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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10-Q
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X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended March 31, 1999 or
- ----- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number: 0-22001
DELTEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
Virginia 54-1252625
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
8280 Greensboro Drive, McLean, Virginia 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 734-8606
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at March 31, 1999
Common Stock, $.001 par value 17,896,629
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DELTEK SYSTEMS, INC.
TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Statements of Income for the Three Months 4
Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows for the Three Months 5
Ended March 31, 1999 and March 31, 1998
Unaudited Notes to Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk 16
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 17
ITEM 2 - Changes in Securities and Use of Proceeds 17
ITEM 3 - Defaults upon Senior Securities 17
ITEM 4 - Submission of Matters to a Vote of Security Holders 17
ITEM 5 - Other Information 17
ITEM 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DELTEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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March 31, 1999 December 31,
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(Unaudited) 1998
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,208 $ 9,515
Marketable securities 25,018 23,861
Accounts receivable, net of allowance for doubtful
accounts of $909 and $689, respectively 18,363 17,351
Deferred income taxes 1,678 1,678
Prepaid expenses and other current assets 1,702 2,159
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Total current assets 55,969 54,564
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Furniture, equipment, and leasehold improvements, at
cost, net of accumulated depreciation and amortization
of $6,938 and $6,556 respectively 4,839 4,312
Computer software development costs, at cost, net of
accumulated amortization of $2,466 and $2,239,
respectively 3,418 3,025
Purchased intangibles, net of amortization 4,071 4,349
Other assets 93 58
-- --
Total assets $ 68,390 $ 66,308
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,968 $ 7,711
Income taxes payable 706 ---
Deferred revenue 14,714 17,191
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Total current liabilities 22,388 24,902
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value per share, 2,000,000
Shares authorized, none issued or outstanding --- ---
Common stock, $0.001 par value per share, 45,000,000
Shares authorized, 17,896,629 and 17,854,151 shares
issued and outstanding at March 31, 1999 and December
31, 1998, respectively 18 18
Paid in capital 22,033 21,568
Retained earnings 24,031 19,990
Less unearned compensation (80) (170)
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Total shareholders' equity 46,002 41,406
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Total liabilities and shareholders' equity $ 68,390 $ 66,308
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See Notes to Consolidated Financial Statements
3
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DELTEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended March 31,
1999 1998
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(in thousands, except per share data)
Revenues:
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License fees $ 6,661 $ 5,883
Services 15,858 11,093
Third party equipment and software 988 777
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23,507 17,753
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Operating expenses:
Cost of software 743 524
Cost of services 7,129 5,139
Cost of third-party equipment
and software 797 603
Software development 4,091 3,334
Sales and marketing 2,671 2,257
General and administrative 1,517 1,066
Amortization of purchased intangibles 278 7
Total operating expenses 17,226 12,930
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Income from operations 6,281 4,823
Interest income, net 326 250
--- ---
Income before income taxes 6,607 5,073
Provision for income taxes 2,566 1,967
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Net income $ 4,041 $ 3,106
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Basic net income per share $ 0.23 $ 0.18
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Diluted net income per share $ 0.22 $ 0.17
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Weighted average shares outstanding 17,880 17,733
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Weighted average shares outstanding, including dilutive
effect of stock options 18,185 18,205
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</TABLE>
See Notes to Consolidated Financial Statements
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DELTEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Three Months Ended March 31,
1999 1998
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Cash flow from operating activities:
Net income $ 4,041 $ 3,106
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 894 466
Other non-cash charges 55 171
Accreted interest on marketable securities (37) (8)
Change in accounts receivable, net (1,012) (2,872)
Change in prepaid expenses, inventories and other assets 457 (984)
Change in accounts payable and accrued expenses (743) 174
Changes in deferred income taxes, net --- 905
Changes in income taxes payable 706 685
Change in deferred revenue (2,477) 764
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Net cash provided by operating activities 1,884 2,407
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Cash flows from investing activities:
Purchase of marketable securities (1,120) (2,812)
Purchase of property and equipment (916) (667)
Restricted cash in escrow for SalesKit Software --- (5,554)
Capitalization of computer development costs (620) (204)
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Net cash used in investing activities (2,656) (9,237)
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Cash flow from financing activities:
Cash proceeds from issuance of stock for employee
purchase plan and option plans 465 327
Cash dividends paid to stockholders --- (369)
Net cash (used in) provided by financing activities 465 (42)
--- ----
Net decrease in cash and equivalents (307) (6,872)
Cash and equivalents, beginning of period 9,515 10,883
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Cash and equivalents, end of period $9,208 $4,011
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Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $12,845 $6,041
</TABLE>
See Notes to Consolidated Financial Statements
5
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DELTEK SYSTEMS, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Basis of Presentation
The consolidated financial statements included herein have been prepared by
Deltek Systems, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998, included in the Company's Annual Report on Form 10-K.
