<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, 2000.
[ ] 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 Identification No.)
incorporation or organization)
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)
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 --- 18,584,328 shares as of May 31, 2000.
--------------------------------------------------------------------------------
<PAGE>
CARREKER-ANTINORI, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at April 30, 2000 and January 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended April 30, 2000
and April 30, 1999 4
Condensed Consolidated Statements of Cash Flows
for the three months ended April 30, 2000
and April 30, 1999 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 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 30, January 31,
ASSETS 2000 2000
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,720 $ 25,973
Short term investments 13,563 13,563
Accounts receivable, net 34,692 30,843
Prepaid expenses and other current assets 1,123 733
Deferred income taxes 831 831
--------------- ---------------
Total current assets 70,929 71,943
Property and equipment, net of accumulated depreciation 4,284 4,197
Software costs capitalized, net of accumulated amortization 8,124 6,349
Other assets 328 334
--------------- ---------------
Total assets $ 83,665 $ 82,823
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,927 $ 2,089
Accrued compensation and benefits 1,582 2,030
Other accrued expenses 1,812 2,583
Income taxes payable 713 2,310
Deferred revenue 7,405 6,401
--------------- ---------------
Total current liabilities 14,439 15,413
Deferred income taxes 2,004 2,004
--------------- ---------------
Total liabilities 16,443 17,417
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 2,000 shares
authorized, none issued ---- ----
Common Stock, $.01 par value, 100,000 shares authorized,
18,579 and 18,540 shares issued, respectively 186 185
Additional paid-in capital 44,885 44,564
Deferred compensation (172) (183)
Retained earnings 22,323 20,846
Less treasury stock, at cost:
1 common shares, as of January 31, 2000 ---- (6)
--------------- ---------------
Total stockholders' equity 67,222 65,406
--------------- ---------------
Total liabilities and stockholders' equity $ 83,665 $ 82,823
=============== ===============
</TABLE>
See accompanying notes.
3
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<PAGE>
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
REVENUES:
Consulting and management service fees $13,110 $ 8,324
Software license fees 4,173 3,093
Software maintenance fees 2,282 1,502
Software implementation fees 2,495 1,443
Hardware and other fees ---- 122
------------ -----------
Total revenues 22,060 14,484
COSTS OF REVENUES:
Consulting and management service fees 8,573 5,271
Software license fees 1,137 468
Software maintenance fees 535 664
Software implementation fees 1,217 646
Hardware and other fees 6 101
------------ -----------
Total cost of revenues 11,468 7,150
------------ -----------
GROSS PROFIT 10,592 7,334
------------ -----------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative 7,598 4,818
Research and development 984 1,318
------------ -----------
Total operating costs and expenses 8,582 6,136
Income from operations 2,010 1,198
Other income 372 241
------------ -----------
Income before provision for income taxes 2,382 1,439
Provision for income taxes 905 476
------------ -----------
Net income $ 1,477 $ 963
============ ===========
Basic earnings per share $ 0.08 $ 0.05
============ ===========
Diluted earnings per share $ 0.08 $ 0.05
============ ===========
Shares used in computing basic earnings per share 18,499 18,369
Shares used in computing diluted earnings per share 19,467 18,843
</TABLE>
See accompanying notes.
4
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<PAGE>
CARREKER-ANTINORI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,477 $ 963
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization of software costs capitalized 760 292
Depreciation and amortization of property and equipment 562 505
Amortization of deferred compensation 66 76
Deferred income taxes ---- 50
Provision for doubtful accounts 329 107
Changes in assets and liabilities:
Accounts receivable (4,178) (1,007)
Prepaid expenses and other (384) (447)
Accounts payable and accrued expenses (1,978) (752)
Deferred revenue 1,004 (517)
------------ -------------
Net cash used in operating activities (2,342) (730)
INVESTING ACTIVITIES:
Sales and maturities of short-term investments ---- 4,172
Purchase of property and equipment (649) (1,181)
Computer software costs capitalized (2,535) (417)
------------- -------------
Net cash provided by (used in) investing activities (3,184) 2,574
FINANCING ACTIVITIES:
Purchases of treasury stock ---- (4)
Proceeds from stock options exercised 273 210
------------ ------------
Net cash provided by financing activities 273 206
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,253) 2,050
Cash and cash equivalents at beginning of period 25,973 20,701
------------ ------------
Cash and cash equivalents at end of period 20,720 $22,751
============ ============
Supplemental cash flow information:
Cash paid for interest $ 9 $ ----
============ ============
Cash paid for income taxes $ 2,502 $ 809
============ ============
</TABLE>
See accompanying notes.
