<PAGE>
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 Period Ended July 31, 1998.
/ / 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 0-24201
------------------
Carreker-Antinori, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1622836
- ------------------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14001 N. Dallas Parkway, #1100
Dallas, Texas 75240-7304
- ------------------------------------------- -----------------------------
(Address of principal executive office) (Zip Code)
(972) 458-1981
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 periods 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 practical date.
Common Stock, $.01 Par Value --- 16,424,030 shares as of July 31, 1998.
<PAGE>
CARREKER-ANTINORI, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
at January 31, 1998, and July 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months and six months ended July 31, 1997
and July 31, 1998 4
Condensed Consolidated Statements of Cash Flows
for the six months ended July 31, 1998 5
Notes to Condensed 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 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 14
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS January 31, July 31,
1998 1998
(Unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,975 $ 35,201
Accounts receivable, net 12,755 18,392
Inventory 26 10
Income tax receivable 199 ----
Prepaid expenses 646 896
Other assets ---- 95
Deferred income taxes 546 477
----------- -----------
Total current assets 16,147 55,071
Furniture, equipment, and leasehold improvements, net 1,580 2,151
Software costs capitalized, net 2,263 2,823
Other assets 329 126
----------- -----------
Total assets $ 20,319 $ 60,171
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,036 $ 1,832
Accrued compensation and benefits 1,652 403
Other accrued expenses 849 804
Taxes payable ---- 719
Deferred revenue 4,176 3,586
----------- -----------
Total current liabilities 8,713 7,344
Deferred income taxes 982 1,129
Common Stock subject to put 2,000 ----
----------- -----------
Total liabilities 11,695 8,473
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
2,000 shares authorized, none issued ---- ----
Common Stock, $.01 par value, 100,000 shares
authorized, 12,007 and 16,801 shares
issued, respectively 120 168
Additional paid-in capital 2,078 42,937
Less treasury stock, at cost:
367 and 377 shares, respectively (510) (518)
Deferred compensation (754) (628)
Retained earnings 7,690 9,739
----------- -----------
Total stockholders' equity 8,624 51,698
----------- -----------
Total liabilities and stockholders' equity $ 20,319 $ 60,171
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
---------------------- ----------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Consulting and management service fees $ 6,777 $ 6,589 $10,916 $11,603
Software license fees 1,163 3,800 2,424 6,946
Software maintenance fees 899 1,076 1,732 2,024
Software implementation fees 1,135 2,031 2,095 2,942
Hardware sales 906 184 1,227 422
------- ------- ------- -------
Total revenues 10,880 13,680 18,394 23,937
COSTS OF REVENUES:
Consulting and management service fees 3,116 3,905 5,893 7,549
Software license fees 258 247 485 503
Software maintenance fees 426 476 752 884
Software implementation fees 945 1,104 1,670 1,645
Hardware sales 810 132 1,059 297
------- ------- ------- -------
Total cost of revenues 5,555 5,864 9,859 10,878
------- ------- ------- -------
Gross profit 5,325 7,816 8,535 13,059
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative 2,809 4,133 5,251 7,633
Research and development 497 1,189 1,070 2,342
------- ------- ------- -------
Total operating costs and expenses 3,306 5,322 6,321 9,975
Income from operations 2,019 2,494 2,214 3,084
Other income (expense) 13 193 62 203
------- ------- ------- -------
Income before provisions for income taxes 2,032 2,687 2,276 3,287
Provision for income taxes 817 998 915 1,238
------- ------- ------- -------
Net income $ 1,215 $ 1,689 $ 1,361 $ 2,049
------- ------- ------- -------
Basic earnings per share $ 0.11 $ 0.11 $ 0.12 $ 0.15
------- ------- ------- -------
Diluted earnings per share $ 0.09 $ 0.10 $ 0.11 $ 0.14
------- ------- ------- -------
Shares used in computing basic earnings per share 11,546 15,283 11,394 13,389
Shares used in computing diluted earnings per share 12,910 16,496 12,817 14,999
</TABLE>
See accompanying notes.