2. BUSINESS COMBINATIONS
Harper & Shuman Acquisition
In May 1998, the Company completed the acquisition of Harper & Shuman, Inc.
("H&S") by exchanging 686,000 shares of its common stock for all of the common
stock of H&S. Each share of H&S was exchanged for 5.64 shares of Deltek common
stock. The acquisition constituted a tax-free reorganization and has been
accounted for as a pooling-of-interests under Accounting Principles Board
Opinion No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of H&S as though it had always been a part of
Deltek.
SalesKit Acquisition
In April 1998, the Company acquired substantially all of the assets of SalesKit
Software Corporation ("SalesKit"), and assumed certain related liabilities. The
purchase price consisted of $6,054,000 in cash and warrants with an estimated
fair value of $932,000. The warrants allow the holder to purchase 130,000 shares
of Deltek common stock at an exercise price of $22 per share, exercisable over a
three-year period.
Upon evaluation, the Company assigned approximately $4,310,000 to intangible
assets and existing technology and is amortizing this amount over five years.
The Company assigned $2,500,000 to in-process research and development and
expensed this amount. In the opinion of management, the acquired in-process
research and development had not yet reached technological feasibility and had
no alternative future uses. The Company recorded approximately $468,000 in
assumed liabilities of SalesKit, primarily related to accrued liabilities and
deferred revenue.
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3. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share for the three months ended March 31, 1999 and
1998 were calculated in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share". No reconciling items existed between
the net income used for basic and diluted net income per share. The only
reconciling item between the shares used for basic and diluted net income per
share related to outstanding stock options. The warrants issued in April 1998
were not dilutive for all periods presented.
4. ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The Company must adopt this statement
no later than January 1, 2000. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Company
does not expect SFAS No. 133 to materially impact its financial condition or
results of operations.
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect
to Certain Transactions" ("SOP 98-9"), extended the deferral on the application
of certain passages of SOP 97-2 through fiscal years beginning on or before
March 15, 1999. Once effective, SOP 98-9 requires recognition of revenue using
the "residual method" under very specific circumstances. The Company does not
expect this SOP to materially impact its financial condition or results of
operations.
5. COMMITMENTS AND CONTINGENCIES
The Company's continuing operations are involved in various claims incidental to
its business. The Company is contesting these matters and in the opinion of
management, the ultimate resolution of the legal proceedings will not have a
material adverse effect on the financial condition or the future operating
results of the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
unaudited Financial Statements and Notes included in Item 1 of this Quarterly
Report. The following information should also be read in conjunction with the
audited Financial Statements and Notes, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended December 31,
1998 as contained in the Company's Annual Report on Form 10-K (No.0-22001).