5
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<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, 2000, 1999, and 1998 included in the Company's Form 10-K
for the fiscal year ended January 31, 2000 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, 2000, 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 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, 2000 all short-term investments
mature in less than one year.
4. 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).
6
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<PAGE>
The following table sets forth the computation of basic and
diluted earnings per share for the three months ended April 30, 2000
and 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Basic earnings per share:
Net income $ 1,477 $ 963
============= ==============
Weighted average shares outstanding 18,499 18,369
------------- --------------
Basic earnings per share $ 0.08 $ 0.05
============= ==============
Diluted earnings per share:
Net income $ 1,477 $ 963
============= ==============
Weighted average shares outstanding 18,499 18,369
Assumed conversion of employee
stock options 968 474
------------- --------------
Shares used in diluted earnings per share
calculation 19,467 18,843
============= ==============
Diluted earnings per share $ 0.08 $ 0.05
============= ==============
</TABLE>
5. MANAGEMENT SERVICES
For the three month periods ended April 30, 2000 and 1999, the
Company recognized revenue for management services provided to related
parties in the following amounts (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Infiteq, LLC $ ---- $ 21
Payment Solutions
Network, Inc. 9 179
Electronic Check Clearing House
Organization 212 267
</TABLE>
The Company held net receivables from related companies at April 30
in the following amounts (in thousands):
<TABLE>
<CAPTION>
2000 1999
------------- --------------
<S> <C> <C>
Infiteq, LLC $ 45 $ 197
Payment Solutions Network, Inc. 272 393
Electronic Check Clearing House Organization 240 106
</TABLE>
7
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<PAGE>
6. SEGMENTS
During January 2000, the Company revised its segment disclosures
to reflect its focus on e-finance segments. As a result of this
revision, segment disclosures for the current and prior periods have
been restated.
We have three reportable segments: ePaymentSolutions,
eCashSolutions and eBusinessSolutions. The segments are unique due to
the focus of the products and services being offered. We evaluate
performance and allocate resources based on profit or loss from
operations before income taxes, not including gains and losses on our
investment portfolio.
EPaymentSolutions consist primarily of eXceptions software, eTrac
software, eInformSolutions, eTransaction consulting and software,
eFraudLink consulting and software and ECCHO Management services.
eCashSolutions consists primarily of eiService and eCashInventory
consulting and software and eTransport consulting. eBusinessSolutions
consists primarily of RevenueEnhancement consulting, eFinancialServices
and eStrategic 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 our chief operating decision-maker.