4
<PAGE>
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
---------------------
1997 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,361 $ 2,049
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of capitalized software 320 221
Depreciation 271 601
Amortization of deferred compensation ---- 126
Deferred income taxes 381 216
Changes in assets and liabilities:
Accounts receivable (5,094) (5,637)
Inventory 184 16
Prepaid expenses and other (54) (142)
Accounts payable and accrued expenses (206) (1,498)
Taxes payable ---- 918
Deferred revenue 996 (590)
-------- --------
Net cash used in operating activities (1,841) (3,720)
INVESTING ACTIVITIES:
Purchase of furniture, equipment and
leasehold improvements (521) (1,172)
Capitalized software costs (1,056) (781)
-------- --------
Net cash used in investing activities (1,577) (1,953)
FINANCING ACTIVITIES:
Purchase of treasury stock (1) (8)
Proceeds from sale of stock (net) 72 35,838
Proceeds from stock options exercised 159 3,069
Proceeds from borrowing 307 --
-------- --------
Net cash provided by financing activities 537 38,899
-------- --------
Net increase (decrease) in cash and cash equivalents (2,881) 33,226
Cash and cash equivalents at beginning of period 3,443 1,975
-------- --------
Cash and cash equivalents at end of period $ 562 $ 35,201
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest $ 16 $ 26
-------- --------
Cash paid for income taxes $ 768 $ 101
-------- --------
-------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
CARREKER-ANTINORI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PART I
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements reflect, in the opinion of management, all adjustments
(consisting only of normal, recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows of the
Company. 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 rules and
regulations promulgated by the Securities and Exchange Commission. These
statements should be read in conjunction with the audited financial
statements and notes thereto for the years ended January 31, 1996, 1997,
and 1998 included in the Company's Prospectus, dated May 20, 1998 on file
with the Commission. The results of operations for the interim periods
shown herein are not necessarily indicative of the results to be expected
for any future interim period or for the entire year.
The Company adopted Statement of Position No. 97-2, "Software Revenue
Recognition" (SOP 97-2) for all software license transactions entered into
by the Company subsequent to January 31, 1998. The adoption of SOP 97-2
did not have a material impact on the Company's revenues and earnings for
the three month and six month periods ended July 31, 1998.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities
of three months or less from the original purchase date to be cash
equivalents. At July 31, 1998, cash equivalents consisted principally of
highly liquid debt securities of corporations and municipalities.
3. EARNINGS PER SHARE
Basic earnings per share is computed by using the weighted average
number of shares of common stock outstanding during each period. Diluted
earnings per share is computed using the weighted average number of shares
of common stock outstanding during each period, and common equivalent
shares consisting of stock options (using the treasury stock method).
The following table sets forth the computation of basic and diluted
earnings per share for the three months and six months ended July 31, 1997
and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
--------------------- -----------------------
1997 1998 1997 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 1,215 $ 1,689 $ 1,361 $ 2,049
Weighted average shares outstanding 11,546 15,283 11,394 13,389
Basic earnings per share $ 0.11 $ 0.11 $ 0.12 $ 0.15
-------- -------- -------- --------
-------- -------- -------- --------
Diluted earnings per share:
Net income $ 1,215 $ 1,689 $ 1,361 $ 2,049
Weighted average shares outstanding 11,546 15,283 11,394 13,389
Assumed conversion of employee
stock options 1,364 1,213 1,423 1,610
-------- -------- -------- --------
Shares used in diluted earnings per
share calculation 12,910 16,496 12,817 14,999
-------- -------- -------- --------
Diluted earnings per share $ 0 .09 $ 0.10 $ 0.11 $ 0.14
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
6
<PAGE>
4. CREDIT ARRANGEMENTS
The Company has a revolving credit agreement ("the Revolving Credit
Agreement") with a bank which expired on July 1, 1998 but has been
extended by the bank for a sixty day period pending renewal of the
agreement. The maximum amount of borrowings allowed under the Revolving
Credit Agreement is $3.0 million against which no borrowings were
outstanding as of July 31, 1998. Borrowings under the Revolving Credit
Agreement bear interest at the prime lending rate (8.5% at July 31, 1998).
