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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
------- Exchange Act of 1934 for the quarterly period ended June 30, 2000 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
------- Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number: 000-22001
DELTEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1252625
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 June 30, 2000
Common Stock, $.001 par value 16,670,840
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DELTEK SYSTEMS, INC.
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for the Three and Six Months 4
Ended June 30, 2000 and June 30, 1999
Consolidated Statements of Cash Flows for the Six Months 5
Ended June 30, 2000 and June 30, 1999
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk 16
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 16
ITEM 2 - Changes in Securities and Use of Proceeds 16
ITEM 3 - Defaults upon Senior Securities 16
ITEM 4 - Submission of Matters to a Vote of Security Holders 16
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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JUNE 30, 2000 DECEMBER 31, 1999
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,441 $ 5,989
Marketable securities 19,738 23,256
Accounts receivable, net of allowance for doubtful
accounts of $1,177 and $1,404, respectively 12,976 13,427
Prepaid expenses, deferred income taxes and other
current assets 4,511 4,695
-------- --------
Total current assets 47,666 47,367
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FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET OF
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF $9,349 AND $8,289 RESPECTIVELY 6,790 6,516
COMPUTER SOFTWARE DEVELOPMENT COSTS, NET OF
ACCUMULATED AMORTIZATION OF $3,755 AND $3,166,
RESPECTIVELY 5,965 5,129
PURCHASED INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF $2,400
AND $1,786, RESPECTIVELY 6,233 3,298
OTHER ASSETS 205 125
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Total assets $ 66,859 $ 62,435
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 6,270 $ 6,567
Deferred revenue 8,443 8,626
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Total current liabilities 14,713 15,193
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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, 16,670,840 and 16,636,197 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 17 17
Paid - in capital 10,054 10,023
Retained earnings 42,203 37,202
Accumulated Other Comprehensive Income (128) ---
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Total shareholders' equity 52,146 47,242
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Total liabilities and shareholders' equity $ 66,859 $ 62,435
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</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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DELTEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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REVENUES:
Software license fees $ 5,038 $ 7,539 $ 12,087 $ 14,200
Services 16,292 15,722 33,981 31,580
Third-party equipment and software 779 575 1,334 1,563
--------- --------- --------- ---------
Total revenues 22,109 23,836 47,402 47,343
OPERATING EXPENSES:
Cost of software license fees 826 590 1,646 1,333
Cost of services 9,320 7,136 18,122 14,265
Cost of third-party equipment
and software 673 522 1,204 1,319
Software development 4,532 3,923 8,686 8,014
Sales and marketing 3,389 2,999 6,113 5,670
General and administrative 1,938 1,479 3,394 2,996
Amortization of purchased intangibles 353 277 601 555
--------- --------- --------- ---------
Total operating expenses 21,031 16,926 39,766 34,152
--------- --------- --------- ---------
INCOME FROM OPERATIONS 1,078 6,910 7,636 13,191
INTEREST INCOME 239 282 507 608
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,317 7,192 8,143 13,799
PROVISION FOR INCOME TAXES 499 2,825 3,142 5,391
--------- --------- --------- ---------
NET INCOME $ 818 $ 4,367 $ 5,001 $ 8,408
========= ========= ========= =========
BASIC NET INCOME PER SHARE $ 0.05 $ 0.25 $ 0.30 $ 0.48
DILUTED NET INCOME PER SHARE 0.05 0.25 0.30 0.47
WEIGHTED AVERAGE SHARES OUTSTANDING 16,711 17,387 16,694 17,635
WEIGHTED AVERAGE SHARES OUTSTANDING, INCLUDING
DILUTIVE EFFECT OF STOCK OPTIONS 16,905 17,612 16,937 17,901
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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DELTEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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SIX MONTHS ENDED JUNE 30,
2000 1999
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(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,001 $ 8,408
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,263 1,757
Other noncash (credits) charges 2 170
Change in accounts receivable, net 451 (1,194)
Change in prepaid expenses and other assets 104 (1,463)
Change in accounts payable and accrued expenses (297) (557)
Change in income taxes payable --- ---
Change in deferred income taxes, net --- (127)
Change in deferred revenue (183) (2,510)
------- -------
Net cash provided by operating activities 7,341 4,484
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of marketable securities 3,517 45
Purchase of property and equipment (1,334) (1,692)
Acquisition of A/E Management, Inc. (3,549) ---
Capitalization of software development costs (1,425) (1,354)
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Net cash used in investing activities (2,791) (3,001)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from issuance of stock for employee
purchase plan and option plans 475 492
Common stock purchased and retired (437) (8,889)
------- -------
Net cash provided by financing activities 38 ( 8,397)
------- -------
Impact of foreign exchange (136) ---
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,452 (6,914)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,989 9,515
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $10,441 $ 2,601
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CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 3,089 $ 6,905
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</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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DELTEK SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Deltek Systems, Inc. ("Deltek" or the "Company") is a leading provider of
enterprise software products that enable project-oriented professional service
firms to more effectively manage, operate and grow their operations. Software
products address the needs specific to such organizations through a wide range
of functionality, such as financial and project accounting, human resources
management and administration, materials management and project reporting.