Therefore, all assets have been included in the corporate and
unallocated category in the following reportable segment disclosure
(in thousands):
<TABLE>
<CAPTION>
Three months ended April 30, 2000
--------------------------------------------------------------------
eBusinessSolutions
--------------------------
Revenue eFinancial Corporate
ePaymentSolutions eCashSolutions Enhancement Services Unallocated Total
------------------ ------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Consulting and management service fees.. $ 1,271 $ 43 $ 5,721 $ 6,075 $ -- $ 13,110
Software license fees................... 3,011 1,162 -- -- -- 4,173
Software maintenance fees............... 1,740 542 -- -- -- 2,282
Software implementation fees............ 1,540 828 -- 127 -- 2,495
Hardware and other fees................. -- -- -- -- -- --
------------- ------------- ------------ ----------- ------------ ------------
Total revenues......................... $ 7,562 $ 2,575 $ 5,721 $ 6,202 $ -- $ 22,060
============= ============= ============ =========== ============ ============
Operating income (loss)................... $ 206 $ 284 $ 3,316 $ 2,270 $ (4,066) $ 2,010
</TABLE>
8
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<PAGE>
<TABLE>
<CAPTION>
Three months ended April 30, 1999
-------------------------------------------------------------
eBusinessSolutions
--------------------------
Revenue eFinancial Corporate
ePaymentSolutions eCashSolutions Enhancement Services Unallocated Total
------------------ -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Consulting and management service fees.. $ 1,320 $ 832 $ 3,006 $ 3,166 $ -- $ 8,324
Software license fees................... 1,855 1,238 -- -- -- 3,093
Software maintenance fees............... 1,163 339 -- -- -- 1,502
Software implementation fees............ 1,215 228 -- -- -- 1,443
Hardware and other fees................. 122 -- -- -- -- 122
------------- ------------- ------------ ----------- ------------ ------------
Total revenues........................ $ 5,675 $ 2,637 $ 3,006 $ 3,166 $ -- $ 14,484
============= ============= ============ =========== ============ ============
Operating income (loss)................... $ 211 $ 1,160 $ 1,827 $ 735 $ (2,735) $ 1,198
</TABLE>
7. ACQUISITIONS
On February 10, 2000 we acquired all of the outstanding
stock of Automated Integrated Solutions, Inc. an Ontario, Company
("AIS") for $2.3 million in cash and additional contingent future
cash payments to AIS shareholders of up to $2.0 million based on
achievement of specified revenue targets over three years. The
transaction was accounted for as a purchase transaction with
$2.3 million of the purchase price allocated to capitalize software.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of integrated consulting and
software solutions that enable banks to maximize their electronic
finance (efinance) opportunities, increase their revenues, reduce
their costs and enhance their delivery of customer services. We were
founded in 1978 to provide consulting services to banks, and
subsequently integrated software products into our banking solutions.
With our acquisition of Antinori Software, Inc. in 1997, we were
able to significantly enhance our portfolio of software products.
Additionally, we acquired Genisys Operations, Inc. in 1999, which
provided incremental added-value to our product offerings. The
acquisitions of ASI and Genisys were each accounted for as a
pooling-of-interests, and accordingly, our 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 our 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"). We seek to establish long-term relationships with our
customers that will lead to ongoing projects utilizing our solutions.
SOURCE OF REVENUES: We derive our 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). We enter into these contracts
with our customers on a project-by-project basis.
PRODUCTS AND SERVICES: We offer a wide range of
industry-leading solutions that enable banks to maximize their
e-finance opportunities, increase their revenues and reduce their
costs. Combining consulting services with proprietary technology
applications, we help banks improve their current operations and
realize their full potential from the Internet economy.
9
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<PAGE>
Our offerings, uniquely tailored to the needs of the banking industry,
fall into three complementary groups of powerful, Internet-ready solutions. The
three groups, ePaymentSolutions, eCashSolutions and eBusinessSolutions, offer a
combination of products and services that when combined deliver optimal
benefits. These products and services are:
<TABLE>
<CAPTION>
EPAYMENTSOLUTIONS ECASHSOLUTIONS EBUSINESSSOLUTIONS
<S> <C> <C>
eFraudLink eiService RevenueEnhancement
eXceptions eCashInventory eFinancialServices
eRM eTransport eStrategic
eTrac
eInform
eTransactions
</TABLE>
The EPAYMENTSOLUTIONS group addresses the needs of a critical function
of banks, and the processing of payments made by one party to another. This
includes the identification and mitigation of fraudulent payments, handling
irregular items such as checks returned unpaid (exceptions), maintaining a
record of past transactions (archiving), responding to related customer
inquiries (research) and correcting any errors that are discovered
(adjustments). Our EPAYMENTSOLUTIONS group approaches these key functions in the
context of improving operational efficiency and a gradual transition from the
paper-based payment systems to electronics.
EFRAUDLINK offers a comprehensive, automated approach to solving the
growing problem of fraudulent financial transactions, with solutions
specifically designed to protect banks against bad checks drawn on them
for payment, fraudulent items deposited with them for credit, and check
kiting.
