<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-25871
INFORMATICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0333710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3350 WEST BAYSHORE ROAD
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 687-6200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ ] NO [X]
As of July 31, 1999 there were 14,866,590 shares of the registrant's Common
Stock outstanding.
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INFORMATICA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
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PAGE NUMBERING
IN SEQUENTIAL
NUMBERING SYSTEM
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................................... 3
Condensed Consolidated Statements of Operations -- Three and Six Months
Ended June 30, 1999 and 1998................................................ 4
Condensed Consolidated Statements of Cash Flows -- Three and Six Months
Ended June 30, 1999 and 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.................. 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................................... 19
Item 6. Exhibits and Reports on Form 8-K............................................ 20
Signatures.................................................................. 20
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,603 $ 6,059
Accounts receivable, net of allowances of $1,811 and
$1,691, respectively 4,376 3,665
Prepaid expenses and other current assets 522 552
-------- --------
Total current assets 57,501 10,276
Property and equipment, net 985 512
Other assets 105 126
-------- --------
Total assets $ 58,591 $ 10,914
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 5,465 $ 4,315
Accrued compensation and related expenses 4,282 3,486
Current portion of capital lease obligations 68 242
Deferred revenue 7,246 4,537
-------- --------
Total current liabilities 17,061 12,580
Capital lease obligations, less current portion 217 217
Redeemable convertible preferred stock -- 17,586
Stockholders' equity (deficit) 41,313 (19,469)
-------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders'
equity (deficit) $ 58,591 $ 10,914
======== ========
</TABLE>
See accompanying notes.
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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
License $ 8,863 $ 4,741 $ 15,977 $ 8,996
Service 4,332 1,696 7,555 3,079
-------- -------- -------- --------
Total revenues 13,195 6,437 23,532 12,075
Cost of revenues:
License 111 179 253 207
Service 2,201 1,039 3,911 1,997
-------- -------- -------- --------
Total cost of revenues 2,312 1,218 4,164 2,204
-------- -------- -------- --------
Gross profit 10,883 5,219 19,368 9,871
Operating expenses:
Research and development 2,569 1,676 4,619 3,289
Sales and marketing 7,321 5,472 13,769 10,187
General and administrative 963 643 1,795 1,277
-------- -------- -------- --------
Total operating expenses 10,853 7,791 20,183 14,753
-------- -------- -------- --------
Income (loss) from operations 30 (2,572) (815) (4,882)
Interest income (expense), net 293 73 320 154
-------- -------- -------- --------
Income (loss) before income taxes 323 (2,499) (495) (4,728)
Income tax provision 150 -- 300 --
-------- -------- -------- --------
Net income (loss) $ 173 $ (2,499) $ (795) $ (4,728)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.02 $ (0.79) $ (0.11) $ (1.54)
======== ======== ======== ========
Diluted $ 0.01 $ (0.79) $ (0.11) $ (1.54)
======== ======== ======== ========
Shares used in calculation of net income (loss) per share:
Basic 11,298 3,168 7,414 3,076
======== ======== ======== ========
Diluted 14,138 3,168 7,414 3,076
======== ======== ======== ========
</TABLE>
See accompanying notes.
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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED JUNE 30,
1999 1998
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OPERATING ACTIVITIES
Net loss $ (795) $ (4,728)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 155 1,205
Sales and return allowances 120 120
Other receivable allowances -- 471
Amortization of deferred compensation 198 27
Changes in operating assets and liabilities:
Accounts receivable (831) (1,320)
Prepaid expenses and other assets 51 (137)
Accounts payable and accrued liabilities 1,150 483
Accrued compensation and related expenses 796 1,183
Deferred revenue 2,709 940
-------- --------
Net cash provided by (used in) operating activities 3,553 (1,756)
INVESTING ACTIVITIES
Purchase of property and equipment, net (628) (461)
-------- --------
Net cash used in investing activities (628) (461)
FINANCING ACTIVITIES
Proceeds from initial public offering, net 43,481 --
Proceeds from issuance of common stock 389 41
Payments on capital lease obligations (174) (23)
-------- --------
Net cash provided by financing activities 43,696 18
-------- --------
Effect of foreign currency translation on cash and
cash equivalents (77) 12
-------- --------
Increase (decrease) in cash and cash equivalents 46,544 (2,187)
Cash and cash equivalents at beginning of period 6,059 8,440
-------- --------
Cash and cash equivalents at end of period $ 52,603 $ 6,253
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SUPPLEMENTAL DISCLOSURES:
Interest paid $ 18 $ 21
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of preferred stock to common stock $ 17,586 $ --
======== ========
Capital lease obligations incurred $ -- $ 437
======== ========
Deferred stock compensation related to common stock options granted $ 759 $ --
======== ========
</TABLE>
See accompanying notes.
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INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in conjunction with our audited consolidated financial statements
for the year ended December 31, 1998.
