<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-13616
INTERVOICE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1927578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17811 WATERVIEW PARKWAY DALLAS, TX 75252
(Address of principal executive offices)
972-454-8000
(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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
The Registrant had 16,185,059 shares of common stock, no par value per
share, outstanding as of the close of the period covered by this report.
===============================================================================
<PAGE> 2
InterVoice, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
May 31, February 28,
ASSETS 1997 1997
- -------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 21,273,107 $ 24,162,024
Accounts and notes receivable, net of allowance
for doubtful accounts of $340,696 in 1998 and
$250,950 in 1997 33,068,261 33,506,747
Inventory 13,453,776 12,107,738
Prepaid expenses and other assets 997,067 3,833,248
Deferred taxes 1,419,495 1,419,495
------------- -------------
70,211,706 75,029,252
PROPERTY AND EQUIPMENT
Building 16,085,636 16,140,989
Computer equipment and software 20,792,976 20,663,578
Furniture, fixtures and other 3,372,159 5,322,288
Service equipment 2,082,369 1,975,825
------------- -------------
42,333,140 44,102,680
Less allowance for depreciation 10,774,287 13,676,956
------------- -------------
31,558,853 30,425,724
OTHER ASSETS
Intangible assets, net of amortization
of $2,029,533 in 1998 and
$1,802,708 in 1997 4,654,107 3,723,533
------------- -------------
$ 106,424,666 $ 109,178,509
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,602,042 $ 12,893,725
Customer deposits 2,224,984 3,403,739
Deferred income 5,020,252 4,995,231
------------- -------------
19,847,278 21,292,695
DEFERRED TAXES 1,695,294 1,695,294
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal
assigned value--62,000,000 shares
authorized: 19,365,723 issued,
16,185,059 outstanding in 1998
and 19,353,973 issued, 16,353,973
outstanding in 1997 9,673 9,667
Additional paid-in capital 43,108,962 43,028,780
Unearned compensation (356,011) (493,634)
Treasury stock - at cost (25,800,344) (24,003,245)
Retained earnings 67,919,814 67,648,952
------------- -------------
84,882,094 86,190,520
------------- -------------
$ 106,424,666 $ 109,178,509
============= =============
</TABLE>
<PAGE> 3
InterVoice, Inc.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
May 31, May 31,
1997 1996
----------- -----------
<S> <C> <C>
Sales $24,742,283 $25,559,501
Cost of goods sold 11,414,879 9,148,742
----------- -----------
Gross margin 13,327,404 16,410,759
Research and development expenses 2,998,017 2,744,047
Selling, general and administrative
expenses 10,101,198 7,869,663
----------- -----------
Income from operations 228,189 5,797,049
Other income - net 188,523 186,802
----------- -----------
Income before taxes 416,712 5,983,851
Income taxes 145,850 2,004,590
----------- -----------
Net income $ 270,862 $ 3,979,261
=========== ===========
Earnings per common and
common equivalent share $ .02 $ .24
=========== ===========
Weighted average number of common
and common equivalent shares 16,422,449 16,912,703
=========== ===========
</TABLE>
<PAGE> 4
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Unearned Treasury Retained
Shares Amount Capital Compensation Stock Earnings Total
----------- ------ ----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1997 16,353,973 $9,667 $43,028,780 ($493,634) ($24,003,245) $67,648,952 $ 86,190,520
Purchase of treasury
stock (180,664) -- -- -- (1,797,099) -- (1,797,099)
Exercise of stock
options 12,657 6 80,182 -- -- -- 80,188
Issuance of restricted
stock, net of
forfeitures (907) -- -- 137,623 -- -- 137,623
Net Income -- -- -- -- -- 270,862 270,862
----------- ------ ----------- --------- ------------ ----------- ------------
Balance at May 31, 1997 16,185,059 $9,673 $43,108,962 ($356,011) ($25,800,344) $67,919,814 84,882,094
=========== ====== =========== ========= ============ =========== ============
</TABLE>
<PAGE> 5
InterVoice, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
May 31, May 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 270,862 $ 3,979,261
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 2,021,784 1,091,627
Changes in operating assets
and liabilities: 669,464 (2,728,440)
------------ ------------
NET CASH FROM OPERATIONS 2,962,110 2,342,448
INVESTING ACTIVITIES
Purchase of property
and equipment (2,976,717) (1,086,563)
Purchased software (1,157,399) (861,930)
Decrease in notes
receivable -- 13,459
------------ ------------
(4,134,116) (1,935,034)
FINANCING ACTIVITIES
Exercise of stock options 80,188 1,426,640
Purchase of treasury stock (1,797,099) --
------------ ------------
(1,716,911) 1,426,640
------------ ------------
INCREASE IN CASH AND
CASH EQUIVALENTS (2,888,917) 1,834,054
Cash and cash equivalents,
beginning of period 24,162,024 23,573,976
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 21,273,107 $ 25,408,030
============ ============
</TABLE>
<PAGE> 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
The Balance Sheet at February 28, 1997 has been derived from audited financial
statements at that date. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the unaudited May 31, 1997 and 1996 financial statements have
been included. Operating results for the three month period ended May 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending February 28, 1998 as they may be affected by a number of factors,
including the timing and ultimate receipt of orders from significant customers
which continue to constitute a large portion of the Company's sales, the sales
channel mix of products sold, and changes in general economic conditions, any
of which could have an adverse effect on operations.