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Except for historical information, certain statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking. These forward-looking statements are subject to
various risks and uncertainties, including the demand for products, the size and
timing of specific sales, the level of product and price competition, the length
of sales cycles, economic conditions and the Company's ability to develop and
market new products and control costs. The Company undertakes no obligation and
does not intend to update, revise or otherwise publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
future events or circumstances.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of total revenues:
Statement of Operations Data (Unaudited) as a percentage of revenues
- --------------------------------------------------------------------
Three months ended
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3/31/99 3/31/98
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Revenues:
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License fees 28.3 % 33.1 %
Services 67.5 62.5
Third party equipment and 4.2 4.4
software
Total Revenues 100.0 100.0
----- -----
Operating expenses:
Cost of software 3.2 3.0
Cost of services 30.3 28.9
Cost of third-party equipment
and software 3.4 3.4
Software development 17.4 18.8
Sales and marketing 11.3 12.7
General and administrative 6.5 6.0
Amortization of intangibles 1.2 ---
--- ---
Total operating expenses 73.3 72.8
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Income from operations 26.7 27.2
Interest income, net 1.4 1.4
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Income before income taxes 28.1 28.6
Provision for income taxes 10.9 11.1
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Net income 17.2 % 17.5 %
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THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
License Fees. License fees for the three months ended March 31, 1999
increased by 13.2% to $6.6 million from $5.9 million for the same period in
1998. The increase was primarily due to Advantage license fees, which increased
by 56.6% to $1.5 million for the three months ended March 31, 1999 as compared
to $0.9 million for the same period in 1998. License fees from System 1 products
were $829,000 for the three months ended March 31, 1999 compared to $528,000 for
the three months ended March 31, 1998, an increase of 57.0%. License fees for
Electronic Timesheet were $818,000 for the three months ended March 31, 1999,
compared to $814,000 in the same period in 1998. Costpoint License fees were
$3.5 million for the first quarter ending March 31, 1999 and 1998. License fees
comprised 28.3% of the Company's total revenues for the three months ended March
31, 1999, compared to 33.1% for the comparable prior year period.
Services. Service revenues for the three months ended March 31, 1999
increased by 43.0% to $15.9 million from $11.1 million for the same period in
1998. The increase in service revenues was principally attributable to increased
consulting services related to new implementations of Costpoint systems.
Consulting service revenues increased by 61.6% to $7.7 million for the three
months ended March 31, 1999 from $4.8 million for the same period in 1998. Other
service revenues increased by 28.9% to $8.2 million for the three months ended
March 31, 1999 from $6.3 million for the same period in the prior year,
principally as a result of the addition of new customers and the license of
additional software products to existing customers and, to a lesser extent,
increases in service rates. Service revenues comprised 67.5% of the Company's
total revenues for the three months ended March 31, 1999, compared to 62.5% for
the same period in 1998.
Third-Party Equipment and Software. Revenue from third-party equipment
and software for the three months ended March 31, 1999 increased by 27.2% to
$988,000 from $777,000 for the three months ended March 31, 1998. These revenues
comprised 4.2% and 4.4% of total revenues for the three months ended March 31,
1999 and 1998, respectively.
Cost of Software. Cost of software is comprised primarily of royalties
and maintenance payments to third parties, amortization of software development
costs, and the cost of production and distribution of software and user manuals.
Cost of software for the three months ended March 31, 1999 was $0.7 million, a
slight increase from the $0.5 million for the same period in 1998. This change
was due to an increase in licensing activity.
Cost of Services. Cost of services is comprised primarily of personnel
costs for implementation and consulting services, user training and ongoing
maintenance and support. Cost of services for the three months ended March 31,
1999 increased by 38.7% to $7.1 million from $5.1 million for the same period in
1998. The increase in cost of services was primarily due to increases in
personnel costs to support the Costpoint product line. Cost of services
represented 45.0% and 46.3% of service revenues for the three months ended March
31, 1999 and 1998, respectively. The decrease in cost of services as a
percentage of service revenues
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primarily reflected increased utilization of consulting services for the first
quarter of 1999. Exclusive of reimbursed travel expenses, cost of services
represented 40.6% and 42.0% of service revenues for the three months ended March
31, 1999 and 1998, respectively.
Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software consists of computer and peripheral equipment and license fees and
royalties for third-party software. Costs of third-party equipment and software
for the three months ended March 31, 1999 increased to $0.8 million from $0.6
million in the comparable year period. As a percentage of related revenues, cost
of third-party equipment and software products represented 80.7% and 77.6% of
revenue from third-party equipment and software for the three months ended March
31, 1999 and 1998, respectively. The increase in these costs as a percentage of
related revenue was the result of changes in the product mix of equipment and
software sold.