PRODUCTS & SERVICES OFFERED: EFRAUDLINKONUS, EFRAUDLINKDEPOSIT,
EFRAUDLINKKITE, EFRAUDLINKPOSITIVEPAY,
EFRAUDLINKTRACKER, EFRAUDLINKPC,
EFRAUDLINKHOLD
EXCEPTIONS is designed to reduce the number of exceptions that banks
experience, while using technology to transform traditionally
labor-intensive bank operations into efficient elements of the total
e-payment transaction chain. It features a unique combination of an
automated check research, photo retrieval and adjustment solutions,
together with a flexible workflow engine.
PRODUCTS & SERVICES OFFERED: EXCEPTIONSCHECKFLOW
ERM provides powerful tools for customer relationship management in an
e-finance environment. This wide-ranging electronic relationship
management infrastructure is a web-enabled decision support system that
incorporates exception management, risk management, treasury services
and document image archival and retrieval.
PRODUCTS & SERVICES OFFERED: ERMEXCEPTIONSMANAGEMENT,
ERMRISKMANAGEMENT, ERMTREASURYSERVICES,
ERMIMAGEREQUESTOR
ETRAC is an automated track and trace system designed to monitor items
from the time they enter a bank's processing stream to final
disposition. Among other benefits, this enables a bank to improve labor
productivity by channeling resources to where they are most needed,
i.e., potential workflow bottlenecks. Items tracked range from checks,
cash and microfilm records to internal bank mail.
PRODUCTS & SERVICES OFFERED: ETRACWORKFLOW, ETRACRECORDS
EINFORM focuses on performance measurement using the historical data
generated by eTrac. End-users can use this historical data for the
purposes of generating key performance indicators, item processing
volume data, productivity statistics, and quality control benchmarks.
PRODUCTS & SERVICES OFFERED: EINFORMMETRICS, EINFORMPERFORM,
EINFORMSTATS, EINFORMQUALITY
10
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<PAGE>
ETRANSACTIONS enables the transition away from paper-based payment
systems to electronics by automating key elements of the processing
stream, as well as improving a bank's yield from float management. The
aim is to reduce and eventually eliminate the movement of paper payment
instruments through the system, automate error-prone payment processing
functions, consolidate payment information and provide a measure of
fraud prevention.
PRODUCTS & SERVICES OFFERED: ETRANSACTIONSCHECKLINK,
ETRANSACTIONSCHECKLINKPC,
ETRANSACTIONSDEPOSIT,
ETRANSACTIONSBRANCHTRUNCATIONMANAGEMENT,
ETRANSACTIONSFLOAT,
ETRANSACTIONSNOTIFICATION
The ECASHSOLUTIONS group optimizes inventory management of a bank's
cash-on-hand, how much, when and where it is needed. Web-based software
solutions dramatically reduce the amount of cash banks need to hold in reserve
accounts and as cash-on-hand, while ensuring a high level of customer service
through timely replenishment of cash in ATMs.
EISERVICE advances ATM monitoring and management through the use of
Internet connectivity to provide electronic notification of cash and/or
servicing needs. Scalable to the largest ATM networks, it forecasts
cash and servicing needs, dispatches vendors for cash replenishment and
maintenance services, records completed work and reconciles vendor
invoices, all via an electronic communication infrastructure.
PRODUCTS & SERVICES OFFERED: EISEMANAGER, EISEGATEWAY, EISEFORECASTER
ECASHINVENTORY reduces the amount of non-earning assets required in
reserve accounts and as cash-on-hand to meet operating needs. Using
both technology and process reengineering, it provides management tools
for forecasting, tracking and optimizing a bank's inventory of
currency. This comprehensive group of solutions frees underutilized
money for more productive uses.
PRODUCTS & SERVICES OFFERED: ECASHINVENTORYFORECASTER,
ECASHINVENTORYTRACKER,
ECASHINVENTORYRESERVE, ECASHRESERVEPLUS
ETRANSPORT focuses on reducing armored car transportation costs
incurred by banks in moving cash between locations to another and
replenishing ATMs. It optimizes armored car utilization based on ATM
locations and usage, route structures and delivery frequency, as well
as ATM deposit processing requirements.