5. MANAGEMENT SERVICES
For the three month and six months ended July 31, 1997 and July 31,
1998, the Company recognized revenue for management services in the
following amounts:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
-------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Infiteq, LLC (1) $ 100,000 $ 342,500 $ 244,178 $ 848,600
Payment Solutions Network, Inc. 302,835 415,322 624,015 787,673
Electronic Check Clearing House Org. 255,514 250,448 491,465 528,657
</TABLE>
(1) Includes $112,500 and $480,500 for the three months and six months
respectively ended July 31, 1998 for management services performed
in prior periods.
The Company held receivables at July 31 in the following amounts:
<TABLE>
<CAPTION>
Accounts Receivable
July 31,
-------------------------
1997 1998
--------- ----------
<S> <C> <C>
Infiteq, LLC $ 78,583 $ 156,639
Payment Solutions Network, Inc. 618,255 443,109
Electronic Check Clearing House Org. 289,995 466,424
</TABLE>
6. INITIAL PUBLIC OFFERING AND MERGER
On May 19, 1998, the Commission declared effective the Company's
Registration Statement on Form S-1 to sell 5,100,000 defined in MD&A as
"IPO" shares of the Company's Common Stock through an initial public
offering (the Offering). Of the shares offered, 3,650,000 shares were
sold by the Company and 1,450,000 shares were sold by certain selling
stockholders. The shares were offered by an underwriting group managed by
BancAmerica Robertson Stephens, Hambrecht & Quist LLC, and Lehman Brothers
Inc. after giving affect to the deduction of underwriting discounts and to
other offering expenses, the Company generated net proceeds of
$35,837,373 from the IPO, which it intends to use for working capital and
other general corporate purposes, as well as possible strategic alliances
and acquisitions.
Subsequent to January 31, 1998, the Company's Board of Directors and
Shareholders authorized the merger of Carreker-Antinori, a Texas
corporation ("Carreker-Antinori, Texas") into the Company. The merger was
effected through the conversion of each outstanding share of Class A
voting Common Stock of Carreker-Antinori, Texas into 7.7 shares of Common
Stock of the Company. Additionally, all options and rights to acquire
shares of Class A and Class B Common Stock of Carreker-Antinori, Texas
were converted into rights to acquire shares of Common Stock of the
Company on a basis consistent with the Common Stock conversion ratio. The
accompanying financial statements reflect the merger and resulting change
in capitalization as all share and per share amounts have been
retroactively restated to reflect the merger.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company, founded in 1978, is a leading provider of integrated
consulting and software solutions that enable banks to increase their
revenues, reduce their costs and enhance their delivery of customer
services. In February 1997, the Company acquired Antinori Software, Inc.,
and through that acquisition, the Company was able to significantly
enhance its portfolio of software products.
7
<PAGE>
MARKETS: A substantial majority of the Company's revenues are
generated from contracts with Tier I Banks (bank holding companies with
assets over $50 billion) and Tier II Banks (bank holding companies and
independent banks with assets of between $5 billion and $50 billion). The
Company also targets smaller bank holding companies and independent banks
with assets of between $550 million and $5 billion.
SOURCE OF REVENUES: The Company derives its revenues from consulting
and management service fees, software license fees, software maintenance
and implementation fees and hardware sales. While many customer contracts
provide for both the performance of consulting services and the license of
related software, some customer contracts require only the performance of
consulting services, or only a software license (and, at the election of
the customer, related implementation services and/or annual software
maintenance services). The Company enters into these contracts with its
customers on a project-by-project basis. The Company also derives
management service fees from the performance of comprehensive management
services for the Electronic Check Clearing House Organization ("ECCHO"),
Payment Solutions Network, Inc. ("PSN"), and INFITEQ, LLC. ("INFITEQ").
PRODUCTS AND SERVICES: The Company's services and technology
applications fall into five categories: 1) Revenue Enhancement Solutions
- designed to quickly increase a bank's revenues through improved
operational work-flows, pricing structures and liquidity and cash
management, 2) Payment Systems, and 3) Payment Electronification Solutions
- are both designed to reduce check-processing costs through procedural
and technological improvements and reduced check fraud and other risks of
loss, 4) Enabling Technologies Solutions - converting leading-edge
technologies and ideas into practical banking solutions, and 5) Management
Services - providing management services for three banking organizations
- ECCHO, PSN, and INFITEQ. The Company's solutions are sold
individually, or complementary solutions may be sold together (similarly,
software products may be sold individually or as part of a product suite).