Software Development. Software development costs consists primarily of
the personnel costs of analysts and programmers who research, develop, maintain
and enhance the Company's existing software product lines and develop new
products. Software development costs for the three months ended March 31, 1999
increased by 22.7% to $4.1 million from $3.3 million for the same period in
1998. This increase was due primarily to hiring additional personnel. Software
development costs represented 17.4% and 18.8% of total revenues for the three
months ended March 31, 1999 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses consist primarily of
the costs of the Company's sales and marketing personnel as well as the costs of
advertising, direct mail and other sales and marketing activities. Sales and
marketing expenses for the three months ended March 31, 1999 increased by 18.3%
to $2.7 million from $2.3 million for the same period in 1998. This increase was
due primarily to hiring additional personnel, and increased marketing
activities. The Company expects sales and marketing expenses to continue to
increase in the foreseeable future as the Company pursues its growth strategy.
Sales and marketing expenses represented 11.3% of the Company's total revenues
for the three months ended March 31, 1999, compared to 12.7% for the same period
in 1998.
General and Administrative. General and administrative expenses consist
primarily of the personnel costs of the Company's management, administrative and
finance staffs as well as the costs of insurance programs, bad debt expenses,
professional fees and other infrastructure costs. General and administrative
expenses for the three months ended March 31, 1999 increased by 42.3% to $1.5
million from $1.1 million for the same period in 1998. This increase is
attributable to an increase in the bad debt reserve and general insurance, tax
and accounting accruals. General and administrative expenses represented 6.5% of
the Company's total revenue for the three months ended March 31, 1999, compared
to 6.0% for the same period in 1998.
Amortization of intangibles. The charge of $278,000 for the three months
ended March 31, 1999 relate primarily to the amortization of goodwill and
purchased intangibles of the SalesKit Software Corporation, which was purchased
in April 1998, and to a lesser extent to the intangibles acquired in the
September 1996 acquisition of Allegro.
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Interest Income. Interest income results from investments, and to a
lesser extent, from installment financing. Interest income for the three months
ended March 31, 1999 increased by 30.4% to $326,000 from $250,000 for the same
period in 1998. The change is due to increased cash from operations.
Income Tax Provision. The Company's effective tax rate for the three
months ended March 31, 1999 and 1998 was 38.8%. The provision for income taxes
for the three months ended March 31, 1999 is based upon the Company's estimate
of the effective tax rate for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations almost exclusively from cash flow
from its operations. As of March 31, 1999, the Company had cash and cash
equivalents of $9.2 million, marketable securities of $25.0 million and working
capital of $33.6 million.
For the three months ended March 31, 1999, the Company's net cash
provided by operating activities was $1.9 million. Accounts receivable, net of
the allowance for doubtful accounts, were $18.4 million as of March 31, 1999,
compared to $17.4 million as of December 31, 1998. Accounts receivable days
sales outstanding was 68 days as of March 31, 1999 compared to 58 days as of
December 31, 1998. Exclusive of unbilled receivables, which were recorded as
deferred revenue, day's sales outstanding were 51 days as of March 31, 1999,
compared to 41 days as of December 31, 1998. While the Company believes that its
allowance for doubtful accounts as of March 31, 1999, remains adequate, there
can be no assurance that such allowance will be sufficient to cover receivables
which are later determined to be uncollectible.
Investing activities utilized $2.7 million for the three months ended
March 31, 1999. This amount included $1.1 million in acquired marketable
securities, $0.9 million in purchased property and equipment and $620,000 of
capitalized software production costs.
Financing activities for the three months ended March 31, 1999 consisted
primarily of $465,000 in proceeds from the exercise of stock options and from
the issuance of stock under the Company's employee stock purchase plan.
The Company has a $1.0 million bank line of credit, which will be secured
by substantially all of the Company's assets and bear interest at the lender's
prime rate. To date, no amounts have been drawn under the line of credit.
