<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 April 30, 1999.
[ ] 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.)
4055 Valley View Lane, #1000
Dallas, Texas 75244
--------------------------------------- -------------------------------
(Address of principal executive office) (Zip Code)
(972) 458-1981
----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Former Address:
14001 N. Dallas Parkway, #1100
Dallas, TX 75240-7304
----------------------------------------------------------------------
(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 --- 18,561,886 shares as of May 31, 1999.
<PAGE>
CARREKER-ANTINORI, INC.
INDEX
<TABLE>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at April 30, 1999 and January 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended April 30, 1999
and April 30, 1998 4
Condensed Consolidated Statements of Cash Flows
for the three months ended April 30, 1999
and April 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS April 30, January 31,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,751 $ 20,701
Short term investments 8,677 12,849
Accounts receivable, net 28,504 27,604
Prepaid expenses and other assets 1,118 681
Deferred income taxes 736 736
----------- -----------
Total current assets 61,786 62,571
----------- -----------
Furniture, equipment, and leasehold improvements, net 3,349 2,673
Software costs capitalized, net 3,404 3,279
Other assets 223 213
----------- -----------
Total assets $ 68,762 $ 68,736
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,883 $ 2,045
Accrued compensation and benefits 600 700
Other accrued expenses 985 961
Income taxes payable 886 1,400
Deferred revenue 4,831 5,348
----------- -----------
Total current liabilities 9,185 10,454
Deferred income taxes 1,201 1,151
----------- -----------
Total liabilities 10,386 11,605
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 2,000 shares
authorized, none issued ---- ----
Common Stock, $.01 par value, 100,000 shares
authorized, 18,563 and 18,354 shares issued,
respectively 186 184
Additional paid-in capital 44,771 44,563
Less treasury stock, at cost:
1 shares, as of April 30, 1999 (4) ----
Deferred compensation (492) (568)
Retained earnings 13,915 12,952
----------- -----------
Total stockholders' equity 58,376 57,131
----------- -----------
Total liabilities and stockholders' equity $ 68,762 $ 68,736
----------- -----------
----------- -----------
</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
April 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Consulting and management service fees $ 8,324 $ 5,014
Software license fees 3,093 3,457
Software maintenance fees 1,502 1,143
Software implementation fees 1,443 989
Hardware and other fees 122 331
-------- --------
Total revenues 14,484 10,934
COSTS OF REVENUES:
Consulting and management service fees 5,271 3,644
Software license fees 468 256
Software maintenance fees 664 499
Software implementation fees 646 637
Hardware and other fees 101 232
-------- --------
Total cost of revenues 7,150 5,268
-------- --------
GROSS PROFIT 7,334 5,666
-------- --------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative 4,818 3,854
Research and development 1,318 1,195
-------- --------
Total operating costs and expenses 6,136 5,049
Income from operations 1,198 617
Other income 241 18
-------- --------
Income before provision for income taxes 1,439 635
Provision for income taxes 476 252
-------- --------
Net income $ 963 $ 383
-------- --------
-------- --------
Basic earnings per share $ 0.05 $ 0.03
-------- --------
-------- --------
Diluted earnings per share $ 0.05 $ 0.03
-------- --------
-------- --------
Shares used in computing basic earnings per share 18,369 12,735
Shares used in computing diluted earnings per share 18,843 14,742
</TABLE>
See accompanying notes.
4
<PAGE>
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
------------------------
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 963 $ 383
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization of capitalized software 292 134
Depreciation 505 294
Amortization of deferred compensation 76 63
Deferred income taxes 50 (66)
Changes in assets and liabilities:
Accounts receivable (900) (1,222)
Prepaid expenses and other (447) (231)
Accounts payable and accrued expenses (752) (362)
Deferred revenue (517) (417)
--------- --------
Net cash used in operating activities (730) (1,424)
INVESTING ACTIVITIES:
Purchase of short-term investments ---- (24)
Sale of short-term investments 4,172 ----
Purchase of furniture, equipment and leasehold
improvements (1,181) (637)
Capitalized software costs (417) (418)
--------- --------
Net cash provided by (used in) investing activities 2,574 (1,079)
FINANCING ACTIVITIES:
Purchase of treasury stock (4) (4)
Proceeds from stock options exercised 210 ----
Proceeds from borrowing ---- 1,769
--------- --------
Net cash provided by financing activities 206 1,765
--------- --------
Net increase (decrease) in cash and cash equivalents 2,050 (738)
Cash and cash equivalents at beginning of period 20,701 2,485
--------- --------
Cash and cash equivalents at end of period $ 22,751 $ 1,747
--------- --------
--------- --------
Supplemental cash flow information:
Cash paid for interest $ ---- $ 16
--------- --------
--------- --------
Cash paid for income taxes $ 809 $ 20
--------- --------
--------- --------
</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, 1999, 1998, and 1997 included
in the Company's Form 10-K for the fiscal year ended January 31, 1999 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.