PRICING METHODS AND REVENUE RECOGNITION: The Company employs varying
pricing methods for each of its four sources of revenue, resulting in a
number of different revenue recognition practices. Consulting and
management services are priced on (i) a time and materials basis (revenue
is recognized as the services are performed), (ii) a fixed-price basis
(revenue is recognized on a percentage-of-completion basis) and (iii) on a
value-priced basis. In the case of value-priced contracts, the Company is
paid, on an agreed upon basis with the customer, either a specified
percentage of the projected increased revenues or decreased costs that are
expected to be derived by the customer over a period of up to twelve
months following implementation of the Company's solution, or the actual
increased revenues and/or decreased costs experienced by the customer over
a period of up to twelve months following implementation of the Company's
solution, subject in either case to a ceiling, if any is agreed to, on the
total amount of payments to be made to the Company. Revenues generated in
connection with value-priced contracts based upon projected results are
recognized only upon completion of all services and agreement upon the
actual fee to be paid (even though billings for such services may be
delayed by mutual agreement for periods generally not to exceed six
months), and revenues generated based upon actual revenues or savings to
the customer are recognized only upon the completion of all services and
as the amounts of actual revenues or savings are confirmed by the
customer. Software license fees are priced on a fixed-price basis (with
revenue recognized upon delivery, subject to certain conditions), on a
value-priced basis (with revenue recognized in a fashion similar to that
for consulting and management service fees) and in some cases on a per-
transaction basis (with the related revenue being recognized and due on a
monthly basis). Software maintenance and implementation fees are priced
on a time and materials basis or on a fixed-price basis, and the related
revenues are recognized on the basis consistent with that applied to
consulting and management service fees. Finally, hardware sales are
priced on the basis of the Company's cost plus a specified percentage,
and related revenues are recognized upon shipment of the hardware.
All statements other than statements of historical fact contained in
this report, including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" concerning the
Company's financial position and liquidity, results of operations,
prospects for future growth, and other matters are forward-looking
statements. Although the Company believes that the expectations reflected
in such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove correct. Factors that could cause
the Company's results to differ materially from the results discussed in,
or contemplated by, such forward-looking statements include
8
<PAGE>
the risks described under "Risk Factors" in the Company's Prospectus dated
May 20, 1998 on file with the Commission. Such risks include, without
limitation, the risks associated with the Company's dependence on the
banking industry, fluctuations in quarterly operating results, the
Company's limited operating history as a combined company (with Antinori
Software, Inc.), customer concentration, customer project risks, the
Company's ability to manage growth, market acceptance of the Company's
solutions, the absence of long-term agreements with customers, the
potential for software and/or solutions defects, competition within the
markets in which the Company competes, the Company's use of independent
contractors, the Company's dependence on key personnel, the Company's
ability to attract and retain qualified personnel, the impact of
technological advances on the Company's business, the Company's
dependence on proprietary technology and the risks associated with
infringement, Year 2000 issues, the potential for liability claims,
the risks associated with potential strategic alliances or acquisitions,
government regulation and the risks associated with international
operations. All forward-looking statements in this report are expressly
qualified in their entirety by the cautionary statements in this paragraph,
in "Risk Factors" (as set forth in the aforementioned Prospectus) and
elsewhere in this report.