PRODUCTS & SERVICES OFFERED: ETRANSPORTOPTIMIZER,
ETRANSPORTCONSULTING
The EBUSINESSSOLUTIONS group offers a range of consulting services that
enable banks to improve their day-to-day operations and conceive implement and
fund their e-finance initiatives.
.
REVENUEENHANCEMENT consulting enables a bank to improve workflows,
internal operational processes and customer pricing structures.
Opportunities to improve performance are identified through a
systematic evaluation of existing policies and procedures in a range of
functional areas.
SERVICES OFFERED: REVENUEENHANCEMENT
EFINANCIALSERVICES provides conversion, consolidation and integration
consulting on a bank-wide basis. These services are particularly in
demand in the context of continuing acquisition and merger activity in
the banking industry, and the pressure on banks to define and implement
their e-finance strategies.
SERVICES OFFERED: EFINANCIALSERVICEPRODUCTMANAGEMENT,
EFINANCIASERVICEIT,
EFINANCIALSERVICEFINANCIAL,
EFINANCIALSERVICEINTEGRATION
11
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<PAGE>
ESTRATEGIC assists banks in developing and implementing a comprehensive
e-finance strategy. The scope of work includes defining objectives,
detailing a migration path and time frame and recommending a complete
array of enabling technologies.
SERVICES OFFERED: ESTRATEGICMODELING,
ESTRATEGICFINANCECONSULTING,
ESTRATEGICINTEGRATEDSALES
PRICING METHODS AND REVENUE RECOGNITION: We employ varying
pricing methods for each of our 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, we are 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 our 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 our solution, subject in either case to a ceiling, if
any is agreed to, on the total amount of payments to be made to us.
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 us 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 our 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 our financial position and liquidity, results of
operations, prospects for future growth, and other matters are
forward-looking statements. Although we believe 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 our 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, 2000, on file
with the Commission. Such risks include, without limitation, the risks
associated with our dependence on the banking industry, fluctuations in
quarterly operating results, customer concentration, customer project
risks, our ability to manage growth, market acceptance of our
solutions, the absence of long-term agreements with customers, the
potential for software and/or solutions defects, competition within the
markets in which we compete our use of independent contractors, our
dependence on key personnel, our ability to attract and retain
qualified personnel, the impact of technological advances on our
business, our 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.
12
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<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,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Consulting and management service fees 59.5% 57.5%
Software license fees 18.9 21.4
Software maintenance fees 10.3 10.4
Software implementation fees 11.3 9.9
Hardware and other fees -- .8
------------ ------------
Total revenues 100.0 100.0
Costs of revenues:
Consulting and management service fees 38.9 36.4
Software license fees 5.2 3.2
Software maintenance fees 2.4 4.6
Software implementation fees 5.5 4.5
Hardware and other fees -- .7
------------ ------------
Total cost of revenues 52.0 49.4
------------ ------------
Gross profit 48.0 50.6
------------ ------------
Operating costs and expenses:
Selling, general and administrative 34.4 33.3
Research and development 4.5 9.1
------------ ------------
Total operating costs and expenses 38.9 42.4
Income from operations 9.1 8.2
Other income (expense) 1.7 1.7
------------ ------------
Income before provision for income taxes 10.8 9.9
Provision for income taxes 4.1 3.3
------------ ------------
Net income 6.7% 6.6%
============== ==============
</TABLE>
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<PAGE>
REVENUES
REVENUES: Our total revenues increased 52.4% to $22.1 million
for the quarter ended April 30, 2000 from $14.5 million for the quarter
ended April 30, 1999.