Deltek also provides a full range of services, including implementation and
consulting, training and ongoing support.
Basis of Presentation
The consolidated financial statements included herein have been prepared by 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, 1999, included in the Company's Annual
Report on Form 10-K.
2. NET INCOME PER COMMON SHARE
Net income per common share was 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 was related to outstanding stock options.
3. COMMON STOCK PURCHASED AND RETIRED
On January 27, 1999, Deltek announced the purchase of up to 1,000,000 shares of
its common stock through open market and private purchases. As of June 30, 1999,
Deltek had acquired 1,000,000 shares and retired them in accordance with state
law. Purchases were made out of the Company's general corporate funds. On
November 4, 1999, the Company announced a repurchase plan for up to 500,000
shares of its common stock through open market and private purchases. As of
December 31, 1999, the Company had acquired 402,500 shares and retired them in
accordance with state law. On June 16, 2000, the Company acquired an additional
50,000 shares under the November 4, 1999 plan, for a total of 452,500 shares
acquired. On June
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28, 2000, the Company announced a repurchase plan for up to
1,600,000 shares of its common stock through open market and private purchases.
Under this repurchase plan, there was no activity for quarter ended June 30,
2000.
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, 2001. 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
future results of operations.
In December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"), which summarizes certain of the SEC Staff views in applying U.S. GAAP to
revenue recognition in financial statements. SAB 101 is effective for the fourth
quarter ended December 31, 2000, and is not expected to have a material impact
on the financial statements of the Company.
5. COMMITMENTS AND CONTINGENCIES
The Company's continuing operations entail various claims incidental to its
business. The Company is contesting these matters, and in the opinion of
management, the ultimate resolution of any legal proceedings will not have a
material adverse effect on the financial condition or the future operating
results of the Company.
6. ACQUISITIONS
Deltek acquired substantially all assets of A/E Management Services, Inc. on
April 14, 2000, including its complete suite of RFP Proposal automation and
tracking software, for the cash purchase price of $3.5 million. Net assets
acquired were nominal and the entire purchase price was allocated to purchased
intangibles on a preliminary basis. These intangibles will be amortized over
five years. A/E Management's RFP front-office automation solution is designed to
help the "A/E/C" (Architecture, Engineering and Construction) profession and
other professional services organizations win more contracts by automating the
process of collecting, updating, researching and retrieving data critical to
achieving marketing and proposal automation success.
On August 9, 2000, the Company acquired all of the outstanding stock of
Semaphore, Inc. for a purchase price of $10 million in cash from working
capital. Semaphore, Inc. provides advanced financial and project management
software and services for A/E/C and other professional services firms.
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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,
1999 as contained in the Company's Annual Report on Form 10-K.
In addition to historical information, this Quarterly Report includes
certain "forward-looking statements." The words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and other similar expressions are
intended to identify these forward-looking statements, but are not the exclusive
means of identifying them. Readers are cautioned not to place undue reliance on
these forward-looking statements as these forward-looking statements reflect the
current view of the Company or its management and are subject to certain risks,
uncertainties and contingencies which could cause the Company's actual results,
performance or achievements to differ materially from those expressed in or
implied by these statements. These risks, uncertainties and contingencies
include, but are not limited to, the factors discussed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors that May Affect Future Results" and elsewhere in
this Quarterly Report. Deltek 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.