2. REVENUE RECOGNITION
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"),
was issued in October 1997 by the American Institute of Certified Public
Accountants ("AICPA") and was amended by Statement of Position 98-4 ("SOP
98-4"). The Company adopted SOP 97-2 effective January 1, 1998 and SOP 98-4
effective March 31, 1998. Based on its interpretation of SOP 97-2 and SOP 98-4,
the Company believes its current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9
in December 1998, which provides certain amendments to SOP 97-2, and is
effective for transactions entered into beginning January 1, 2000.
Implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidelines could lead to unanticipated changes in
our current revenue recognition policies, which changes could affect the timing
of the Company's future revenues and earnings.
The Company generates revenues through two sources, software licenses
and services. The Company's license revenues are generated from licensing the
Company's products directly to end users and indirectly through resellers and
original equipment manufacturers. Service revenues are generated from
maintenance contracts and training and consulting services performed for
customers that license the Company's products directly and indirectly through
resellers.
License revenues are recognized when a noncancelable license agreement
has been signed, the product has been shipped, the fees are fixed and
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate the total fee to elements of the arrangement. Vendor-specific
objective evidence is based on the price charged when an element is sold
separately. In the case of an element not sold separately, the price is
established by authorized management. If an acceptance period is required,
revenue is recognized upon customer acceptance or the expiration of the
acceptance period. The Company also enters into reseller arrangements that
typically provide for sublicense fees based on a percentage of list price. For
direct sales, revenue is recognized upon shipment to the end user and when
collectibility is probable. For sales through resellers, revenue is recognized
upon shipment to the reseller and when collectibility is probable or upon cash
collections based on credit history with the reseller. The Company's agreements
with its customers and resellers do not contain product return rights.
Revenues from maintenance, which consist of fees for ongoing support and
product updates, are recognized ratably over the term of the contract, typically
one year. Consulting revenues are primarily related to implementation services
performed on a time-and-materials basis under separate service arrangements
related to the installation of the Company's software products. Training
revenues are generated from classes offered both on-site and at customer
locations. Revenues from consulting and training services are recognized after
the services are performed.
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Deferred revenue includes deferred maintenance revenue and prepaid
training and consulting fees.
3. INITIAL PUBLIC OFFERING
On April 29, 1999, the Company completed its initial public offering and
issued 3,000,000 shares, including 250,000 shares pursuant to the underwriters'
exercise of their overallotment option, of its common stock to the public at a
price of $16.00 per share. The Company received net proceeds of approximately
$43.5 million in cash. As of the closing date of the offering, all of the
preferred stock outstanding was converted into an aggregate of 7,940,000 shares
of common stock.
4. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
by adding other common stock equivalents, including stock options, warrants and
convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive. Potentially dilutive securities have been
excluded from the computation when their effect is antidilutive.
The following is a calculation of net loss per share (in thousands,
except per share amounts):
<TABLE>
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Historical:
Net loss $ 173 $ (2,499) $ (795) $(4,728)
======== ========== ======== =======
Weighted average shares of common stock
outstanding used in computing net
income (loss) per share:
Basic 11,298 3,168 7,414 3,076
======== ========== ======== =======
Diluted 14,138 3,168 7,414 3,076
======== ========== ======== =======
Net income (loss) per share:
Basic $ 0.02 $ (0.79) $ (0.11) $ (1.54)
======== ========== ======== =======
Diluted $ 0.01 $ (0.79) $ (0.11) $ (1.54)
======== ========== ======== =======
</TABLE>
If the Company had reported net income for the three months ended June
30, 1998, and for the six months ended June 30, 1999 and 1998, the calculation
of diluted earnings per share would have included the shares used in the
computation of net loss per share as well as an additional 2,215,000,
2,564,000, and 2,175,000 common equivalent shares related to the outstanding
options and warrants not included in the calculations above (determined using
the treasury stock method at the estimated fair value), respectively.
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5. COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The only item of other comprehensive income (loss) which
the Company currently reports is foreign currency translation adjustments.
The following is a calculation of comprehensive income (loss), in
thousands:
<TABLE>
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss $ 173 $(2,499) $ (795) $(4,728)
Other comprehensive income (loss):
Foreign currency translation
adjustment (42) (5) (77) 12
------- ------- ------- -------
Comprehensive income (loss) $ 131 $(2,504) $ (872) $(4,716)
======= ======= ======= =======
</TABLE>
6. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and our results of
operations contains forward-looking statements which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including, but
not limited to, those discussed in "Factors That May Affect Our Operating
Results".
REVENUES
Our total revenues for the three months ended June 30, 1999 increased to
$13.2 million from $6.4 million for the three months ended June 30, 1998,
representing growth of 105%. For the six months ended June 30, 1999, our total
revenues increased to $23.5 million from $12.1 million for the six months ended
June 30, 1998, representing growth of 95%. Our license revenues increased to
$8.9 million in the three months ended June 30, 1999 from $4.7 million in the
three months ended June 30, 1998, representing growth of 87%. Our license
revenues for the six months ended June 30, 1999 increased to $16.0 million from
$9.0 million for six months ended June 30, 1998, representing growth of 78%.
