwill 1,201 357
------------ ------------
Cash flow from operations before changes in
operating assets and liabilities 7,510 6,192
Changes in operating assets and liabilities:
Accounts receivable (1,066) (1,994)
Other current assets (960) 228
Accounts payable and accrued expenses (2,159) (387)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,325 4,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Mijenix Corporation (729) (6,564)
Purchase of furniture and equipment (1,802) (1,317)
Net decrease of short-term and long-term
marketable securities 1,832 684
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (699) (7,197)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee
stock purchase plan 383 167
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 383 167
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,009 (2,991)
Cash and cash equivalents, beginning of period 14,992 14,724
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,001 $ 11,733
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED 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 is
headquartered in Eden Prairie, Minnesota, with 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 accounting principles generally accepted in the United States of
America ("US GAAP") 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
third quarter and nine months ended September 30, 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 earnings 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 third quarter and nine
months ended September 30, 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 THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
DATA RECOVERY SERVICES AND PRODUCTS:
Data recovery services and products revenues for the third quarter of 2000
increased 1% compared to the third quarter of 1999. For the nine months ended
September 30, 2000, data recovery services and products revenues increased 16%
compared to the first nine months of 1999. Data recovery services and products
revenues consist of the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------ ------------------------------
2000 1999 % Change 2000 1999 % Change
-------- -------- -------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
In-lab recovery services $ 6,693 $ 7,014 -5% $ 19,254 $ 18,993 1%
Remote recovery services 602 355 70% 2,046 1,305 57%
Do-it-yourself data recovery software 558 564 -1% 1,810 1,747 4%
Electronic Information Management 1,750 1,589 10% 5,306 2,435 118%
-------- -------- -------- -------- -------- --------
Total $ 9,603 $ 9,522 1% $ 28,416 $ 24,480 16%
======== ======== ======== ======== ======== ========
</TABLE>
The decrease in in-lab recovery services for the third quarter of 2000 is due
primarily to a decrease in in-lab recovery volume. The increase in remote
recovery services for both the third quarter and nine months ended September 30,
2000, is due primarily to the Company's increased data recovery capabilities
relative to customers' server based storage devices via modem or internet. The
increase in Electronic Information Management (EIM) for the third quarter and
nine months ended September 30, 2000, is due to expanded sales and marketing
activities. Third quarter 1999 EIM revenue includes $1.1 million of revenues
from an EIM project that started in the third quarter and was completed in the
fourth quarter of 1999.
SOFTWARE:
Software revenues for the third quarter of 2000 increased 47% compared to the
third quarter of 1999. For the nine months ended September 30, 2000, software
revenues increased 91% compared to the first nine months of 1999. This increase
is principally due to retail software utility product revenues of $2.6 million
and $6.0 million in the third quarter and nine months ended September 30, 2000,
respectively.
7
<PAGE>
GROSS MARGINS
DATA RECOVERY SERVICES AND PRODUCTS:
Gross margins on data recovery services and products revenues for the third
quarter and nine months ended September 30, 2000 were approximately 76% and 77%,
respectively, compared to 76% and 74% for the comparable periods of 1999. The
increase is due to a more favorable mix of new higher margin services;
principally remote data recovery and EIM.
SOFTWARE:
Gross margins on software revenues for the third quarter and nine months ended
September 30, 2000 were approximately 72%, compared to 80% and 81%, for the
comparable periods of 1999. As revenues from the Company's retail software
utility 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 third quarter of 2000 increased 35%
compared to the third quarter of 1999 and increased 43% in the first nine months
of 2000 compared to the same period of 1999. As a percentage of revenues, sales
and marketing expenses were 28% and 27% for the third quarter and nine months
ended September 30, 2000, respectively, compared to 23% and 24% for the
comparable periods of 1999. The increases are due to increased promotion and
marketing activities related to the Company's retail software utility products,
as well as the investments made in the Company's EIM business and in
RapidRecall(TM), the Company's online backup product.
RESEARCH AND DEVELOPMENT:
Research and development expenses for the third quarter of 2000 increased 22%
compared to the third quarter of 1999 and increased 39% in the first nine months
of 2000 compared to the same period of 1999. As a percentage of revenues,
research and development expenses were 18% for both the third quarter and nine
months ended September 30, 2000, compared to 17% for both the comparable periods
of 1999. The increases are due primarily to the development of the Company's
software utility products for delivery via an Application Service Provider
(ASP), EIM, and retail software utility products.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses for the third quarter of 2000 increased 13%
compared to the third quarter of 1999 and increased 22% in the first nine months
of 2000 compared to the first nine months of 1999. As a percentage of revenues,
general and administrative expenses were 17% for both the third quarter and nine
months ended September 30, 2000, compared to 17% and 18% for the comparable
periods of 1999. The increase in dollars is due to building infrastructure
needed to support new products and services.
8
<PAGE>
GOODWILL
Goodwill is amortized on a straight-line basis over 60 months.
PROVISION FOR INCOME TAXES
For the nine months ended September 30, 2000, the Company provided for taxes at
30.5%, its estimated tax rate for the year. The effective rate is lower than the
statutory rate due to the impact of tax exempt interest income earned on
investments and research and development credits.
NET INCOME PER SHARE
The decrease in basic and diluted net income per share for the third quarter is
due primarily to investments in the EIM business and ASP delivery model, lower
than anticipated Rapid Recall (TM) revenues and unfavorable foreign currency
fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations before changes in current assets and liabilities
was $7.5 million and $6.2 million for the nine months ended September 30, 2000
and 1999, respectively. Cash used in investment activities was primarily for the
purchase of furniture and equipment, the final payment for the acquisition of
Mijenix Corporation, and sale of short-term and long-term marketable securities.
The Company has invested its cash principally in high-grade taxable and tax
exempt government securities. As of September 30, 2000, $1.8 million are
classified as long-term, with the remaining $31.4 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)
9
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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
11
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
SIGNATURES
In accordance with 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: November 14, 2000 By: /s/ Michael W. Rogers
-----------------------------------------
Michael W. Rogers
Chairman and Chief Executive Officer
Date: November 14, 2000 By: /s/ Thomas P. Skiba
-----------------------------------------
Thomas P. Skiba
Vice President & Chief Financial Officer
12