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 April 30, 1999, cash equivalents consisted principally of
highly liquid debt securities of corporations and municipalities.
3. SHORT TERM INVESTMENTS
The Company considers investments with maturities of greater than
three months, when purchased, to be short-term investments based on the
freely tradable nature of the investments, and the management's expectation
that they will not be held for greater than one year. Short-term
investments consist primarily of tax exempt municipal bonds. Management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet date.
All debt securities have been determined by management to be available for
sale. Available for sale securities are stated at amortized cost, which
approximates fair value. Fair value of debt securities is determined based
upon current market value price quotes by security. As of April 30, 1999
all short-term investments mature from one to two years.
4. EARNINGS PER SHARE
Basic earnings per share are 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).
6
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended April 30, 1999 and 1998 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Basic earnings per share:
Net income $ 963 $ 383
Weighted average shares outstanding 18,369 12,735
Basic earnings per share $ .05 $ .03
-------- --------
-------- --------
Diluted earnings per share:
Net income $ 963 $ 383
Weighted average shares outstanding 18,369 12,735
Assumed conversion of employee stock
options 474 2,007
-------- --------
Shares used in diluted earnings per share
calculation 18,843 14,742
-------- --------
-------- --------
Diluted earnings per share $ .05 $ .03
-------- --------
-------- --------
</TABLE>
5. MANAGEMENT SERVICES
For the three month periods ended April 30, 1999 and 1998, the Company
recognized revenue for management services provided to related parties in
the following amounts:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
(In thousands)
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Infiteq, LLC (1) $ 21 $ 506
Payment Solutions Network, Inc. 179 303
Electronic Check Clearing House Organization 267 278
</TABLE>
(1) Includes $458,000 for the three months ended April 30, 1998 for management
services performed in prior periods.
The Company held net receivables at April 30 in the following amounts (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Infiteq, LLC $ 197 $ 58
Payment Solutions Network, Inc. 393 361
Electronic Check Clearing House Organization 106 460
</TABLE>
7
<PAGE>
6. SEGMENTS
Effective with the year ended January 31, 1999, the Company adopted
the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information (Statement 131)."
The Company has three reportable segments: Revenue Enhancement,
Payment Systems, and Emerging Solutions. The segments are unique due to
the focus of the products and services being offered. The Company
evaluates performance and allocates resources based on profit or loss from
operations before income taxes, not including gains and losses on the
Company's investment portfolio.
Revenue Enhancement consists primarily of yield management consulting,
and liquidity management consulting and software. Payment Systems consists
primarily of consolidation consulting, best practices consulting and
software, risk management consulting and software, float management
consulting and software, payment electronification consulting and software,
and track and trace software. Emerging Solutions consists primarily of
enterprise information technology consulting, and management services,
ECCHO management services, and enabling technology consulting.
Due to the solution approach to delivering products and services from
multiple business segments, contracts are broken down by segment with few
transactions between reportable segments.
Included in corporate and unallocated are costs related to selling and
marketing, unallocated corporate overhead expense, general software
management, and incentive bonuses. Business segment results include costs
for research and development as well as product royalty expense.
Receivables, property and equipment and other assets are not included in
the measures reviewed by the Company's chief operating decision-maker.
Therefore, all Company assets have been included in the corporate and
unallocated category in the following reportable segment disclosure.