These increases were due primarily to increases in the number of licenses sold
and the average transaction size, reflecting increased acceptance of PowerMart
and PowerCenter and expansion of our direct sales organization and reseller
channels. Service revenues increased to $4.3 million for the three months ended
June 30, 1999 from $1.7 million for the three months ended June 30, 1998,
representing growth of 155%. Our service revenues increased to $7.6 million for
the six months ended June 30, 1999 from $3.1 million for the six months ended
June 30, 1998, representing growth of 145%. These increases were due primarily
to an increase in consulting, training and maintenance fees associated with both
the increased number of licenses sold and the increased average transaction
size, along with a larger installed license base. Service revenues may increase
modestly as a percentage of total revenues in future periods to the extent our
installed license base grows and as we continue to provide additional services
to our customer base.
COST OF REVENUES
Cost of License Revenues
Our cost of license revenues consists primarily of product packaging,
documentation, production costs and software royalties. Cost of license revenues
was $111,000 and $179,000 in the three months ended June 30, 1999 and 1998,
respectively. For the six months ended June 30, 1999, our cost of license
revenues increased to $253,000 from $207,000 for the six months ended June 30,
1998.
Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance,
training and consulting revenues. Our cost of maintenance revenues consists
primarily of costs associated with software upgrades, telephone support services
and on-site visits. Cost of training revenues consists primarily of the costs of
providing training classes and materials, which are provided both off-site and
at our headquarters. Cost of consulting revenues consists primarily of personnel
costs and expenses incurred in providing consulting services at customers'
facilities. Because we believe that providing a high level of support to
customers is a strategic advantage, we have invested significantly in personnel
and infrastructure. Cost of service revenues was $2.2 million and $1.0 million
in the three months ended June 30, 1999 and 1998, representing 51% and 61% of
service revenues, respectively. Cost of service revenues as a percent of service
revenues declined in the three months ended June 30, 1999 due primarily to
economies of scale achieved as our revenues and
<PAGE> 10
operations grew. Our cost of service revenues were $3.9 million and $2.0
million for the six months ended June 30, 1999 and 1998, respectively.
OPERATING EXPENSES
Research and Development
Our research and development expenses consist primarily of salaries and
other personnel-related expenses and depreciation of computer equipment and
supplies. Research and development expenses increased to $2.6 million in the
three months ended June 30, 1999 from $1.7 million in the three months ended
June 30, 1998. The increase was due primarily to an increase in personnel costs.
Research and development expenses represented 19% and 26% of total revenues in
the three months ended June 30, 1999 and 1998, respectively. Research and
development expenses for the six months ended June 30, 1999 and 1998 were $4.6
million and $3.3 million representing 20% and 27% of total revenues,
respectively. The decrease as a percentage of total revenues was due primarily
to growth in our total revenues.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel costs,
including commissions, as well as costs of public relations, seminars, marketing
programs, lead generation, travel and trade shows. Sales and marketing expenses
increased to $7.3 million in the three months ended June 30, 1999 from $5.5
million in the three months ended June 30, 1998. For the six months ended June
30, 1999 and 1998, sales and marketing expenses were $13.8 million and $10.2
million, respectively. The increases in absolute dollars were due primarily to
the hiring of additional sales and marketing personnel in connection with the
building of our direct, original equipment manufacturer and reseller channels,
and higher sales commissions associated with increased sales volume. Sales and
marketing expenses for the three months ended June 30, 1999 and 1998 represented
55% and 85% of total revenues, respectively. For the six months ended June 30,
1999 and 1998, sales and marketing expenses represented 59% and 84%,
respectively. The decline in sales and marketing expenses as a percentage of
total revenues for these periods was positively impacted by selling efficiencies
resulting from an increase in the size of transactions and growth in follow-on
sales to existing customers, as well as by the allocation of marketing expenses
over a substantially increased revenue base. We expect to continue hiring
additional sales and marketing personnel and to increase promotion and other
marketing expenditures in the future. Accordingly, we expect that sales and
marketing expenses will increase in absolute dollars in future periods.
General and Administrative
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, legal and general management, as well as
professional expenses, such as legal and accounting. General and administrative
expenses increased to $963,000 in the three months ended June 30, 1999 from
$643,000 in the three months ended June 30, 1998, representing 7% and 10% of our
total revenues, respectively. For the six months ended June 30, 1999 and 1998,
general and administrative expenses were $1.8 million and $1.3 million,
representing 8% and 11% of total revenues, respectively. Expenses primarily
increased due to increased staffing necessary to manage and support our growth
and the additional costs
<PAGE> 11
related to being a public company. The decrease as a percentage of our total
revenues was due primarily to the growth in our total revenues.