RESULTS OF OPERATIONS:
The following table sets forth for the periods indicated, the
percentages that selected items in the unaudited condensed consolidated
statements of operations bear to total revenues. The period to period
comparisons of financial results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ----------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Consulting and management service fees 62.3% 48.2% 59.3% 48.5%
Software license fees 10.7 27.8 13.2 29.0
Software maintenance fees 8.3 7.9 9.4 8.5
Software implementation fees 10.4 14.8 11.4 12.3
Hardware sales 8.3 1.3 6.7 1.7
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Costs of revenues:
Consulting and management service fees 28.6 28.5 32.0 31.5
Software license fees 2.4 1.8 2.6 2.1
Software maintenance fees 3.9 3.5 4.1 3.7
Software implementation fees 8.7 8.1 9.1 6.9
Hardware sales 7.5 1.0 5.8 1.2
------ ------ ------ ------
Total cost of revenues 51.1 42.9 53.6 45.4
------ ------ ------ ------
Gross profit 48.9 57.1 46.4 54.6
------ ------ ------ ------
------ ------ ------ ------
Operating costs and expenses:
Selling, general and administrative 25.7 30.2 28.6 31.9
Research and development 4.6 8.7 5.8 9.8
------ ------ ------ ------
Total operating costs and expenses 30.3 38.9 34.4 41.7
Income from operations 18.6 18.2 12.0 12.9
Other income (expense) .1 1.4 .4 .8
------ ------ ------ ------
Income before provisions for income taxes 18.7 19.6 12.4 13.7
Provision for income taxes 7.5 7.3 5.0 5.1
------ ------ ------ ------
Net income 11.2% 12.3% 7.4% 8.6%
------ ------ ------ ------
</TABLE>
9
<PAGE>
REVENUES
REVENUES: The Company's total revenues increased 25.7% to $13.7
million for the quarter ended July 31, 1998 from $10.9 million for the
quarter ended July 31, 1997. The Company's total revenues increased
30.1% to $23.9 million for the six months ended July 31, 1998 from $18.4
million for the six months ended July 31, 1997.
CONSULTING AND MANAGEMENT SERVICE FEES: Revenues from consulting
and management service fees decreased 2.8% to $6.6 million for the
quarter ended July 31, 1998 from $6.8 million for the quarter ended July
31, 1997. Revenues from consulting and management service fees increased
6.3% to $11.6 million for the six months ended July 31, 1998 from $10.9
million for the six months ended July 31, 1997. Consulting and
management service fees have grown as a result of continued demand for
time and material services as well as value priced revenue enhancement
consulting. The Company has expanded the use of value priced engagements
due to their improved margins as well as their favorable reception from
customers. Revenues related to value priced opportunities tend to
fluctuate period-to-period and are likely to fluctuate in future periods
SOFTWARE LICENSE FEES: Revenues from software license fees
increased 226.7% to $3.8 million for the quarter ended July 31, 1998 from
$1.2 million for the quarter ended July 31, 1997. Revenues from software
license fees increased 186.6% to $6.9 million for the six months ended
July 31, 1998 from $2.4 million for the six months ended July 31, 1997.
Software license fees continued at improved levels over the prior year
periods principally due to the introduction of additional liquidity
management and risk management software late in fiscal year 1997. While
some questions have arisen about the impact that the Small Business
Banking Bill may have on the Company's Revenue Enhancement products, the
Company does not believe it has experienced declines in recent sales of
its' ReserveLink software as a direct result of the proposed legislation.
The Company believes that even with adoption of the proposed legislation,
the software will still be a valuable addition to most financial
institutions. To date, sales of software licenses have principally been
derived from direct sales to customers.
SOFTWARE MAINTENANCE FEES: Revenues from software maintenance fees
increased 19.7% to $1.1 million for the quarter ended July 31, 1998 from
$899,000 for the quarter ended July 31, 1997. Revenues from software
maintenance fees increased 16.9% to $2.0 million for the six months ended
July 31, 1998 from $1.7 million for the six months ended July 31, 1997.
Increases in software maintenance fees have been driven by increased
sales levels of software licenses resulting in growth in the number of
customers under maintenance contracts.
SOFTWARE IMPLEMENTATION FEES: Revenues from software implementation
fees increased 78.9% to $2.0 million for the quarter ended July 31, 1998
from $1.1 million for the quarter ended July 31, 1997. Revenues from
software implementation fees increased 40.4% to $2.9 million for the six
months ended July 31, 1998 from $2.1 million for the six months ended
July 31, 1997. Increases in software implementation fees have been
driven by increased sales levels of software licenses, resulting in
growth in the number of customers requiring implementation services.