Segment information for the three months ended April 30, 1999 and 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended April 30, 1999
-------------------------------------------------------------------
Revenue Payment Emerging Corporate
Enhancement Systems Solutions & Unallocated Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Consulting and management service fees . . . . . $ 3,838 $ 2,896 $ 1,590 -- $ 8,324
Software license fees. . . . . . . . . . . . . . 1,238 1,855 -- -- 3,093
Software maintenance fees. . . . . . . . . . . . 339 1,163 -- -- 1,502
Software implementation fees . . . . . . . . . . 227 1,216 -- -- 1,443
Hardware and other fees. . . . . . . . . . . . . -- 122 -- -- 122
-------- -------- -------- --------- --------
Total revenues . . . . . . . . . . . . . . . . . $ 5,642 $ 7,252 $ 1,590 -- $ 14,484
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Income (loss) from operations. . . . . . . . . . . $ 2,987 $ 2,293 $ (83) $ (3,999) $ 1,198
Assets . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 68,762 $ 68,762
Depreciation and Amortization . . . . . . . . . . $ 122 $ 348 $ 11 $ 316 $ 797
Capital expenditures . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 1,599 $ 1,599
8
<PAGE>
<CAPTION>
For the three months ended April 30, 1998
-------------------------------------------------------------------
Revenue Payment Emerging Corporate
Enhancement Systems Solutions & Unallocated Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Consulting and management service fees . . . . . $ 916 $ 2,623 $ 1,475 -- $ 5,014
Software license fees. . . . . . . . . . . . . . 939 2,518 -- -- 3,457
Software maintenance fees. . . . . . . . . . . . 175 968 -- -- 1,143
Software implementation fees . . . . . . . . . . 384 605 -- -- 989
Hardware and other fees. . . . . . . . . . . . . -- 331 -- -- 331
-------- -------- -------- --------- --------
Total revenues . . . . . . . . . . . . . . . . . $ 2,414 $ 7,045 $ 1,475 -- $ 10,934
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Income (loss) from operations. . . . . . . . . . . $ 721 $ 2,695 $ 701 $ (3,500) $ 617
Assets . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 22,784 $ 22,784
Depreciation and Amortization . . . . . . . . . . $ 18 $ 223 $ 7 $ 180 $ 428
Capital expenditures . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 1,055 $ 1,055
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company 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. The Company
was founded in 1978 to provide consulting services to banks, and
subsequently integrated software products into its banking solutions.
With its acquisition of Antinori Software, Inc., a Georgia corporation
("ASI") on January 31, 1997, the Company was able to significantly enhance
its portfolio of software products. Additionally, the Company acquired
Genisys Operations, Inc. ("Genysis") on January 29, 1999 which provides
incremental added-value to the Company's product offerings. The
acquisitions of ASI and Genisys were each accounted for as a pooling-of-
interests, and accordingly, the Company's Condensed Consolidated
Financial Statements and Notes thereto, as well as all other financial and
statistical data presented in this Form 10-Q, have been restated to include
the financial position and results of operations for ASI and Genisys for
all periods presented.
MARKETS: A substantial majority of the Company's revenues are
generated from contracts with banks with assets over $50 billion ("Tier I
Banks") and banks with assets of between $5 billion and $50 billion ("Tier
II Banks"). 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 implementation
fees and hardware and other 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 certain management
services.
9
<PAGE>
PRODUCTS AND SERVICES: The Company offers a wide range of consulting
services and state-of-the-art, proprietary technology applications designed
to address the unique requirements of the banking industry. 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). The following table summarizes the divisions through
which the Company's offerings are delivered. Each division consists of
several groups.