The accrual for bad debt expense increased to $60,000 in the three
months ended June 30, 1999 from $45,000 in the three months ended June 30, 1998.
For the six months ended June 30,1999 and 1998, the accrual for bad debt expense
was $120,000 in each of the periods.
INTEREST INCOME (EXPENSE)
Interest income (expense) represents interest income earned on our cash
and cash equivalents and interest expense on capital equipment leases. Interest
income increased to $293,000 in the three months ended June 30, 1999 from
$73,000 in the three months ended June 30, 1998, and to $320,000 for the six
months ended June 30, 1999 from $154,000 for the six months ended June 30, 1998
as our cash balance increased due to the initial public offering of our common
stock.
PROVISION FOR INCOME TAXES
We incurred a net operating loss in the three and six months ended June
30, 1998 and consequently paid no federal, state or foreign income taxes in
1998. In the three and six months ended June 30, 1999, we recorded a provision
of $150,000 and $300,000, respectively, for state and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through private sales of
preferred equity securities, capital equipment leases and with the completion of
our initial public offering of common stock in April, 1999. As of June 30, 1999,
we had $52.6 million in cash and cash equivalents.
Our operating activities resulted in a net cash inflow of $3.6 million
in the six months ended June 30, 1999. The sources of cash were primarily due to
increases in deferred revenue, increases in accounts payable and accrued
liabilities and increases in accrued compensation and related expenses. Uses of
cash in operating activities were due primarily to net operating losses and
accounts receivable.
For the six months ended, June 30, 1998, our operating activities
resulted in net cash outflows of $1.8 million. The sources of cash were
primarily due to increases in accrued compensation and related expenses and
increases in deferred revenue. Uses of cash in operating activities were
primarily due to net operating losses and accounts receivable.
Investing activities used cash of $628,000 in the six months ended June
30, 1999, and $461,000 in the six months ended June 30, 1998, due primarily to
the purchase of capital equipment.
Financing activities provided cash of $43.7 million for the six months
ended June 30, 1999 primarily through the completion of our initial public
offering of common stock. Financing activities provided cash of $18,000 for the
six months ended June 30, 1998, primarily through the exercise of stock options,
partially offset by payments on capital lease obligations.
As of June 30, 1999, our principal commitments consisted of obligations
under operating and capital leases. As of June 30, 1999 and 1998, we had
$316,000 and $611,000, respectively, in outstanding borrowings under capital
lease agreements which are payable through 2001.
<PAGE> 12
Deferred revenues consist primarily of the unrecognized portion of
revenues received under maintenance contracts. For international customers,
thinly capitalized resellers and OEM's, revenue is recognized upon cash
collections, and is not recorded on the balance sheet or income statement until
collectibility is no longer determined to be uncertain. As of June 30, 1999, we
had $3.3 million of sales related to shipments to customers and resellers for
which revenue had not been recognized.
We believe that our cash balances and the cash flows generated by
operations and tax refunds, if any, will be sufficient to satisfy our
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Thereafter, we may require additional funds to support our
working capital requirements, or for other purposes, and may seek to raise such
additional funds through public or private equity financings or from other
sources. We may not be able to obtain adequate or favorable financing at that
time. Any financing we obtain may dilute your ownership interests.
A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of
distinguishing 21(st) century dates from 20(th) century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries (including
technology, transportation, utilities, finance and telecommunications) will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Significant uncertainty exists in the
software industry and other industries concerning the scope and magnitude of
problems associated with the century change. We recognize the need to ensure our
operations will not be adversely affected by Year 2000 software failures.
We have completed our assessment of the potential overall impact of the
impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of our
software products are Year 2000 compliant -- that is, they are capable of
adequately distinguishing 21(st) century dates from 20(th) century dates.
However, our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that we cannot adequately
evaluate for Year 2000 compliance. We may face claims based on Year 2000
problems in other companies' products, or based on issues arising from the
integration of multiple products within an overall system. Although we have not
been a party to any litigation or arbitration proceeding involving our products
or services related to Year 2000 compliance issues, we may in the future be
required to defend our products or services in such proceedings or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000-related disputes, regardless of the merits of such disputes,
and any liability we have for Year 2000-related damages, including consequential
damages, could materially adversely affect our business, financial condition or
operating results. In addition, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or upgrade their current
<PAGE> 13
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those we offer. To
the extent Year 2000 issues cause a significant delay in, or cancellation of,
decisions to purchase our products or services, our business, financial
condition and operating results would be materially adversely affected.
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems and with our significant suppliers to determine their Year 2000
readiness. In the course of these investigations, we have not encountered any
material Year 2000 problems with these third-party products.
We have completed our evaluation and believe the infrastructure and
building systems in our headquarters facility, such as security and sprinkler
systems, and all information technology systems, such as telephony and computer
network systems, are Year 2000 compliant.