HARDWARE SALES: Revenues from hardware sales decreased 79.7% to
$184,000 for the quarter ended July 31, 1998 from $906,000 for the
quarter ended July 31, 1997. Revenues from hardware sales decreased
65.6% to $422,000 for the six months ended July 31, 1998 from $1.2
million for the six months ended July 31, 1997. The Company sells
hardware at the request of its customers, but does not consider hardware
sales to be a meaningful part of its business.
COST OF REVENUES
COST OF CONSULTING AND MANAGEMENT SERVICES: Cost of consulting and
management services increased 25.3% to $3.9 million for the quarter ended
July 31, 1998 from $3.1 million for the quarter ended July 31, 1997.
Cost of consulting and management services increased 28.1% to $7.5
million for the six months ended July 31, 1998 from $5.9 million for the
six months ended July 31, 1997. Cost of consulting and management
services as a percentage of consulting and management service fees
increased to 59.3% for the three months ended July 31, 1998 from 46.0%
for the three months ended July 31, 1997. Cost of consulting and
management services as a percentage of consulting and management service
fees increased to 65.1% for the six months ended July 31, 1998 from 54.0%
for
10
<PAGE>
the six months ended July 31, 1997. Cost of consulting and management
services as a percentage of consulting and management services fees
reflect growth in personnel costs as well as growth in the number of
personnel to support projected staffing requirements. Cost of consulting
and management services consists primarily of personnel costs associated
with time and material contracts and value priced efforts.
COST OF SOFTWARE LICENSES: Cost of software licenses decreased 4.3%
to $247,000 for the quarter ended July 31, 1998 from $258,000 for the
quarter ended July 31, 1997. Cost of software licenses increased 3.7% to
$503,000 for the six months ended July 31, 1998 from $485,000 for the six
months ended July 31, 1997. Cost of software licenses as a percentage of
software license fees decreased to 6.5% for the three months ended July
31, 1998 from 22.2% for the three months ended July 31, 1997. Cost of
the software licenses as a percentage of software license fees decreased
to 7.2% for the six months ended July 31, 1998 from 20% for the six
months ended July 31, 1997. Costs of software licenses includes
amortization costs relating to capitalized software, as well as royalty
costs associated with sales of liquidity management and consolidation
software products. Decreases in cost of software licenses as a
percentage of software license fees reflect a reduction in royalties paid
resulting from changes in the mix of products sold during the period as
well as reduced software amortization cost.
COST OF SOFTWARE MAINTENANCE: Cost of software maintenance
increased 11.7% to $476,000 for the quarter ended July 31, 1998 from
$426,000 for the quarter ended July 31, 1997. Cost of software
maintenance increased 17.6% to $884,000 for the six months ended July 31,
1998 from $752,000 for the six months ended July 31, 1997. Cost of
software maintenance consists primarily of personnel costs associated
with providing customer support for software products sold. Increases in
costs associated with software maintenance reflect staffing increases to
support increased customer support and maintenance revenue.
COST OF SOFTWARE IMPLEMENTATION: Cost of software implementation
increased 16.8% to $1.1 million for the quarter ended July 31, 1998 from
$945,000 for the quarter ended July 31, 1997. Cost of software
implementation decreased 1.5% to $1.6 million for the six months ended
July 31, 1998 from $1.7 million for the six months ended July 31, 1997.
Cost of software implementation consists primarily of personnel costs
associated with implementation, training, and providing customer support
for software products sold. Increases in costs associated with software
implementation reflect staffing increases to support increased sales of
these services.
COST OF HARDWARE: Cost of hardware decreased 83.7% to $132,000 for
the quarter ended July 31, 1998 from $810,000 for the quarter ended July
31, 1997. Cost of hardware decreased 72.0% to $297,000 for the six
months ended July 31, 1998 from $1.1 million for the six months ended
July 31, 1997. Decreases for the quarter and six months ended reflect
reductions in the amount of hardware sold during the respective periods
over the prior year periods.
OPERATING COSTS AND EXPENSES
SELLING GENERAL AND ADMINISTRATIVE: Selling, general and
administrative expenses generally consist of personnel costs associated
with selling, marketing, general management and software management, as
well as fees for professional services and other related costs. Selling
general and administrative expenses increased 47.1% to $4.1 million for
the quarter ended July 31, 1998 from $2.8 million for the quarter ended
July 31, 1997. Selling general and administrative expenses increased
45.4% to $7.6 million for the six months ended July 31, 1998 from $5.3
million for the six months ended July 31, 1997. The increase in these
expenses reflected growth in additional management, marketing, and
administrative staff over the prior periods to support the Company's
expanding operations.