DIVISIONS & GROUPS SOLUTIONS DESCRIPTION
------------------------- ----------------------------------------
REVENUE ENHANCEMENT INCREASES CUSTOMER REVENUES
Liquidity Management Reduces the amount of non-earning assets
that a bank maintains in reserve
accounts or in cash-on-hand
Yield Management Improves operational work-flows,
processes and pricing structures
employed by a bank
PAYMENT SYSTEMS DECREASES CUSTOMER SERVICE COSTS WHILE
IMPROVING BACK OFFICE SERVICE
Best Practices Delivery of total solutions for customer
information management
Consolidations Delivery of consulting services to help
customers reduce costs, improve
operating efficiencies and increase
economies-of-scale through operations
consolidations of operations
Float Management Enhances bank float management through
improved check collection, workflow,
float allocation, and pricing
Genisys Focuses on information management by
utilizing the Company's proprietary
barcode track and trace technology,
coupled with utilizing the Internet as
an information delivery vehicle
Payment Electronification Facilitates the electronification of
paper checks, while reducing costs and
risks associated with the check payment
process
Risk Management Reduces risk of loss from the check
payment process as a result of
operational failures, check fraud and
litigation
EMERGING SOLUTIONS DEVELOPMENT OF NEW BUSINESS
OPPORTUNITIES OR DELIVERY OF MANAGEMENT
SERVICES
ECCHO Management Services Focuses on management of the ECCHO
organization
Enabling Technologies Focuses on developing proof of concept
for new business opportunities with the
criteria that once a solution is
developed, it can be offered across the
Company's key customer base
Enterprise IT Services Offers customized, enterprise-wide
conversion, consolidation and
integration consulting solutions in
areas beyond payments systems, including
subject matter and project management
services, Year 2000 services and IT
outsourcing services
10
<PAGE>
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 twelve
months). When fees are to be paid based on a percentage of actual revenues
or savings, revenues are recognized only upon the completion of all
services and as the amounts of actual revenues or savings are confirmed to
the Company 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 the risks
described under "Risk Factors" in the Company's Form 10-K for the fiscal
year ended January 31, 1999 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, 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
Form 10-K) and elsewhere in this report.
11
<PAGE>
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
April 30,
--------------------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Consulting and management service fees 57.5% 45.9%
Software license fees 21.4 31.6
Software maintenance fees 10.4 10.5
Software implementation fees 10.0 9.0
Hardware and other fees .7 3.0
------ ------
Total revenues 100.0 100.0
Costs of revenues:
Consulting and management service fees 36.4 33.3
Software license fees 3.2 2.3
Software maintenance fees 4.6 4.6
Software implementation fees 4.5 5.9
Hardware and other fees .7 2.1
------ ------
Total cost of revenues 49.4 48.2
------ ------
Gross profit 50.6 51.8
------ ------
Operating costs and expenses:
Selling general and administrative 33.3 35.3
Research and development 9.1 10.9
------ ------
Total operating costs and expenses 42.4 46.2
Income from operations 8.3 5.6
Other income (expense) 1.6 .2
------ ------
Income before provisions for income taxes 9.9 5.8
Provision from income taxes 3.3 2.3
------ ------
Net income 6.6% 3.5%
------ ------
------ ------
</TABLE>
12
<PAGE>
Revenues
REVENUES: The Company's total revenues increased 32.5% to $14.5
million for the quarter ended April 30, 1999 from $10.9 million for the
quarter ended April 30, 1998.
CONSULTING AND MANAGEMENT SERVICE FEES: Revenues from consulting and
management service fees increased 66.0% to $8.3 million for the quarter
ended April 30, 1999 from $5 million for the quarter ended April 30, 1998.
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. Value priced engagements increased to $3.4
million in the three months ended April 30, 1999 from $800,000 in the
three months ended April 30, 1998. 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 decreased
10.5% to $3.1 million for the quarter ended April 30, 1999 from $3.5
million for the quarter ended April 30, 1998.
SOFTWARE MAINTENANCE FEES: Revenues from software maintenance fees
increased 31.4% to $1.5 million for the quarter ended April 30, 1999 from
$1.1 million for the quarter ended April 30, 1998. Increases in software
maintenance fees have been driven by increased sales levels of software
licenses during the previous twelve months resulting in growth in the
number of customers under maintenance contracts.
SOFTWARE IMPLEMENTATION FEES: Revenues from software implementation
fees increased 45.9% to $1.4 million for the quarter ended April 30, 1999
from $989,000 for the quarter ended April 30, 1998. 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 63.1% to
$122,000 for the quarter ended April 30, 1999 from $331,000 for the
quarter ended April 30, 1998. 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 44.6% to $5.3 million for the quarter ended
April 30, 1999 from $3.6 million for the quarter ended April 30, 1998.