The Company believes that its current liquidity, together with
anticipated cash flow from operations, will satisfy the Company's anticipated
working capital and capital expenditure requirements through the foreseeable
future. However, depending on its rate of growth, profitability and other
factors, some of which are not in the Company's control, the Company believes
additional financing may be required to meet its working capital requirements or
capital expenditure needs, including acquisitions, in the future. There can be
no assurance that additional
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financing will be available when required or, if available, that any such
financing will be on terms satisfactory to the Company.
YEAR 2000
The Year 2000 Challenge. Many existing information technology ("IT")
systems and applications, and other non-IT control devices, use only two digits
to identify a year in the date field, without considering the impact of the
upcoming change in the century. As a result, such systems, applications and
devices could fail or create erroneous results unless they are modified in some
fashion to distinguish 21st century dates from 20th century dates (i.e., to be
year 2000 compliant). The year 2000 challenge creates potential risks for the
Company from unforeseen problems in the software products that the Company
licenses to others and in the IT and non-IT systems that the Company uses in its
own business operations. The Company may also be exposed to risks if its mission
critical vendors fail to address their own year 2000 issues.
The Company's Status of Readiness. The Company began addressing the year
2000 challenge in 1993 when it started developing all of its new products to be
year 2000 compliant. Year 2000 compliant versions of Costpoint, Advantage,
Allegro and Electronic Timesheet have been commercially available for some time,
and the year 2000 compliant version of System1 was released in September 1998.
Because the Company's compliant products operate on a variety of network
operating systems and support several relational databases, the Company is
conducting additional testing of its compliant products with different
combinations of compliant operating systems and databases. Such testing is
expected to be completed by the end of the second quarter of 1999. To date, this
testing has disclosed a few year 2000 related issues in several of Deltek's Year
2000 compliant products, e.g., products that Deltek designed to be year 2000
compliant. These software "bugs" are being corrected in accordance with Deltek's
standard process for developing and disseminating program fixes.
The Company's older-generation CFMS products include CFMS/RD, for which a
year 2000 compliant version is available, and CFMS and Micro/CFMS, for which no
year 2000 compliant versions are available. Licensees that are using a
non-compliant version or product and are participating in one of the Company's
comprehensive annual or quarterly support plans are being provided an upgrade or
conversion to a year 2000 compliant version or product for no additional license
fee. Licensees that are using a non-compliant version or product but are not
participating in one of the Company's comprehensive annual or quarterly support
plans have the option of upgrading or converting to a year 2000 compliant
version or product for an additional fee. The Company has contacted
substantially all of these licensees and has begun to assist those that intend
to continue using the Company's products in upgrading or converting to a
compliant version or product. It is anticipated that all of these licensees will
have been provided a compliant version or product by the end of the second
quarter of 1999.
During 1998, the Company formed a year 2000 project team and developed a
project plan with goals and target dates to help assure that the Company's
internal IT and non-IT systems and its mission critical vendors are prepared for
the year 2000. The Company's internal IT systems are primarily comprised of the
same commercial application software products licensed by the
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Company to its customers, which are year 2000 compliant. However, the Company
also utilizes third party vendor IT and non-IT systems, including application
and operating system software, network equipment, telecommunication products,
electronic key entry systems, elevators and other third party products, which
may or may not be year 2000 compliant. The Company has largely completed its
assessment of all mission critical third party vendor application software
systems. Final assessment and testing of those systems is scheduled to be
completed by the end of the second quarter of 1999, with any remediation
scheduled to be completed by the end of the third quarter of 1999. The Company
has nearly completed its inventory of all third party computer and network
hardware and operating (IT) systems. Final assessment and testing of these third
party IT systems is planned to be completed by the end of the second quarter of
1999. Non-year 2000 compliant IT system components will be replaced or
discontinued by the end of the third quarter of 1999. The Company has completed
its inventory and assessment of all non-IT systems with embedded chips. Testing
of these systems should be complete by the end of the second quarter of 1999,
and remediation of those systems should be complete by the end of the third
quarter of 1999. Finally, the Company is in the process of identifying third
parties that are providing mission critical services on which the Company
relies. The Company expects that it will have contacted substantially all of
these parties by the end of the second quarter of 1999 to determine their year
2000 plans and readiness and will have verified their year 2000 readiness or
replaced them with vendors that are year 2000 ready by the end of the third
quarter of 1999.