To date, we have not incurred any material costs directly associated
with our Year 2000 compliance efforts, except for compensation expense
associated with our salaried employees who have devoted some of their time to
our Year 2000 assessment and remediation efforts. As discussed above, we do not
expect the total cost of Year 2000 problems to be material to our business,
financial condition and operating results. However, during the months prior to
the century change, we will continue to evaluate new versions of our software
products, new software and information systems provided to us by third parties
and any new infrastructure systems that we acquire to determine whether they are
Year 2000 compliant. Despite our current assessment, we may not identify and
correct all significant Year 2000 problems on a timely basis. Year 2000
compliance efforts may involve significant time and expense, and unremediated
problems could materially adversely affect our business, financial condition or
operating results. We currently intend to initiate and complete in the third
quarter of 1999 contingency planning to address the risks associated with
unremediated Year 2000 problems.
FACTORS THAT MAY AFFECT OUR OPERATING RESULTS
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE WHICH COULD CAUSE OUR STOCK PRICE TO
FLUCTUATE OR DECLINE
Our future quarterly operating results have fluctuated in the past and
are likely to do so in the future. These fluctuations could cause our stock
price to also significantly fluctuate or experience declines. Some of the
factors which could cause our operating results to fluctuate include:
- the size and timing of customer orders, which can be affected by
customer order deferrals in anticipation of future new product
introductions or product enhancements and customer budgeting and
purchasing cycles;
- market acceptance of our products;
- the length and variability of our sales cycle for our products;
- introduction or enhancement of our products or our competitors'
products and changes in our or our competitors' pricing
policies;
<PAGE> 14
- our ability to develop, introduce and market new products on a
timely basis;
- the mix of our products and services sold and the mix of
distribution channels utilized;
- our success in expanding our sales and marketing programs;
- technological changes in computer systems and environments; and
- general economic conditions, which may affect our customers'
capital investment levels.
Our product revenues are not predictable with any significant degree of
certainty. Historically, we have recognized a substantial portion of our
revenues in the last month of the quarter. If customers cancel or delay orders,
it can have a material adverse impact on our revenues and results of operations
for the quarter. To the extent any such cancellations or delays are for large
orders, this impact will be greater. To the extent that the average size of our
orders increases, customers' cancellations or delays of orders will more likely
have a material adverse impact on our revenues and results of operations.
Our quarterly product license revenues are difficult to forecast because
we historically have not had a substantial backlog of orders, and therefore
revenues in each quarter are substantially dependent on orders booked and
shipped in that quarter. Our product license revenues are also difficult to
forecast because the market for our products is rapidly evolving, and our sales
cycles, which may last many months, vary substantially from customer to customer
and vary in general due to a number of factors over which we have little or no
control. Nonetheless, our short-term expense levels are relatively fixed and
based, in part, on our expectations of future revenues. The difficulty we have
in predicting our quarterly revenue means revenues shortfalls are likely to
occur at some time, and our inability to adequately reduce short-term expenses
means such shortfalls will affect not only our revenue, but also our overall
business, results of operations and financial conditions.
Due to the uncertainty surrounding our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. While we achieved significant
quarter-to-quarter revenue growth in the past, you should not take these recent
quarterly results to be indicative of our future performance. We do not expect
to sustain this same rate of sequential quarterly revenue growth in future
periods. Moreover, it is likely that in some future quarter, our operating
results will fall below the expectations of stock analysts and investors. If
this happens, the price of our common stock may fall.
IF THE MARKET IN WHICH WE SELL OUR PRODUCTS AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, IT WILL ADVERSELY AFFECT OUR REVENUES
The market for software solutions that enable more effective business
decision making by helping companies aggregate and utilize data stored
throughout an organization is relatively new and still emerging. Substantially
all of our revenues are attributable to the sale of products and services in
this market. If this market does not grow at the rate we anticipate, our
business, results of operations and financial condition will be adversely
affected. One of the reasons this market might not grow as we anticipate is that
many companies are not yet fully aware of the benefits of using these software
solutions to help make business decisions or the benefits of our specific
product solutions. As a result, we believe large companies to date have deployed
these software solutions to make business decisions on a relatively limited
basis. Although we have devoted and intend to continue to devote significant
resources promoting market awareness of the benefits of these solutions, our
efforts may be unsuccessful or insufficient.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE
We have experienced, and expect to continue to experience, seasonality
with respect to product license revenues. In recent years, there has been a
relatively greater demand for our products in the fourth quarter than in each of
the first three quarters of the year, particularly the first quarter. As a
result, we have historically experienced relatively higher bookings in the
fourth quarter and relatively lighter bookings in
<PAGE> 15
the first quarter. While some of this effect can be attributed to the rapid
growth of revenues in recent years, we believe that these fluctuations are
caused by customer buying patterns (often influenced by year-end budgetary
pressures) and the efforts of our direct sales force to meet or exceed year-end
sales quotas. In addition, European sales may tend to be relatively lower during
the summer months than during other periods. We expect that seasonal trends will
continue for the foreseeable future. This seasonal impact may increase as we
continue to focus our sales efforts on large corporations.