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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)
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Three months ended Six months ended
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6/30/00 6/30/99 6/30/00 6/30/99
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Revenues:
Software license fees 22.8 % 31.6 % 25.5 % 30.0 %
Services 73.7 66.0 71.7 66.7
Third party equipment and Software 3.5 2.4 2.8 3.3
----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0
Operating expenses:
Cost of software license fees 3.7 2.5 3.5 2.8
Cost of services 42.2 29.9 38.2 30.1
Cost of third-party equipment and software 3.0 2.2 2.5 2.8
Software development 20.5 16.5 18.3 16.9
Sales and marketing 15.3 12.6 12.9 12.0
General and administrative 8.8 6.2 7.2 6.3
Amortization of purchased intangibles 1.6 1.1 1.3 1.2
----- ----- ----- -----
Total operating expenses 95.1 71.0 83.9 72.1
Income from operations 4.9 29.0 16.1 27.9
Interest income 1.1 1.2 1.1 1.2
----- ----- ----- -----
Income before income taxes 6.0 30.2 17.2 29.1
Provision for income taxes 2.3 11.9 6.6 11.4
----- ----- ----- -----
Net income 3.7 % 18.3 % 10.6 % 17.7 %
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Software License Fees. License fees for the quarter ended June 30, 2000
decreased by 33.3% to $5.0 million from $7.5 million for the same period in
1999. License fees for ET Enterprise were $1.0 million for the quarter ended
June 30, 2000, compared to $812 thousand for same period in 1999, an increase of
25.0%. New front-office product license fees from sales of RFP GenTrak 2000 were
$177 thousand for the quarter ended June 30, 2000. Costpoint license fees were
$2.2 million for the quarter ended June 30, 2000, a decrease of 31.3% from the
same period in 1999. License fees from System1/GCS Premier products were $333
thousand for the quarter ended June 30, 2000 compared to $661 thousand for the
quarter ended June 30, 1999, a decrease of 49.6%.
Services. Services revenue for the quarter ended June 30, 2000
increased by 3.8% to $16.3 million from $15.7 million for the same period in
1999. The increase was principally
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attributed to increased Ongoing Support Plan (OSP) services revenue for all
product lines. OSP increased by 15.2% to $7.6 million for the quarter ended June
30, 2000 as compared to $6.6 million for the same quarter in 1999. Consulting
services revenue remained constant at $7.4 million for the quarter ended June
30, 2000 as compared to the same period in 1999. A slight decrease in consulting
services revenue was related to the decrease in software sales. Services revenue
comprised 73.7% of the Company's total revenues for the quarter ended June 30,
2000, compared to 66.0% for the same period in 1999.
Third-Party Equipment and Software. Revenue from third-party equipment
and software for the quarter ended June 30, 2000 increased by 35.5% to $779
thousand from $575 thousand for the quarter ended June 30, 1999. These revenues
comprised 3.5% and 2.4% of total revenues for the quarter ended June 30, 2000
and 1999, respectively.
Cost of Software license fees. Cost of software license fees is
composed 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 quarter
ended June 30, 2000 and June 30, 1999 was $826 thousand and $590 thousand,
respectively. The increase was due to additional amortization expenses related
to the general release of GCS Premier and Project Workplace late in the first
quarter of 2000. Royalties associated with certain software products currently
under development by joint business arrangements and charges associated with
software products and technologies acquired from various third party vendors may
cause the cost of software license fees, as a percentage of software license
fees revenue, to increase in future periods.
Cost of Services. Cost of services is composed primarily of personnel
costs for consulting, customer training, and support. Cost of services for the
quarter ended June 30, 2000 increased by 31.0% to $9.3 million from $7.1 million
for the same period in 1999. The cost of services gross margin decrease was due
to a decline in consultant utilization rates in concert with declines in
software license sales and consulting services revenue. Indirect travel also
contributed to the increase in Cost of services expense. Cost of services
represented 57.2% and 45.4% of services revenue for the quarter ended June 30,
2000 and 1999, respectively. Excluding reimbursable travel, cost of services
represented 54.4% and 40.5% of services revenue for the quarter ended June 30,
2000 and 1999, respectively.
Cost of Third-Party Equipment and Software. Cost of third-party
equipment and software consists of computer and peripheral equipment, license
fees and royalties for third-party software. Such costs for the quarter ended
June 30, 2000 increased to $673 thousand from $522 thousand in the comparable
year period. This increase was due to a significant increase in the cost of
hardware, which in turn was associated with a 3.5% increase in related revenue.
As a percentage of related revenue, cost of third-party equipment and software
products represented 86.4% and 90.8% of related revenue for the quarter ended
June 30, 2000 and 1999, respectively.
Software Development. Software development costs consist primarily of
the personnel costs for 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
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quarter ended June 30, 2000 were $4.5 million, an increase of 15.5% from the
same period in 1999. The increase was due primarily to labor costs for
subcontractors and a lower amount of capitalizable software development cost.