RESEARCH AND DEVELOPMENT: Research and development expenses
increased 139.2% to $1.2 million for the quarter ended July 31, 1998 from
$497,000 for the quarter ended July 31, 1997. Research and development
expenses increased 118.9% to $2.3 million for the six months ended July
31, 1998 from $1.1 million for the six months ended July 31, 1997.
Increases in research and development expense reflect a higher level of
software development activity.
OTHER INCOME (EXPENSE): Other income (expense) increased to $193,000
for the quarter ended July 31, 1998 from $13,000 for the quarter ended
July 31, 1997. Other income (expense) increased
11
<PAGE>
227.4% to $203,000 for the six months ended July 31, 1998 from $62,000
for the six months ended July 31, 1997. Other income consists primarily
of interest income on tax exempt short-term investments partially offset
by interest expense on the Company's debt. The increases in the dollar
amount of other income were primarily due to interest earned on higher
balances of cash, cash equivalents and short-term investments resulting
from net proceeds of the initial public offering of the Company's common
stock which was completed in May 1998.
PROVISION FOR INCOME TAXES: The provision for income taxes is based
on the estimated annual effective tax rate, and includes federal and
state income taxes. The Company's effective income tax rate was 40.2% for
the three and six months ended July 31, 1997. Due to the inclusion of
tax exempt interest income, income taxes as a percentage of net income
before provision for income taxes decreased to 37.1% and 37.7% for the
three and six months ended July 31, 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1998, the Company had $47.7 million of working
capital, including $35.2 million in cash, and cash equivalents, as
compared to $7.4 million of working capital as of January 31, 1998,
including $2.0 million of cash and cash equivalents. Operating
activities consumed $3.7 million of available cash for the six months
ended July 31, 1998 as compared to $1.8 million for the six months ended
July 31, 1997, largely through growth in accounts receivable of $5.6
million, through reductions of accounts payable and accrued expenses of
$779,000, and through reductions in deferred revenue of $590,000.
Accounts receivable net of allowances for doubtful accounts,
increased to $18.4 million at July 31, 1998, from $12.8 million at January
31,1998, primarily due to the timing of sales transactions and extended
payment programs associated with some value priced engagements.
Average days' sales outstanding fluctuate for a variety of reasons,
including the timing of billings specified by contractual agreement, and
receivables for non-revenue related activities.
The following table contains the quarterly computation of days sales
outstanding (DSO) with a comparative computation which adds reimbursed
expenses to the revenue portion of the computation:
<TABLE>
<CAPTION>
DSO Including
Expense
Quarter Ended DSO Reimbursements*
---------------------------------------------------------------------------
<S> <C> <C>
January 31, 1998 103 94
April 30, 1998 125 113
July 31, 1998 122 112
</TABLE>
*Includes reimbursements for travel and out of pocket expenses which
are not considered revenue, but are a component of receivables
outstanding.
Cash used in investing activities during the six-months ended July
31, 1998 was $2.0 million, and was used to purchase $1.2 million of
furniture, equipment, and leasehold improvements related to growth in
staff, and $781,000 was invested in capitalized software.
Cash generated through financing activities for the six-months ended
July 31, 1998, was $38.9 million and resulted from the net proceeds of the
Company's recent initial public offering and option exercises.
The Company has a $3.0 million revolving credit facility (the
Facility). As of July 31, 1998, the Company had no amounts outstanding
under the Facility. Principal amounts outstanding under the Facility bear
interest at national prime (8.5% at July 31, 1998). Availability under
the Facility is calculated based on 70% of qualified accounts receivable.
The Facility matured July 1, 1998, but has been extended for a sixty day
period by the bank pending renewal of the agreement. The Company has
pledged its inventory accounts receivable and certain intangible rights to
secure indebtedness under the Facility. Under the Facility, the Company
is subject to certain covenants regarding its operations and corporate
actions.