BECAUSE WE SELL ONLY TWO MAIN PRODUCTS, IF EITHER DOES NOT ACHIEVE BROAD MARKET
ACCEPTANCE, OUR REVENUES WILL BE ADVERSELY AFFECTED
To date, substantially all of our revenues have been derived from our
PowerCenter and PowerMart products and related services. We expect revenues
derived from these products to comprise substantially all of our revenues for
the foreseeable future. Even if the emerging software market in which these
products are sold grows substantially, if either of these products does not
achieve market acceptance, our revenues will be adversely affected. Market
acceptance of our products could be materially adversely affected if, among
other things, applications suppliers integrate their products to such a degree
that the utility of the data integration functionality that our products provide
is minimized or rendered unnecessary.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
We believe our future success will depend upon our ability to attract
and retain highly skilled personnel, including Gaurav S. Dhillon, our Chief
Executive Officer, and Diaz H. Nesamoney, our President, and other key members
of management. We currently do not have any key-man life insurance relating to
our key personnel, and these employees are at-will and not subject to employment
contracts. We may not be successful in attracting, assimilating and retaining
key personnel in the future.
As we seek to expand our operations, the hiring of qualified sales and
technical personnel will be difficult due to the limited number of qualified
professionals. Competition for these types of employees is intense. We have in
the past experienced difficulty in recruiting qualified sales and technical
personnel. Failure to attract, assimilate and retain personnel, particularly
sales and technical personnel, would have a material adverse effect on our
business, results of operations and financial condition.
OUR MARKET IS HIGHLY COMPETITIVE
The market for our products is highly competitive, rapidly evolving and
subject to rapidly changing technology. Many of our competitors have longer
operating histories, substantially greater financial, technical, marketing or
other resources, or greater name recognition than we do. Our competitors may be
able to respond more quickly than we can to new or emerging technologies and
changes in customer requirements. Competition could seriously impede our ability
to sell additional products and services on terms favorable to us. Our current
and potential competitors may develop and market new technologies that render
our existing or future products obsolete, unmarketable or less competitive. We
believe we currently compete more on the basis of our products' functionality
than on the basis of price. If our competitors develop products with similar or
superior functionality, we may have difficulty competing on the basis of price.
Our current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with other solution
providers, thereby increasing the ability of their products to address the needs
of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
channel or strategic partners, thereby limiting our ability to sell products
through these channels. Competitive pressures could reduce our market share or
require us to reduce our prices, either of which could materially and adversely
affect our business, results of operations or financial condition.
We compete principally against providers of decision support, data
warehousing and enterprise application software. Such competitors include Acta
Technology, Inc., Ardent Software, Inc., Broadbase Information Systems, Inc.,
Epiphany Marketing Software, Evolutionary Technologies, Inc., Information
<PAGE> 16
Builders, Inc., PLATINUM technology, inc. and Sagent Technology, Inc. In
addition, we compete or may compete against database vendors that currently
offer, or may develop, products with functionalities that compete with our
solutions. These products typically operate specifically with these competitors'
proprietary databases. Such competitors include IBM Corporation, Microsoft
Corporation and Oracle Corporation.
IF WE DO NOT MAINTAIN AND STRENGTHEN OUR RELATIONSHIPS WITH OUR CHANNEL AND
STRATEGIC PARTNERS, OUR ABILITY TO GENERATE REVENUE WILL BE ADVERSELY AFFECTED
We believe that our ability to increase the sales of our products and
our future success will depend in part upon maintaining and strengthening
successful relationships with our current or future partners. In addition to our
direct sales force, we rely on established relationships with a variety of
channel partners, such as systems integrators, resellers and distributors, for
marketing, licensing and support of our products in the United States and
internationally. We also rely on relationships with strategic technology
partners, such as enterprise resource planning providers, for the promotion of
our solutions. In particular, our ability to market our products depends
substantially on our relationships with such significant partners as Cambridge
Technology Partners, KPMG, PeopleSoft, PricewaterhouseCoopers and SAP. In
addition, our channel partners may offer products of several different
companies, including, in some cases, products that compete with our products. We
have limited control, if any, as to whether these strategic partners devote
adequate resources to promoting and selling our products.
We may not be able to maintain our channel or strategic partnerships or
attract sufficient additional channel or strategic partners who are able to
market our products effectively or who are qualified to provide timely and
cost-effective customer support and service. Further, we can give no assurance
that our relationships with our channel and strategic partners will generate
enough revenue to offset the significant resources used to develop these
channels.