Software development costs represented 20.5% and 16.5% of total revenue for the
quarter ended June 30, 2000 and 1999, respectively.
Sales and Marketing. Sales and marketing expenses consist primarily of
the costs of the Company's sales and marketing personnel, advertising, direct
mail and other sales and marketing activities. Sales and marketing expenses for
the quarter ended June 30, 2000 increased to $3.4 million compared with $3.0
million for the same period in 1999. The increase was related to the Company's
current growth strategy and new sales and marketing initiatives. Sales and
marketing expenses represented 15.3% and 12.6% of the Company's total revenue
for the comparable quarters of 2000 and 1999, respectively.
General and Administrative. General and administrative expenses consist
primarily of the personnel costs of the Company's management, administrative and
finance staff, and include insurance expense, bad debt provisions, professional
fees, and other operating costs. General and administrative expenses for the
quarter ended June 30, 2000 increased by 26.7% to $1.9 million from $1.5 million
for the same period in 1999. This increase was due to additional professional
fees and increased labor costs related to planned growth. Bad debt expense
reflected a $196 thousand provision for possible losses related to a single,
large account. The Company deems this provision to be nonrecurring in nature.
General and administrative expenses represented 8.8% of the Company's total
revenue for the quarter ended June 30, 2000, compared to 6.2% for the same
period in 1999.
Amortization of Intangibles. Amortization expense of $353 thousand and
$277 thousand for the quarter ended June 30, 2000 and June 30, 1999,
respectively, was related to the amortization of goodwill and purchased
intangibles for both SalesKit Software Corporation and A/E Management, Inc.,
which were purchased in April 1998 and April 2000, respectively.
Interest Income. Interest income is earned principally on short-term
investments in tax-exempt securities and amounted to $239 thousand for the
quarter ended June 30, 2000, a decrease of 15.2% from $282 thousand for the same
period in 1999.
Income Tax Provision. The Company's effective tax rate for the quarter
ended June 30, 2000 was 38.7% and for the quarter ended June 30, 1999 was 39.3%.
The provision for income taxes for the quarter ended June 30, 2000 was based
upon the Company's estimate of the effective tax rate for fiscal 2000.
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SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE, 1999
Software License Fees. License fees for the six months ended June 30,
2000 decreased by 14.8% to $12.1 million from $14.2 million for the same period
in 1999. License fees from System1/GCS Premier products were $3.0 million for
the six months ended June 30, 2000 compared to $1.5 million for the six months
ended June 30, 1999, an increase of 100.0%. License fees for ET Enterprise were
$1.61 million for the six months ended June 30, 2000, compared to $1.63 million
in the same period in 1999, a decrease of 1.2%. Costpoint license fees were $4.2
million for the six months ended June 30, 2000, a decrease of 33.3% for the same
period in 1999. Software license fees from sales of RFP GenTrack 2000, the
Company's newly acquired front-office product, were $553 thousand for the six
months ended June 30, 2000.
Services. Services revenue for the six months ended June 30, 2000
increased by 7.6% to $34.0 million from $31.6 million for the same period in
1999. The increase was principally attributed to increased Ongoing Support Plan
(OSP) services revenue for all product lines. OSP increased by 17.2% to $15.0
million for the six months ended June 30, 2000 as compared to $12.8 million for
the same six months in 1999. Consulting services revenue increased by 1.0% to
$16.0 million for the six months ended June 30, 2000 from $15.9 million for the
same period in 1999. Services revenue comprised 71.7% of the Company's total
revenue for the six months ended June 30, 2000, compared to 66.7% for the same
period in 1999.
Third-Party Equipment and Software. Revenue from third-party equipment
and software for the six months ended June 30, 2000 decreased by 18.9% to $1.3
million from $1.6 million for the six months ended June 30, 1999. These revenues
comprised 2.8% and 3.3% of total revenues for the six months ended June 30, 2000
and 1999, respectively.
Cost of Software License Fees. Cost of software license fees for the
quarter ended June 30, 2000 and June 30, 1999 were $1.6 million and $1.3
million, respectively. This increase was due to amortization expense related to
the general release of GCS Premier and Project Workplace late in the first
quarter of 2000. In addition, the cost associated with printing, shipping and
software supplies increased. Royalties associated with certain software products
currently under development by joint business arrangements and charges
associated with software products and technologies acquired from various third
party vendors may cause the cost of software license fees as a percentage of
software license fees revenue to increase in future periods.