Costs to Address Year 2000 Issues. The costs incurred to date and
estimated costs for replacing and upgrading the Company's non-compliant internal
IT and non-IT systems and for engaging outside consultants to assist the Company
in addressing year 2000 issues have not been and are not anticipated to be
material. The Company does not separately track the internal costs associated
with its year 2000 readiness efforts, including developing and testing the
Company's year 2000 compliant products, contacting licensees currently using a
non-compliant version or product, assessing and testing the Company's internal
IT and non-IT systems and verifying the year 2000 readiness of its mission
critical vendors. These costs are principally the related payroll costs for the
Company's product development, customer support and internal IT groups. The
Company's current estimate is that the costs of addressing its year 2000 issues
will not have a material adverse effect on the Company's business, operating
results or financial condition.
Risks Associated with the Company's Year 2000 Issues. Management believes
that the growth in demand for the Company's products over the past several years
was due in part to its customers' needs to update their IT systems in
preparation for the year 2000. Most project oriented companies that needed to
convert to year 2000 compliant systems (and thus were potential customers for
the Company's products) have purchased year 2000 compliant systems. Accordingly,
the need to update IT systems to achieve year 2000 readiness no longer will
generate any significant demand for the Company's products. Management believes
that the future growth in demand for the Company's products will depend in part
upon the Company's ability to offset the loss of any growth attributable to its
customers' needs to update their IT systems in preparation for the year 2000.
There can be no assurance that the growth in demand for the Company's products
experienced over the past several years can be sustained. If such growth is not
sustainable, the Company's business, operating results and financial condition
could be materially adversely impacted. Moreover, as the year 2000 approaches,
the Company's
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current or future customers may need to divert technology expenditures that were
reserved for the purchase of enterprise software products such as the Company
sells to address year 2000 compliance problems. Accordingly, the Company's
business, operating results and financial condition could be materially
adversely impacted if purchases of the Company's products are thereby delayed or
lost.
The Company has made or intends to make available to its customers year
2000 compliant versions of its products. There can, however, be no assurance
that its customers will request and install the compliant versions or operate
them only with year 2000 compliant operating systems, relational databases and
other IT systems. Moreover, although the Company's year 2000 compliant products
have or will have undergone the Company's normal quality assurance procedures
and some additional year 2000 testing, there can be no assurance that these
products do not contain undetected errors or defects associated with the year
2000 date functions. Because IT systems incorporate hardware and software
products from different vendors, it may be difficult to determine which product
has caused a year 2000 problem, and thus the Company may be subjected to year
2000-related lawsuits even if the Company's products are year 2000 compliant.
Any system malfunctions due to the onset of calendar year 2000 and any disputes
with customers relating to year 2000 compliance could have a material adverse
effect on the Company's business, operating results and financial condition.
Finally, despite the Company's efforts to address the year 2000 impact on its
internal IT and non-IT systems and on the operations of its mission critical
vendors, the Company may not be able to fully identify such impact or to resolve
it without disruption of the Company's business and without incurring
significant expense. Accordingly, if the year 2000 issues are not adequately
addressed by the Company and third parties, there can be no assurance that the
Company's business, operating results and financial condition will not be
materially adversely affected.