Cost of consulting and management services as a percentage of consulting
and management service fees decreased to 63.3% for the three months ended
April 30, 1999 from 72.7% for the three months ended April 30, 1998. Cost
of consulting and management services as a percentage of consulting and
management services fees reflects increased margins relative to value
priced engagements. 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 increased 82.8%
to $468,000 for the quarter ended April 30, 1999 from $256,000 for the
quarter ended April 30, 1998. Cost of software licenses as a percentage of
software license fees increased to 15.1% for the three months ended April
30, 1999 from 7.4% for the three months ended April 30, 1998. Costs of
software licenses includes amortization costs relating to capitalized
software, as well as royalty costs associated with sales of liquidity
management, risk management and consolidation software products. Increases
in cost of software licenses as a percentage of software license fees
reflect an increase in royalties paid resulting from changes in the mix of
products sold during the period, as well as increases in amortization of
capitalized development costs relative to certain software products
reaching general release status during the three months ended April 30,
1999.
13
<PAGE>
COST OF SOFTWARE MAINTENANCE: Cost of software maintenance increased
33.1% to $664,000 for the quarter ended April 30, 1999 from $499,000 for
the quarter ended April 30, 1998. 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 1.4% to $646,000 for the quarter ended April 30, 1999 from
$637,000 for the quarter ended April 30, 1998. Cost of software
implementation as a percentage of related fees decreased to 44.8% for the
three months ended April 30, 1999 from 64.4% for the three months ended
April 30, 1998. Decreases in costs associated with software implementation
reflect improved efficiency of implementation engagements. Cost of
software implementation consists primarily of personnel costs associated
with implementation, training, and providing customer support for software
products sold.
COST OF HARDWARE: Cost of hardware decreased 56.5% to $101,000 for
the quarter ended April 30, 1999 from $232,000 for the quarter ended April
30, 1998. Decreases for the quarter ended April 30, 1999 is reflective of
reductions in the amount of hardware sold during the quarter.
OPERATING COSTS AND EXPENSES
SELLING GENERAL AND ADMINISTRATIVE: Selling general and administrative
expenses increased 25.0% to $4.8 million for the quarter ended April 30,
1999 from $3.9 million for the quarter ended April 30, 1998. 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. 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
10.3% to $1.3 million for the quarter ended April 30, 1999 from $1.2
million for the quarter ended April 30, 1998.
OTHER INCOME: Other income increased to $241,000 for the quarter
ended April 30, 1999 from $18,000 for the quarter ended April 30, 1998.
Other income consists primarily of interest income on tax exempt short-term
investments. 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 33.1% for the
three months ended April 30, 1999, compared to 39.7% for the three months
ended April 30,1998. Income taxes as a percentage of net income before
provision for income taxes decreased due to the inclusion of tax exempt
interest income in the quarterly period ending April 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1999, the Company had $52.6 million of working
capital, including $22.8 million in cash, and cash equivalents, as compared
to $52.1 million of working capital as of January 31,1999, including $20.7
million of cash and cash equivalents. Operating activities consumed
$730,000 of available cash for the three months ended April 30, 1999 as
compared to $1.4 million for the three months ended April 30, 1998, largely
through growth in accounts receivable of $900,000 through reductions of
accounts payable and accrued expenses of $752,000, and through reductions
in deferred revenue of $517,000.
14
<PAGE>
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 days sales outstanding
(DSO) with a comparative column 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, 1999 163 151
April 30, 1999 175 158
</TABLE>
* Includes reimbursements for travel and out of pocket expenses which
are not considered revenue, but are included in outstanding receivables.
Cash provided by investing activities during the period ended April
30, 1999, of $2.6 million was generated by the sale of short-term
investments of $4.2 million, less $1.2 million used to purchase
furniture, equipment, and leasehold improvements due to growth in
staff, and $417,000 invested in capitalized software.
Cash provided by financing activities for the period ended April 30,
1999, was $207,000 and resulted primarily from the exercise of stock
options.
The Company no longer maintains a revolving credit facility in light
of its substantial liquid working capital.
The Company's future liquidity and capital requirements will depend
upon numerous factors. The Company believes its current cash and cash
equivalents and short-tern investment balances and cash generated from
operations will be sufficient to meet the Company's operating and capital
requirement through at least January 2000. However, there can be no
assurance that the Company will not require additional financing within
this time frame. The Company's forecast of the period of time through
which its financial resources will be adequate to support its operations is
a forward-looking statement that involves risk and uncertainties, and
actual results could vary. The failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
financial condition and results of operation.