Cost of Services. Cost of services for the six months ended June 30,
2000 increased by 27.1% to $18.1 million from $14.3 million for the same period
in 1999. The cost of services gross margin decrease was due to a decrease in
consultant utilization rates, proportionate to the decline in software license
fees. Labor related expenses contributed to the increase in Cost of services
expense. Cost of services represented 53.3% and 45.2% of service revenues for
the six months ended June 30, 2000 and 1999, respectively. Excluding
reimbursable travel, cost of services represented 50.0% and 40.2% of services
revenue for the six months ended June 30, 2000 and 1999, respectively.
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Cost of Third-Party Equipment and Software. Costs for the six months
ended June 30, 2000 decreased to $1.2 million from $1.3 million in the
comparable 1999 period. As a percentage of related revenues, cost of third-party
equipment and software products represented 90.3% and 84.4% of revenue for the
six months ended June 30, 2000 and 1999, respectively.
Software Development. Software development costs for the six months
ended June 30, 2000 were $8.7 million, an increase of 8.8% from the same period
in 1999 due primarily to the labor costs associated with subcontractors and also
due to a reduction in capitalizable software development costs. Software
development costs represented 18.3% and 16.9% of total revenues for the six
months ended June 30, 2000 and 1999, respectively.
Sales and Marketing. Sales and marketing expenses for the six months
ended June 30, increased to $6.1 million compared with $5.7 million for the same
period in 1999. This increase was due to increases in labor and advertising
expenses related to its current growth strategy and new sales and marketing
initiatives. Sales and marketing expenses represented 12.9% and 12.0% of the
Company's total revenues for the comparable six months of 2000 and 1999,
respectively.
General and Administrative. General and administrative expenses for the
six months ended June 30, 2000 increased by 13.3% to $3.4 million from $3.0
million for the same period in 1999. This increase was due to additional
professional fees, increased labor costs related to planned growth and also
included a special bad debt provision discussed in the quarterly results.
General and administrative expenses represented 7.2% of the Company's total
revenue for the six months ended June 30, 2000, compared to 6.3% for the same
period in 1999.
Amortization of Intangibles. Amortization expense of $601 thousand and
$555 thousand for the six months ended June 30, 2000 and June 30, 1999,
respectively, related to the amortization of goodwill and purchased intangibles
for SalesKit Software Corporation and A/E Management, Inc., which were purchased
in April 1998 and April 2000, respectively.
Interest Income. Interest income is earned principally on short-term
investments in tax-exempt securities and amounted to $507 thousand for the six
months ended June 30, 2000, a decrease of 16.6% from $608 thousand for the same
period in 1999.
Income Tax Provision. The Company's effective tax rate for the six
months ended June 30, 2000 was 38.7% and for the six months ended June 30, 1999
was 39.0%. The provision for income taxes for the six months ended June 30, 2000
was based upon the Company's estimate of the effective tax rate for fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funding is cash flow from operating
activities. At June 30, 2000, the Company had cash and cash equivalents of $10.4
million, marketable securities of $19.7 million and total working capital of
$33.0 million.
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For the quarter ended June 30, 2000, the Company's net cash provided by
operating activities was $7.3 million. Accounts receivable, net of the allowance
for doubtful accounts, were $13.0 million at June 30, 2000, compared to $13.4
million at December 31, 1999. Accounts receivable days sales outstanding was 54
days at June 30, 2000 and 56 days at December 31, 1999. While the Company
believes that its allowance for doubtful accounts at June 30, 2000, was
adequate, there can be no assurance that such allowance will be sufficient to
cover receivables that are later determined to be uncollectible.
Net cash used for investing activities amounted to $2.8 million for the
quarter ended June 30, 2000, and included $1.3 million to purchase property and
equipment, $1.4 million in capitalized software production costs with $3.5
million provided by sales of marketable securities.
Cash received from financing activity for the quarter ended June 30,
2000 consisted of $213 thousand in proceeds from the exercise of stock options
and $262 thousand from the issuance of stock under the Company's employee stock
purchase plan.
On April 17, 2000, Deltek acquired substantially all assets of A/E
Management Services including its complete suite of RFP Proposal automation and
tracking software for the purchase price of $3.5 million from working capital.
On August 9, 2000, the Company acquired all of the outstanding stock of
Semaphore, Inc. for a purchase price of $10 million in cash from working
capital. See Item 5.