The Company's Contingency Plans. The Company's most reasonably likely
worst case year 2000 scenarios include (i) failure of electric power and
telephone services provided by third parties and (ii) failure of hardware and
third party vendor software used in the Company's internal IT system. Any
significant interruption in the supply of electric power or telephone service to
the Company's facilities as a result of the failure of utilities or
telecommunications companies to adequately address year 2000 issues would
disrupt the Company's ability to conduct its business, including providing
telephone support to its customers. The Company is developing contingency plans
for implementation in the event that electric power or telephone service to one
or more of the Company's facilities is interrupted. Such plans will involve
relocating portions of the Company's operations to other facilities or locations
where power and telephone service are available and taking other similar actions
to work around any interruption. Depending upon the nature of the interruption
and the geographic areas affected, the Company may be unable to execute some or
even all of its contingency plans. The Company also is developing contingency
plans to deal with any internal IT hardware and software system failures, which
also would disrupt the Company's ability to conduct its business. Such plans
will include, among other things, manual "work arounds." Finally, the Company
also is developing plans to coordinate the efforts of its personnel and
resources in addressing any unforeseen year 2000 problems as they arise. The
Company expects to have its contingency plans in place by the end
14
<PAGE> 15
of the third quarter of 1999. There can be no assurance that any contingency
plans will fully mitigate the impact of any year 2000 problems that the Company
may experience.
Forward-Looking Statements. The foregoing year 2000 discussion contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements, including without limitation,
anticipated costs and the dates by which the Company expects to complete certain
actions, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third parties
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to identify and remediate all relevant IT and non-IT
systems, results of year 2000 testing, adequate resolution of year 2000 issues
by governmental agencies, businesses and other third parties who are service
providers, suppliers, borrowers or customers of the Company, unanticipated
system costs, the adequacy of and ability to implement contingency plans and
similar uncertainties. The "forward-looking statements" made in the foregoing
year 2000 discussion speak only as of the date on which such statements are
made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Quarterly Variations. Our future operating results may vary from quarter
to quarter depending upon a number of factors including the following:
- the demand for our products;
- the size and timing of specific sales;
- the delay or deferral of customer implementations;
- the level of product and price competition that we encounter;
- the length of our sales cycles;
- our ability to attract and retain personnel;
- the timing of new hires;
- the timing of our new product introductions and product
enhancements and of our competitors;
- the mix of products and services we sell;
- the activities of and acquisitions by our competitors;
- the timing of our national user conference;
- general economic conditions;
- our ability to develop and market new software products and
enhancements; and
- our ability to control costs.
Our operating results, particularly our quarterly results could be significantly
affected by the loss or delay of individual orders. Our revenues from license
fees are difficult to predict because of
15
<PAGE> 16
the length and variability of our sales cycles (typically 3 to 18 months). Our
operating expenses, on the other hand, are based on anticipated revenue trends.
A high percentage of our operating expenses are relatively fixed. A delay in the
recognition of revenue from a limited number of sales could cause significant
variations in operating results from quarter to quarter. To the extent we incur
expenses before obtaining anticipated revenues, our operating results could be
materially adversely affected.
For certain of our software products, we typically grant customers a
right of return for a full or partial refund of the license fee during the
refund period. Refund periods generally range from 60 to 90 days from the date
of the initial software delivery. Sometimes we have provided and may in the
future provide longer refund periods for larger, more complex Costpoint
installations. We recognize Costpoint and Allegro license fees upon the
expiration of the applicable refund periods. The license fees are recorded as
deferred revenues until recognized as revenue. Deferred revenues at the end of a
quarter do not necessarily reflect revenues that the Company will recognize in a
succeeding quarter. This is because customers sometimes have refund rights and
the length of refund periods vary from customer to customer. We generally
recognize license fees from Advantage, System1 and Electronic Timesheet
products upon their delivery.
Our operating results for any quarter are subject to significant
variation, and we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. Our future quarterly operating results from
time to time may not meet the expectations of market analysts or investors. In
that event, the price of our common stock would likely be materially adversely
affected.
Other Factors. For a discussion of additional factors that may affect
future results, see "Factors That May Affect Future Results and Market Price of
Stock" in the Company's Annual Report on Form 10-K (File No. 0-22001) which
discussion is incorporated herein by reference.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding which would have a
material impact on the Company, its operations or financial results.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
(a)-(b)-(c)-(d) Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
In March 1999 the Company's Board of Directors approved a stock
repurchase program for up to one million shares of its common stock. A copy of
the Press Release is attached as an exhibit to this report. As of May 13, 1999,
the Company has repurchased 552,500 shares under this program.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99.1 Press Release dated March 25, 1999
(b) Reports on Form 8-K
None
17
<PAGE> 18
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.