NOTE B -- EARNINGS PER SHARE
Earnings per share are computed based on the sum of the average outstanding
common shares and common equivalent shares. Common equivalent shares assume
the exercise of all dilutive stock options using the treasury stock method.
Primary and fully diluted earnings per share are not materially different for
the periods presented.
NOTE C -- CONTINGENCIES
The Company is subject to certain legal proceedings and claims that arise in
the ordinary course of its business. In the opinion of management, based on
discussions with and advice of legal counsel, the amount of ultimate liability
with respect to these actions will not materially affect the consolidated
results of operations or financial condition of the Company.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SALES. The Company's total sales of approximately $24.7 million in the
first quarter of fiscal 1998 decreased approximately $0.8 million, or 3%, from
the same period of the previous year. The Company's domestic Customer Premise
Equipment (CPE) sales during the first quarter of fiscal 1998 rose to $18.6
million, an increase of 5% versus the same period of the previous year, and
constituted 75% of the Company's total sales. International CPE sales rose to
$3.1 million, an increase of 9% versus the same period of the previous year,
and constituted 13% of the Company's total sales. Both domestic and
international CPE sales increased as a result of the Company's continued
investment in distribution channels, the hiring and training of new and
existing sales, service and support personnel, and the expansion of its
marketing and advertising programs. Worldwide Telecommunications (Telco) sales
were $3.0 million, a 38% reduction versus the same period of the previous year,
and constituted 12% of the Company's total sales. The Company believes that the
Telecommunication Act of 1996, and the recent judicial stay of certain
provisions of the Act and its regulations, have caused domestic
telecommunications companies to delay implementation of call automation
solutions while they evaluate marketing and investment strategies in light of
new opportunities arising from deregulation. The Company completed a sale of
$1.7 million to a Venezuelan Telecommunications company during the first
quarter of fiscal 1998, however, no customer accounted for 10% or more of the
Company's total sales.
COST OF GOODS SOLD. Cost of goods sold of approximately $11.4 million
during the first quarter of fiscal 1998 increased to 46% of total sales from
36% in the same period of the previous year. This was the result of less than
anticipated sales during the first quarter of fiscal 1998 and the Company's
continued investment in applications engineering and customer service resources
to pursue opportunities in all of its markets.
RESEARCH AND DEVELOPMENT. Research and development expenses of
approximately $3.0 million during the first quarter of fiscal 1998 increased
approximately $0.2 million, or 9%, over the same period of the previous year.
Such expenses during the first quarter of fiscal 1998 included porting the
Company's InterSoft core software to the UNIX and Windows NT operating systems;
developing computer platform independent voice automation hardware and
software; and the development of VisualConnect (the ability to communicate with
OneVoice Systems via the Internet) and InVision (the Company's next generation
custom application development tool). Additionally, expenditures were made for
the ongoing development of the Company's OneVoice Software Agent Platform
including OneVoice Systems (the Company's IVR system), OneVoice 5000 (the
Company's high density IVR system), NSP 5000 (the Company's platform designed
for the telecommunications market), InterDial (the Company's outbound
predictive dialer system), OneLink (a digital interface for analog switches),
and digital VocalCard software and hardware functionality.
<PAGE> 8
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to approximately $10.1 million during the first quarter of
fiscal 1998 from approximately $7.9 million during the same period of the
previous year and, as a percentage of the Company's total sales, increased from
31% to 41%. The Company continued to hire and train new and existing sales,
service and support personnel and expand its marketing and advertising programs
worldwide despite less than anticipated sales.
OTHER INCOME. Other income of approximately $0.2 million during the first
quarter of fiscal 1998 was primarily interest income on cash and short term
investments and was approximately equal to other income in the same period of
the previous year.
INCOME FROM OPERATIONS. Operating income of approximately $0.2 million and
net income of approximately $0.3 million during the first quarter of fiscal
1998 both declined 93% from the same period in the previous year. Despite less
than anticipated sales, the company increased its investments in research and
development in order to continue to pursue opportunities in both the CPE and
Telco markets.
LIQUIDITY AND CAPITAL RESOURCES. At May 31, 1997, the Company had cash
reserves of approximately $21.3 million. The Company believes its cash
reserves and internally generated cash flow will be sufficient to meet its
operating cash requirements for the foreseeable future. The Company reviews
share repurchase and acquisition opportunities from time to time and believes
it has access to the financial resources necessary to pursue attractive
repurchase and/or acquisition opportunities as they arise. During the first
quarter of fiscal 1998, the Company repurchased 180,664 shares of its common
stock at a cost of approximately $1.8 million pursuant to an authorization by
its Board of Directors to repurchase up to 1,000,000 shares. The Company
believes that market conditions made such shares of value to its shareholders.