YEAR 2000
STATE OF READINESS
The Company has performed a company-wide evaluation to assess the
ability of its products and its information technology ("IT") and non-IT
systems to properly function and execute transactions in the Year 2000. The
Company's Year 2000 Project is divided into three major sections: (a)
Infrastructure, which includes internal management information systems,
computers, servers, networks to support the business and any non-IT systems
used in the operation of the business; (b) Third Party Suppliers, which
includes those suppliers that provide the Company with software
applications that are used in concert with the Company's products and
service suppliers, such as Internet service providers and computer testing
resources; and (c) Company Products and Services, which includes those
products and services that generate revenue for the Company. The Project
has been divided into six phases: (1) Awareness and Communication; (2)
Inventory; (3) Assessment; (4) Renovation; (5) Testing; and (6) Rollout. As
discussed below, the Company has substantially completed the first four
phases of the Year 2000 Project for its Infrastructure, Third Party
Suppliers and Customer Products and Services. All phases of the Project are
expected to be completed by the third quarter of 1999.
15
<PAGE>
INFRASTRUCTURE
The Company has completed the inventory, assessment and renovation
phases of its IT and non-IT systems and is substantially complete with the
testing phase for these systems. The Testing and Rollout phases of the
Project are expected to be completed by September 1999. The Company has
distributed a letter to each of its vendors that supply systems or software
for its IT and non-IT systems to determine the vendors' Year 2000 status. A
majority of the recipients have responded to the letter, and most of the
respondents have given assurances that their products and services are able
to function in the context of the Year 2000 Problem. The Company is
assessing these responses and will continue to communicate with vendors
that are material to the Company's operations to gain satisfactory
assurances. If such assurances are not obtained, the Company will seek
alternatives, including contracting with other vendors.
THIRD PARTY SUPPLIERS
The Company has taken an inventory of the applications from third
party suppliers that are used in conjunction with the Company's products.
The Company has contacted significant third-party suppliers in an effort to
assess the state of their Year 2000 readiness. The Company has received
information, or tested all of the applications from third-party suppliers
used in the its products. Only one supplier has not been willing to certify
the Year 2000 compliance of its application, although internal tests have
disclosed no Year 2000 problems with this application. Because its bank
customers require certifications regarding Year 2000 compliance, the
Company has communicated with this supplier to determine a solution to this
certification issue. The Company will be given access to the source code
to conduct its own remediation and risk evaluation in conjunction with the
testing already conducted.
COMPANY PRODUCTS AND SERVICES
All of the Company's software products have been tested and confirmed
as compliant. The Company has a Web site to identify each product and its
compliant release number and status. The Company also has transmitted
letters to its customers notifying them of their current Year 2000
readiness status and outlining the steps, if any, needed for the customer
to receive Year 2000 compliant software. As a result of the stringent
requirements placed on the Company's bank customers by the Office of
Comptroller and Currency (the "OCC") and the Federal Financial Industry
Examiners Council (the "FFIEC"), these customers are requiring documented
evidence of Year 2000 Compliance of the Company's products. The Company
currently is establishing a process to archive the results of its
compliance tests and to document this test information in a format suitable
for external distribution.
COSTS
Through and including the first quarter of fiscal 1999, the Company
has spent approximately $655,000 relating to labor costs for its Year 2000
Project. The Company has incurred no material replacement costs for
non-compliant systems because it did not accelerate its replacement of any
systems as a result of the Year 2000 issue. The Company currently estimates
that its costs through fiscal year 1999 relating to the Year 2000 Project
will be less than $850,000, the majority of which will be spent on the
documentation process required by the Company's bank customers. Other
costs, including replacement of non-compliant hardware and other equipment,
are expected to be less than $200,000. Funds for the Year 2000 Project are
expected to be paid for out of operations.