CONSULTING AND MANAGEMENT SERVICE FEES: Revenues from
consulting and management service fees increased 57.8% to $13.1 million
for the quarter ended April 30, 2000 from $8.3 million for the quarter
ended April 30, 1999. Consulting and management service fees have grown
as a result of continued demand for eFinancial Services as well as
value priced RevenueEnhancement consulting. We have expanded the use of
value priced engagements due to their improved margins as well as their
favorable reception from customers. RevenueEnhancement engagements
increased to $5.7 million for the quarter ended April 30, 2000 from
$3.0 million for the quarter ended April 30, 1999. 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 35.5% to $4.2 million for the quarter ended April 30, 2000
from $3.1 million for the quarter ended April 30, 1999.
SOFTWARE MAINTENANCE FEES: Revenues from software maintenance
fees increased 51.9% to $2.3 million for the quarter ended April 30,
2000 from $1.5 million for the quarter ended April 30, 1999. 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 72.9% to $2.5 million for the quarter
ended April 30, 2000 from $1.4 million for the quarter ended April 30,
1999. 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: There were no revenues from hardware for the
quarter ended April 30, 2000 compared to revenues of $122,000 for the
quarter ended April 30, 1999. 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 62.6% to $8.6 million for the quarter
ended April 30, 2000 from $5.3 million for the quarter ended April 30,
1999. Cost of consulting and management services as a percentage of
consulting and management service fees increased to 65.4% for the three
months ended April 30, 2000 from 63.3% for the three months ended April
30, 1999. Cost of consulting and management services as a percentage of
consulting and management services fees reflects increases due to
growth in time and material 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
142.9% to $1.1 million for the quarter ended April 30, 2000 from
$468,000 for the quarter ended April 30, 1999. Cost of software
licenses as a percentage of software license fees increased to 27.2%
for the three months ended April 30, 2000 from 15.1% for the three
months ended April 30, 1999. Costs of software licenses includes
amortization costs relating to capitalized software, as well as royalty
costs associated with sales of ePaymentSolutions and eCashSolutions
software products. Increases in cost of software licenses as a
percentage of software license fees reflect an increase in royalties
paid of $223,000 resulting from changes in the mix of products sold
during the period, as well as increases in amortization of capitalized
software costs of $468,000 relative to certain software products
purchased or reaching general release status during the three months
ended April 30, 2000.
14
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<PAGE>
COST OF SOFTWARE MAINTENANCE: Cost of software maintenance
decreased 19.4% to $535,000 for the quarter ended April 30, 2000 from
$664,000 for the quarter ended April 30, 1999. Cost of software
maintenance consists primarily of personnel costs associated with
providing customer support for software products sold. Decreases in
costs associated with software maintenance reflect staffing reductions
generated through increased efficiency.
COST OF SOFTWARE IMPLEMENTATION: Cost of software
implementation increased 88.4% to $1.2 million for the quarter ended
April 30, 2000 from $646,000 for the quarter ended April 30, 1999. Cost
of software implementation as a percentage of related fees increased to
48.8% for the quarter ended April 30, 2000 from 44.8% for the quarter
ended April 30, 1999. 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 to $6,000 for the
quarter ended April 30, 2000 from $101,000 for the quarter ended April
30, 1999. Decreases for the quarter ended April 30, 2000 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 57.7% to $7.6 million for the quarter
ended April 30, 2000 from $4.8 million for the quarter ended April 30,
1999. 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 our expanding operations as well as costs
associated with the acquisition of AIS.
RESEARCH AND DEVELOPMENT: Research and development expenses
decreased 25.3% to $984,000 for the quarter ended April 30, 2000 from
$1.3 million for the quarter ended April 30, 1999.
OTHER INCOME: Other income increased to $372,000 for the
quarter ended April 30, 2000 from $241,000 for the quarter ended April
30, 1999. 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 on hand during the
current quarter.
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. Our effective income tax rate was 38.0% for the
three months ended April 30, 2000 compared to 33.1% for the three
months ended April 30,1999. Increases in the estimated annual effective
rate resulted from increases in non tax deductible expenses and
increases in income subject to state taxation.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2000, we had $56.5 million of working capital,
including $20.7 million in cash, and cash equivalents, as compared to
$56.5 million of working capital as of January 31, 2000, including
$26.0 million of cash and cash equivalents. Operating activities
consumed $2.3 million of available cash for the three months ended
April 30, 2000 as compared to $730,000 for the three months ended April
30, 1999, largely through growth in accounts receivable of $4.2 million
and through reductions of accounts payable and accrued expenses of $2.0
million, and offset by an increase in deferred revenue of $1.0 million,
net income of $1.5 million and non-cash expenses of $1.7 million.