FORWARD LOOKING STATEMENTS. This report includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts included in this
announcement regarding the Company's financial position, business strategy,
plans and objectives of management of the Company for future operations, and
industry conditions, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. The following significant factors, among others, sometimes have
affected, and in the future could affect, the Company's actual results and
could cause such results during fiscal 1998, and beyond, to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company:
o The Company faces ever-increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies
and standards and to
<PAGE> 9
provide greater functionality. Since the Company does not have the
resources to cause its products to be compatible with each new technology
or standard and to provide all requested functionality, the ultimate
success of the Company's products is dependent, to a large degree, on the
Company allocating its resources to developing and improving products
compatible with those technologies, standards and functionalities that
ultimately become widely accepted by the Company's actual and prospective
customers. The Company's success is also dependent, to a large degree, on
the Company's ability to implement arrangements with other vendors with
complementary product offerings to provide actual and prospective
customers greater functionality and to ensure that the Company's products
are compatible with the increased variety of technologies and standards.
o Intense competition in the call automation industry.
o Ability of the Company to continue to introduce new features and products
as the Company's markets evolve, as new technologies and standards become
available, and customers demand additional functionality, requiring a
continued high level of expenditures by the Company for research and
development.
o Ability of the Company to properly estimate costs under fixed price
contracts in developing application software and otherwise tailoring its
systems to customer-specific requests.
o Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
o The quantity and size of large sales (sales valued at approximately $1
million or more) during any fiscal quarter, which can cause wide
variations in the Company's sales and earnings on a quarter to quarter
basis.
o The ability of the Company to retain its customer base and, in particular,
its more significant customers (such as Siemens AG, an InterVoice
distributor, which accounted for over ten percent of the Company's total
sales during fiscal 1997 and MCI Telecommunications, which accounted for
over ten percent of the Company's total sales during fiscal 1996 and
1995), since such customers generally are not contractually obligated to
place further orders with the Company.
o Certain of the components for the Company's products are available from
limited suppliers. The Company's operating results could be adversely
affected if the Company were unable to obtain such components in the
future.
o Risks involved in the Company's international distribution and sales of
its products, including unexpected changes in regulatory requirements,
unexpected changes in exchange rates, the difficulty and expense of
maintaining foreign offices and distribution channels, tariffs and other
barriers to trade, difficulty in protecting
<PAGE> 10
intellectual property rights, foreign governmental regulations that may
limit or restrict the sales of call automation systems. Additionally,
changes in foreign credit markets and currency exchange rates may result
in requests by many international customers for extended payment terms and
may have an adverse impact on the company's cash flow and its level of
accounts receivable.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the recently enacted
Telecommunications Act of 1996. While many industry analysts expect the
Telecommunications Act of 1996 ultimately to result in at least a
temporary surge in the procurement of telecommunications equipment and
related software and other products, there is no assurance that the
Company can estimate with sufficient accuracy those products which will
ultimately be purchased, the timing of any such purchases or the
quantities to be purchased.
o The Company's ability to hire and retain, within the Company's
compensation parameters, qualified technical talent and outside
contractors in highly competitive markets for the services of such
personnel.
o Extreme price and volume trading volatility in the U.S. stock market,
which has had a substantial effect on the market prices of securities of
many high technology companies, frequently for reasons other than the
operating performance of such companies. These broad market fluctuations
could adversely affect the market price of the Company's common stock.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
o Mergers and acquisitions between companies in the telecommunications
industry which could result in fewer companies purchasing the Company's
products for Telco applications, and /or delay such purchases by companies
that are in the process of reviewing their strategic alternatives in light
of a merger or acquisition.
o Certain proposed changes to Generally Accepted Accounting Principles
currently under consideration by the Financial Accounting Standards Board
could potentially, if and when implemented, delay recognition of revenue
on sales which require a high degree of customization.
All subsequent written and oral forward looking statements attributable to the
Company or persons acting on the behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this paragraph and otherwise
in this report.
<PAGE> 11
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERVOICE, INC.
Date: 07/14/97 By: /s/ ROB-ROY J. GRAHAM
----------------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 12
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 21,273,107
<SECURITIES> 0
<RECEIVABLES> 33,068,261
<ALLOWANCES> 340,696
<INVENTORY> 13,453,776
<CURRENT-ASSETS> 70,211,706
<PP&E> 42,333,140
<DEPRECIATION> 10,774,287
<TOTAL-ASSETS> 106,424,666
<CURRENT-LIABILITIES> 19,847,278
<BONDS> 0
0
0
<COMMON> 9,673
<OTHER-SE> 84,872,421
<TOTAL-LIABILITY-AND-EQUITY> 106,424,666
<SALES> 24,742,283
<TOTAL-REVENUES> 24,742,283
<CGS> 11,414,879
<TOTAL-COSTS> 24,514,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 416,712
<INCOME-TAX> 145,850
<INCOME-CONTINUING> 270,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,862
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