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. The Company
may consider additional appropriate acquisitions should such opportunities
present themselves. There can be no assurance that additional financing will be
available when required or, if available, that any such financing will be on
terms satisfactory to the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We may experience fluctuations in quarterly operating results. Our
future results may vary from quarter to quarter depending upon a number of
factors including the following:
- the discretionary nature of our customers' purchase and budget cycles;
- demand for our products;
- the size and timing of specific sales;
- the delay or deferral of customer implementations;
- our ability to integrate and market products and software acquired by
acquisition;
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- the level of product and price competition 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;
- 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;
- our ability to control costs; and
- our ability to collect receivables.
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 the length and variability
of our sales cycles (typically three 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 realizing anticipated revenues, our operating results could be materially
adversely affected.
For most 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. This is in part done to provide additional comfort to the Company's
prospective customers as well as to demonstrate the Company's growing confidence
in the reliability and stability of its core products. Refund periods generally
range from 60 to 90 days from the date of shipment, but may be longer depending
upon the monetary value and complexity of the transaction.
Our operating results for any quarter are subject to significant
variation, and we believe that period-to-period comparisons of our operating
results should not be relied upon as indications of future performance. We also
believe that many of our potential customers will continue to defer additional
software expenditures beyond the final quarter of 2000, and we cannot predict
when customer resources will again be available for the improvement of internal
business systems. Our future quarterly operating results from time to time may
not meet the expectations of market analysts or investors.
Future revenue growth is dependent in part on our successful
introduction of new products. During the quarter ended June 30, 2000, we
continued development work on several products. Our future revenue growth from
software sales is dependent, in part, on our ability to launch new products
successfully.
Internet-enabled products present unique risks. The increased
commercial use of the Internet could require substantial modification and
customization of our products and the
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introduction of new products. We may not be able to effectively compete in the
Internet-related products and services market. In addition, critical issues
concerning the commercial use of the Internet, including security, demand,
reliability, cost, ease of use, accessibility, quality of service and potential
tax or other government regulation, remain unresolved and may affect the use of
the Internet as a medium to support the functionality of our products and
distribution of our software. If these critical issues are not favorably
resolved, our business, operating results and financial condition could 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 which discussion is incorporated
herein by reference.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes since year-end.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding that 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
On May 19, 2000, the Company held its Annual Meeting of Shareholders.
At the meeting, the following actions were taken.
(a) Two Class II Directors, Kenneth E. deLaski and Robert E. Gregg, were
elected to serve for three years or until their successors have been
duly elected and shall qualify. The votes cast and withheld for each
director were as follows:
Kenneth E. deLaski FOR 15,338,373 WITHHELD 289,636
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Robert E. Gregg FOR 15,444,809 WITHHELD 183,200
(b) The appointment of Arthur Andersen LLP as the company's independent
auditors for its current fiscal year was ratified with the following
vote:
FOR 15,604,866 AGAINST 6,296 ABSTAIN 9,447
ITEM 5 - OTHER INFORMATION
On June 28, 2000, the Company announced a repurchase plan for up to
1,600,000 shares of its common stock through open market and private purchases.
No shares have been purchased under the plan through the date hereof.
Effective July 1, 2000, the Board appointed Kenneth deLaski to the
additional position of Chairman of the Board. Donald deLaski, co-founder and
chairman since the Company's inception in 1983, will continue to serve as a
member of the Board of Directors.
On August 9, 2000, the Company acquired all of the outstanding stock of
Semaphore, Inc. pursuant to an Agreement and Plan of Merger, a copy of which is
attached hereto and incorporated herein by reference. The purchase price for the
acquisition was $10 million in cash and provided by working capital. There was
no affiliation or relationship between the Company, its affiliates, officers or
directors or associates of such persons and the Company or any of its officers,
directors or stockholders prior to the execution of the Agreement. A copy of the
press release is attached hereto and incorporated herein by reference.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.3 Agreement and Plan of Merger dated as of
August 9, 2000 by and among Deltek Systems, Inc., Yankee
Clipper Merger Sub Corporation and Semaphore, Inc., Raymond
King, Paul Chu and Novax Group, Inc.
27 Financial Data Schedule
99.2 Press release dated August 10, 2000
3.2 Amended and Restated Bylaws
(b) Reports on Form 8-K
None
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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: August 14, 2000
DELTEK SYSTEMS, INC.
By: /s/ David L. Spilman
------------------------------
David L. Spilman
Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 19
DELTEK SYSTEMS, INC.
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLE
27 Financial Data Schedule