THE LENGTHY SALES CYCLE FOR OUR PRODUCTS MAKES OUR REVENUES SUSCEPTIBLE TO
FLUCTUATIONS
Our sales cycle is generally long because the expense, complexity, broad
functionality and company-wide deployment of our products typically require
executive-level approval for investment in our products. In addition, to
successfully sell our products, we frequently must educate our potential
customers about the full benefits of our products, which can require significant
time. Due to these factors, the sales cycle associated with the purchase of our
products is subject to a number of significant risks over which we have little
or no control, including:
- customers' budgetary constraints and internal acceptance review
procedures;
- the timing of budget cycles;
- concerns about the introduction of our or our competitors' new
products; or
- product enhancements and potential downturns in general economic
conditions.
If our sales cycle lengthens unexpectedly, it could adversely affect the
timing of our revenues. Our sales cycle may lengthen as we continue to focus our
sales efforts on large corporations. To the extent that potential customers
divert resources and attention to Year 2000 issues, the sales cycle could be
further lengthened.
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS
We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative and operational infrastructure. If we are
<PAGE> 17
unable to manage this growth effectively, our business, results of operations or
financial condition may be materially adversely affected. Our ability to manage
our operations and growth effectively requires us to continue to improve our
operational, financial and management controls, reporting systems and procedures
and hiring programs. We may not be able to successfully implement improvements
to our management information and control systems in an efficient or timely
manner and may discover deficiencies in existing systems and controls.
TECHNOLOGICAL ADVANCES AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY IMPACT
OUR FUTURE PRODUCT SALES
The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. The
introduction of products by our direct competitors or others embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render our existing products obsolete, unmarketable or less
competitive. In particular, an industry-wide adoption of uniform open standards
across heterogeneous analytic applications could minimize the importance of the
integration functionality of our products and materially adversely affect the
competitiveness and market acceptance of our products. Our success depends upon
our ability to enhance existing products, to respond to changing customer
requirements and to develop and introduce in a timely manner new products that
keep pace with technological and competitive developments and emerging industry
standards. We have in the past experienced delays in releasing new products and
product enhancements and may experience similar delays in the future. Future
delays or problems in the installation or implementation of our new releases may
cause customers to forego purchases of our products and purchase those of our
competitors instead. Failure to develop and introduce new products, or enhance
existing products, in a timely manner in response to changing market conditions
or customer requirements, will materially and adversely affect our business,
results of operations and financial condition.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO GREATER INTELLECTUAL PROPERTY,
COLLECTIONS, REGULATORY AND OTHER RISKS
Our international business is subject to a number of risks, including
the following:
- greater difficulty in protecting intellectual property;
- greater difficulty in staffing and managing foreign operations;
- greater risk of uncollectible accounts;
- longer collection cycles;
- potential unexpected changes in regulatory practices and
tariffs;
- potential unexpected changes in tax laws;
- sales seasonality;
- the impact of fluctuating exchange rates between the U.S. dollar
and foreign currencies in markets where we do business; and
- general economic and political conditions in these foreign
markets.
It is difficult to predict the extent of the future impact of these
conditions. These factors and other factors could have a material adverse effect
on our future international revenues and consequently on our business, results
of operations and financial condition.
IF OUR PRODUCTS CONTAIN SIGNIFICANT DEFECTS, THESE DEFECTS COULD CAUSE US TO
<PAGE> 18
LOSE REVENUE AND EXPOSE US TO PRODUCT LIABILITY CLAIMS
The software products we offer are inherently complex and, despite
extensive testing and quality control, have in the past and may in the future
contain errors or defects, especially when we first introduce them. These
defects and errors could cause damage to our reputation, loss of revenue,
product returns, order cancellations or lack of market acceptance of our
products. Accordingly, these defects and errors could have a material adverse
effect on our business, results of operations or financial condition. We have in
the past and may in the future need to issue corrective releases of our software
products to fix these defects or errors. Our license agreements with our
customers typically contain provisions designed to limit our exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in our license agreements may not be effective
as a result of existing or future national, federal, state or local laws or
ordinances or unfavorable judicial decisions. Although we have not experienced
any product liability claims to date, sale and support of our products entails
the risk of such claims, which could be substantial in light of the use of our
products in enterprise-wide applications. If a claimant successfully brings a
product liability claim against us, it could have a material adverse effect on
our business, results of operations or financial condition.
OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. It is possible that our pending patent applications will
not be allowed or that competitors will successfully challenge the validity or
scope of our allowed patent or any future allowed patents. Our patents alone may
not provide us with any significant competitive advantage.
Third parties could copy or otherwise obtain and use our products or
technology without authorization, or develop similar technology independently.
It is difficult for us to police unauthorized use of our products, and, although
we are unable to determine the extent to which piracy of our software products
exists, software piracy is a prevalent problem in our industry in general.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. The protection of our proprietary rights may be
inadequate and our competitors could independently develop similar technology,
duplicate our products or design around any patents or other intellectual
property rights we hold.