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:
15
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<PAGE>
<TABLE>
<CAPTION>
DSO Including Expense
Quarter Ended DSO Reimbursements*
------------------------------ ----------------- -----------------------------
<S> <C> <C>
April 30, 1999 175 158
July 31, 1999 169 155
October 31, 1999 177 160
January 31, 2000 131 119
April 30, 2000 142 128
</TABLE>
* Includes reimbursements for travel and out of pocket
expenses which are not considered revenue, but are included in
outstanding receivables.
Cash used in investing activities during the period ended
April 30, 2000, of $3.2 million was used to purchase $649,000 of
property and equipment and $2.5 million invested in capitalized
software. Increases in capitalized software of $2.3 million were
generated by software acquired in the acquisition of Automated
Information Systems, Inc.
Cash provided by financing activities for the period ended
April 30, 2000, was $273,000 and resulted from the exercise of stock
options.
Our future liquidity and capital requirements will depend upon
numerous factors. We believe our current cash and cash equivalents and
short-tern investment balances and cash generated from operations will
be sufficient to meet our operating and capital requirement through at
least January 2001. However, there can be no assurance that we will not
require additional financing within this time frame. Our forecast of
the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that
involves risk and uncertainties, and actual results could vary. Our
failure to raise capital when needed could have a material adverse
effect on our business, financial condition and results of operation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES" (SFAS 133). SFAS 133, as amended, is effective for us
beginning February 1, 2001. We do not currently utilize derivative
financial instruments. Therefore, we do not expect that the adoption of
SFAS 133 will have a material impact on our results of operation or
financial position.
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants has issued Statement of
Position ("SOP") 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"). SOP 98-9 requires the use of the
residual method when vendor specific objective evidence of fair value
does not exist for one or more delivered elements in an arrangement,
but there is vendor specific objective evidence of the fair values of
all undelivered elements in a multiple element arrangement. SOP 98-9
was effective for us on February 1, 2000 and did not materially impact
our operating results for the quarter ended April 30, 2000.
In December 1999, the Securities Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101") which summarizes certain
of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The
effective date of SAB 101 for us is the quarter ended July 31, 2000. We
continue to evaluate the impact that SAB 101 will have on the timing of
revenue recognition in future periods. Based on our initial evaluation,
we believe SAB 101 will not have a material impact on our future
results of operations.
16
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES. We invest our 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.
We account for our 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, our future investment income may fall short of expectations
due to changes in interest rates or we may suffer losses in principal
if forced to sell securities which have seen a decline in market value
due to changes in interest rates. Our investment securities are held
for purposes other than trading. The weighted-average interest rate on
investment securities at April 30, 2000 was 4.7%. Amortized costs of
short-term investments held at April 30, 2000 was $13.6 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
On February 10, 2000 we acquired all of the outstanding stock of
Automated Integrated Solutions, Inc. an Ontario Company ("AIS") for
$2.3 million in cash and additional cash payments to AIS shareholders
of up to $2.0 million based on achievement of specified revenue targets
over three years. AIS owns software products used by financial
institutions to monitor and respond to faults generated by automated
teller machines. The principal financial result of the acquisition
was an increase in capitalized software and a decrease in cash and cash
equivalents of $2.3 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
----- -------------------
<S> <C>
10.1 Loan Agreement for Wyn Lewis
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
NONE
17
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<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 12, 2000
-------------------------------------- -------------------------
John D. Carreker, Jr.
Chairman of the Board and
Chief Executive Officer
By: /s/ Terry L. Gage Date: June 12, 2000
---------------------------------------- -------------------------
Terry L. Gage
Executive Vice President and
Chief Financial Officer
18
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