Date: May 13, 1999
DELTEK SYSTEMS, INC.
By: /s/ Alan R. Stewart
------------------------
Alan R. Stewart
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE> 19
DELTEK SYSTEMS, INC.
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLE
27 Financial Data Schedule
99.1 Press Release dated March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1998 MAR-31-1999 DEC-31-1998
<CASH> 0 9,208 9,515
<SECURITIES> 0 25,018 23,861
<RECEIVABLES> 0 19,272 18,040
<ALLOWANCES> 0 (909) (689)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 55,969 54,564
<PP&E> 0 11,777 10,868
<DEPRECIATION> 0 (6,938) (6,556)
<TOTAL-ASSETS> 0 68,390 66,308
<CURRENT-LIABILITIES> 0 22,388 24,902
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 18 18
<OTHER-SE> 0 45,984 41,388
<TOTAL-LIABILITY-AND-EQUITY> 0 68,390 66,308
<SALES> 17,753 23,507 0
<TOTAL-REVENUES> 17,753 23,507 0
<CGS> 0 0 0
<TOTAL-COSTS> 12,930 17,226 0
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 5,073<F1> 6,607<F2> 0
<INCOME-TAX> 1,967 2,566 0
<INCOME-CONTINUING> 5,073 6,607 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,106 4,041 0
<EPS-PRIMARY> 0.18 0.23 0
<EPS-DILUTED> 0.17 0.22 0
<FN>
<F1>INCLUDES INTEREST INCOME OF $250.
<F2>INCLUDES INTEREST INCOME OF $326.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
DELTEK SYSTEMS, INC. ANNOUNCES STOCK REPURCHASE PROGRAM
MCLEAN, VIRGINIA, March 25, 1999 -- DELTEK SYSTEMS, INC. (NASDAQ: DLTK) a
leading provider of advanced software for project-oriented businesses, today
announced that the Board of Directors had approved the repurchase of up to
1,000,000 shares of its common stock, through open market and private purchases.
The timing of the purchases and the exact number of shares to be purchased will
be dependent upon prevailing market conditions and price levels. Any purchases
will be paid for out of the Company's general corporate funds. Shares acquired
through the repurchase program will be used for general corporate purposes,
including stock option and purchase plans, as the Board may determine from time
to time. The Company reserves the right to modify or terminate its repurchase
activities at any time.
Mr. Kenneth E. deLaski, the President and Chief Executive Officer of
Deltek Systems, Inc., stated, "Although Deltek and the ERP software industry
face a more challenging near-term environment because of Y2K issues, we have
confidence in the underlying strengths of the Company. The authorization of this
buyback reflects our confidence in the Company's long-term growth potential and
belief that our strategy will accomplish those goals. Management believes that
repurchasing our own shares is an excellent investment and an appropriate use of
a portion of our significant cash reserves."
About Deltek
Deltek designs, develops, and supports ERP systems for project-based businesses.
Deltek enterprise-level solutions are Y2K compliant and encompass financial and
project accounting, materials management, human resource and payroll
administration, employee timekeeping and expense reporting, project and resource
management, and information dissemination. Deltek offers a full range of related
services including implementation consulting, training, software maintenance,
and telephone support. A leader in providing project-based solutions to
businesses since 1983, Deltek serves thousands of companies worldwide.
Industries using Deltek products include aerospace and defense, architecture and
design, biotechnology, computer services, consulting services, construction,
engineering, environmental, government, government contracting, high technology,
laboratories, make-to-order manufacturing, not-for-profit, professional
services, public relations and marketing, research and development, systems
integration, and technical services.
Deltek is headquartered in McLean, Virginia, with offices in Cambridge,
Massachusetts; Englewood, Colorado; San Jose, California; St. Louis, Missouri;
and London, England. Product and service information is located on the World
Wide Web at www.deltek.com.
###