12
<PAGE>
In May 1998 the Company completed the initial public offering of its
Common Stock (the IPO). After giving effect to the deduction of
underwriting discounts and to other offering expenses, the Company
generated net proceeds of $35,837,373 from the IPO, which it intends to
use for working capital and other general corporate purposes. The Company
may also use a portion of the net proceeds for possible strategic
alliances and acquisitions of businesses, products and technologies that
are complementary to those of the Company. Pending such uses, the Company
plans to invest the net proceeds from the IPO in short-term, interest-
bearing, investment-grade securities. See also Part II: Other
Information, Item 2. Changes in Securities and Use of Proceeds.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (FASB 131), which
supersedes existing accounting standards related to disclosure of
operating segment information beginning fiscal 1998. Although the Company
currently operates in only one industry segment, the Company is in the
process of evaluating the impact this new standard will have on the
Company's financial statement disclosures in fiscal 1998. The adoption of
FASB 131 will have no impact on the Company's consolidated results of
operations, financial position or cash flows and any effect will be
limited to the presentation of its Consolidated Financial Statements.
The Company has taken precautions to address the nature and extent
of the work required to make its products and systems Year 2000
compliant. The Company believes that its products are Year 2000
compliant, with the possible exception of certain software developed by
a third party and imbedded in one of the Company's products (the
Company will continue its efforts with respect to Year 2000 compliance
for this embedded software). The Company's Year 2000 compliance
activities are being performed as part of the Company's normal
development activity. The Company is evaluating the software employed
in its internal operations and does not believe it will incur any
significant Year 2000 costs associated with its internal systems. As a
consequence, Year 2000 compliance costs are not expected to result in
any material incremental costs to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NONE
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Commission declared the Registration Statement on Form S-1 (File
No. 333-48399) relating to the Company's IPO effective on May 19, 1998.
The IPO is now complete. In the IPO, the Company issued and sold
3,650,000 shares of Common Stock for an aggregate price to the public of
$40,150,000 and certain Selling Stockholders sold 1,450,000 shares of
Common Stock for an aggregate price to the public of $15,950,000. The IPO
was a firm commitment underwriting, and the managing underwriters of the
IPO were BancAmerica Robertson Stephens, Hambrecht & Quist LLC and Lehman
Brothers, Inc. The underwriting discount incurred by the Company relating
to the IPO was $2,810,500. Other expenses associated with the offering
were as follows: legal fees of $408,510 to Locke Purnell Rain & Harrell
(Maurice Purnell, Jr. is a shareholder of such firm and is also the
Secretary of the Company), accounting fees of $328,419 to Ernst & Young
(auditors for the Company), printing fees of $288,165, Nasdaq fees of
$107,503, travel costs of $104,635, consulting costs of $157,911, and
other costs of $106,984. The IPO generated net offering proceeds, after
giving effect to the payment of underwriting discount and to other
expenses associated with the offering, of $35,837,373.
As of July 31, 1998, these funds were invested in short term tax exempt:
Cash Management Funds, Commercial Paper and Municipal Bonds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Exhibit Description
------ -------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed June 3, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CARREKER-ANTINORI, INC.
By: /s/ John D. Carreker, Jr. Date: September 14, 1998
------------------------------- --------------------
John D. Carreker, Jr.
Chairman of the Board and
Chief Executive Officer
By: /s/ Terry L. Gage Date: September 14, 1998
------------------------------- --------------------
Terry L. Gage
Executive Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Carreker-Antinori, Inc.'s condensed consolidated financial statements for the
six months ended July 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 35,201
<SECURITIES> 0
<RECEIVABLES> 19,292
<ALLOWANCES> 900
<INVENTORY> 10
<CURRENT-ASSETS> 55,071
<PP&E> 4,242
<DEPRECIATION> 2,091
<TOTAL-ASSETS> 60,171
<CURRENT-LIABILITIES> 7,344
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 51,530
<TOTAL-LIABILITY-AND-EQUITY> 60,171
<SALES> 0
<TOTAL-REVENUES> 23,937
<CGS> 0
<TOTAL-COSTS> 10,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 3,287
<INCOME-TAX> 1,238
<INCOME-CONTINUING> 2,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,049
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>