As is common in the software industry, we have received and may continue
from time to time to receive notices from third parties claiming infringement by
our products of third-party patent and other proprietary rights. Third parties
could claim that our current or future products infringe their patent or other
proprietary rights. Any claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements, any of which could have a material
adverse effect upon our business, financial condition and operating results.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, or at all. Legal action claiming patent infringement could be
commenced against us, and we may not prevail in such litigation given the
complex technical issues and inherent uncertainties in patent litigation.
Moreover, the cost of defending patent litigation could be substantial,
regardless of the outcome. In the event a patent claim against us was successful
and we could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, our business, financial condition
and operating results would be materially adversely affected.
YEAR 2000 ISSUES COULD NEGATIVELY AFFECT OUR BUSINESS
Many currently installed computer systems are not capable of
distinguishing 21(st) century dates from 20(th) century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including
technology, transportation, utilities, finance and telecommunications, will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Year 2000 compliance efforts may involve
significant time and expense, and uncorrected problems could materially
adversely affect our business,
<PAGE> 19
financial condition or operating results. Although we believe the current
versions of our software products are Year 2000 compliant, our products operate
across the enterprise with multiple, heterogeneous third party software systems.
We may therefore face claims based on Year 2000 issues arising from the
integration and operation of our products within an enterprise system. We may
also experience reduced sales of our products as potential customers reduce
their budgets for systems that enable more effective business decisions due to
increased expenditures on their own Year 2000 compliance efforts. In addition,
during the remainder of 1999, our existing or potential customers may choose to
defer new software product purchases until after January 1, 2000 to avoid the
possibility of introducing any new Year 2000 issues.
POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. Such sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate. As of June 30, 1999
we have outstanding 14,773,346 shares of common stock (excluding 125,000
warrants not yet exercised). Of these shares 3,010,000 shares are freely
tradable. On October 25, 1999 the remaining shares of common stock outstanding
of 11,763,346 will be available for sale in the public market.
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT THE CALCULATION OF OUR FUTURE
OPERATING RESULTS
Statement of Position 97-2, "Software Revenue Recognition," was issued
in October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998 and Statement of Position 98-4 effective March 31,
1998. Based on our interpretation of Statement of Position 97-2 and Statement of
Position 98-4, we believe our current revenue recognition policies and practices
are consistent with Statement of Position 97-2 and Statement of Position 98-4.
The American Institute of Certified Public Accountants has also issued Statement
of Position 98-9 which will be effective for us for transactions entered into
beginning January 1, 2000. However, full implementation guidelines for this
standard have not yet been issued. Once available, such implementation
guidelines could lead to unanticipated changes in our current revenue
recognition policies, which changes could materially adversely affect our
business, financial condition or operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio. We do not plan to use derivative financial instruments in
our investment portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk and reinvestment
risk. We plan to mitigate default risk by investing in high-credit quality
securities.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 1999, the Company completed an
initial public offering of its common
<PAGE> 20
stock, $0.001 par value. The managing underwriters in the offering were Credit
Suisse First Boston, BancBoston Robertson Stephens, SoundView Technology Group,
and First Albany Corporation. The shares of common stock sold in the offering
were registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 that was declared effective by the SEC on April 28, 1999.
The offering commenced on April 29, 1999, on which date, 2,750,000 shares of
Common Stock registered under the Registration Statement were sold at a price of
$16.00 per share. The Underwriters also exercised an overallotment option of
250,000 shares. All 250,000 overallotment shares were sold at a price of $16.00
per share. The aggregate price of the offering amount registered and sold was
$48.0 million. In connection with the offering, the Company incurred an
aggregate of $4.5 million in underwriting discounts, commissions and other
offering expenses. The Company received net proceeds from the offering of
approximately $43.5 million. The Company has invested the net proceeds from its
initial public offering of common stock in interest bearing accounts.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Informatica
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFORMATICA CORPORATION
By: /s/ CRAIG L. KLOSTERMAN
------------------------------------------------
Craig L. Klosterman
Chief Financial Officer (Principal
Financial and Accounting Officer)
Dated: August 10, 1999
<PAGE> 21
EXHIBIT INDEX
<TABLE>
Exhibit No. Document Description
- ----------- --------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 52,603
<SECURITIES> 0
<RECEIVABLES> 6,187
<ALLOWANCES> 1,811
<INVENTORY> 0
<CURRENT-ASSETS> 57,501
<PP&E> 1,507
<DEPRECIATION> 522
<TOTAL-ASSETS> 58,591
<CURRENT-LIABILITIES> 17,061
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 41,298
<TOTAL-LIABILITY-AND-EQUITY> 58,591
<SALES> 8,863
<TOTAL-REVENUES> 13,195
<CGS> 111
<TOTAL-COSTS> 13,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 323
<INCOME-TAX> 150
<INCOME-CONTINUING> 173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.01
</TABLE>