16
<PAGE>
RISKS
If the Company does not successfully complete its Year 2000 Project,
it could have a material adverse effect on the Company's ability to market,
sell and implement its software products and consulting services, which
could have a material adverse effect on its financial condition and results
of operations. The Company's customer base is primarily in the banking
industry. Because members of this industry are heavily regulated and
audited for their Year 2000 compliance efforts, the Company does not
consider the possibility of Year 2000 noncompliance by banks to be
reasonably likely. The OCC has published guidance criteria that all banks
be complete with Year 2000 renovation and unit testing by December 1998,
thus allowing the entire year of 1999 for system testing. However, the
operations and financial condition of banks is significantly dependent on
the results of operations and financial condition of the their customers.
If customers of banks experience a material adverse effect as a result of
Year 2000 issues, banks, and consequently the Company, could be adversely
affected. There can be no assurance that third parties will be Year 2000
compliant in a timely manner. The Company is anticipating that many of its
bank customers will not move any new systems into production during the
last half of 1999. During this period, only current system bug fixes and
Year 2000 compliant releases will be sent into the bank's production
environment. Banks will continue to contract for new business solutions,
especially those that result in new bank revenues. During this period,
banks also will continue to initiate efforts that precede the
implementation of a new business software solution. The Company is
currently assessing the impact this will have on the Company's operations.
CONTINGENCY PLAN
A contingency planning process is underway and is anticipated to be
complete by September 30, 1999 in preparation for Year 2000 related events.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants has issued Statement of Position No. 98-9
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions" ("SOP 98-9"), which amends certain provisions of
Statement of Position No. 97-2 "Software Revenue Recognition" ("SOP
97-2"). The new SOP 98-9 will be effective for all transactions entered
into by the Company subsequent to January 31, 2000. The Company is
currently reviewing the impact of applying SOP 98-9.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS and HEDGING ACTIVITIES ("SFAS 133"), which had been required to
be adopted in years beginning after June 15, 1999. In May 1999, the FASB
voted to defer the implementation date of Statement 133 for one year.
Because the Company does not use derivatives, management does not
anticipate that the adoption of the new statement will have an effect on
earnings or the financial position of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES. The Company invests its cash in a variety of
financial instruments, primarily tax advantaged variable rate and fixed
rate obligations of state and local municipalities, and educational
entities and agencies. These investments are denominated in U.S. dollars.
The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). All of
the cash equivalents and short-term investments are treated as available-
for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, the
Company's future investment income may fall short of expectations due to
changes in interest rates or the Company may suffer
17
<PAGE>
losses in principal if forced to sell securities which have seen a decline
in market value due to changes in interest rates. The Company's investment
securities are held for purposes other than trading. While certain of the
investment securities had maturities in excess of one year, the Company
intends to liquidate such securities if necessary within one year. The
weighted-average interest rate on investment securities at April 30, 1999
was 5.82%. Amortized costs of short-term investments held at April 30,
1999 was $8.7 million, which approximates fair value.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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
During the Quarter ended April 30, 1999, the Company filed the
following Current Reports on Form 8-K:
Form 8-K dated February 12, 1999 announcing the acquisition of
Genisys Operation, Inc., a Texas Corporation; and
Form 8-KA dated April 14, 1999, which amended the Form 8-K dated
February 12, 1999 to file restated financial statements to
reflect the acquisition of Genisys.
18
<PAGE>
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: June 14, 1999
--------------------------------- -------------------------
John D. Carreker, Jr.
Chairman of the Board and
Chief Executive Officer
By: /s/ Terry L. Gage Date: June 14, 1999
--------------------------------- -------------------------
Terry L. Gage
Executive Vice President and
Chief Financial Officer
19
<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 THREE MONTHS ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 22,751
<SECURITIES> 8,677
<RECEIVABLES> 29,881
<ALLOWANCES> 1,378
<INVENTORY> 39
<CURRENT-ASSETS> 61,786
<PP&E> 6,748
<DEPRECIATION> 3,399
<TOTAL-ASSETS> 68,762
<CURRENT-LIABILITIES> 9,185
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 58,190
<TOTAL-LIABILITY-AND-EQUITY> 68,762
<SALES> 0
<TOTAL-REVENUES> 14,484
<CGS> 0
<TOTAL-COSTS> 7,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,439
<INCOME-TAX> 476
<INCOME-CONTINUING> 963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 963
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
