<PAGE> 1
================================================================================
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
NOVEMBER 30, 1996
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)
214-454-8000
(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 16,302,995 shares of common stock, no par value per
share, outstanding as of the close of the period covered by this report.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
InterVoice, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
November 30, February 29,
ASSETS 1996 1996
- ----------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 18,935,287 $ 23,573,976
Accounts and notes receivable, net of allowance
for doubtful accounts of $208,833 in 1997 and
$746,027 in 1996 34,442,964 24,704,425
Inventory 16,081,326 12,586,640
Prepaid expenses 2,032,507 804,428
Deferred taxes 1,377,506 1,714,246
------------- -------------
72,869,590 63,383,715
PROPERTY AND EQUIPMENT
Building 16,080,638 15,865,605
Computer equipment 10,413,510 8,193,562
Furniture, fixtures and other 5,175,536 4,737,625
Service equipment 2,229,295 2,025,558
------------- -------------
33,898,979 30,822,350
Less allowance for depreciation 12,312,384 9,540,886
------------- -------------
21,586,595 21,281,464
OTHER ASSETS
Intangible assets, net of amortization
of $2,555,639 in 1997 and
$1,893,619 in 1996 7,496,327 4,712,495
Other assets 199,868 349,132
------------- -------------
$ 102,152,380 $ 89,726,806
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,995,841 $ 11,796,125
Customer deposits 3,022,620 2,527,514
Deferred income 4,157,765 4,075,099
Income taxes payable -- 1,053,519
------------- -------------
20,176,226 19,452,257
DEFERRED TAXES 173,074 713,074
CONTINGENCIES
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:19,302,995 issued,
16,302,995 outstanding in 1997
and 18,984,206 issued, 15,984,206
outstanding in 1996 9,640 9,460
Additional paid-in capital 42,055,854 39,103,070
Unearned compensation (647,945) (436,281)
Treasury stock - at cost (24,003,245) (24,003,245)
Retained earnings 64,388,776 54,888,471
------------- -------------
81,803,080 69,561,475
============= =============
$ 102,152,380 $ 89,726,806
============= =============
</TABLE>
<PAGE> 3
InterVoice, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 24,335,974 $ 25,145,270 $ 77,195,497 $ 70,845,688
Cost of goods sold 9,788,985 8,879,178 29,052,321 24,841,237
------------ ------------ ------------ ------------
Gross margin 14,546,989 16,266,092 48,143,176 46,004,451
------------ ------------ ------------ ------------
Research and development expenses 2,996,496 2,502,983 8,610,129 7,052,283
Selling, general and administrative
expenses 8,094,980 7,151,063 24,121,521 20,029,879
Litigation settlement 1,800,000 -- 1,800,000 --
------------ ------------ ------------ ------------
Income from operations 1,655,513 6,612,046 13,611,526 18,922,289
Other income 157,444 122,378 515,322 374,248
------------ ------------ ------------ ------------
Income before income taxes 1,812,957 6,734,424 14,126,848 19,296,537
Income taxes 562,967 2,323,377 4,626,543 6,657,306
------------ ------------ ------------ ------------
Net income $ 1,249,990 $ 4,411,047 $ 9,500,305 $ 12,639,231
============ ============ ============ ============
Earnings per common and
common equivalent share $ .08 $ .27 $ .57 $ .77
============ ============ ============ ============
Weighted average number of common
and common equivalent shares 16,524,457 16,542,379 16,675,136 16,368,755
============ ============ ============ ============
</TABLE>
<PAGE> 4
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<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 29, 1996 15,984,206 $ 9,460 $ 39,103,070 $ (436,281) $(24,003,245) $ 54,888,471 $ 69,561,475
Exercise of stock options 283,241 162 1,718,324 -- -- -- 1,718,486
Issuance of restricted stock 35,548 18 1,234,460 (211,664) -- -- 1,022,814
Net Income -- -- -- -- -- 9,500,305 9,500,305
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at November 30, 1996 16,302,995 $ 9,640 $ 42,055,854 $ (647,945) $(24,003,245) $ 64,388,776 $ 81,803,080
============ ============ ============ ============ ============ ============ ============
</TABLE>
<PAGE> 5
InterVoice, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,249,990 $ 4,411,047 $ 9,500,305 $ 12,639,231
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 1,203,460 1,083,449 3,433,518 3,242,687
Changes in operating assets
and liabilities: (5,837,558) (1,976,407) (13,267,465) (7,499,472)
------------ ------------ ------------ ------------
NET CASH FROM OPERATIONS (3,384,108) 3,518,089 (333,642) 8,382,446
INVESTING ACTIVITIES
Purchase of property
and equipment (1,170,571) (1,065,696) (3,349,036) (3,496,718)
Purchased software (1,226,538) (1,512,400) (3,296,588) (2,104,503)
(Increase) decrease in notes
receivable -- (639,261) 40,412 (558,507)
------------ ------------ ------------ ------------
(2,397,109) (3,217,357) (6,605,212) (6,159,728)
FINANCING ACTIVITIES
Exercise of stock options 578,306 1,038,446 2,300,165 3,066,902
------------ ------------ ------------ ------------
578,306 1,038,446 2,300,165 3,066,902
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (5,202,911) 1,339,178 (4,638,689) 5,289,620
Cash and cash equivalents,
beginning of period 24,138,198 14,227,394 23,573,976 10,276,952
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 18,935,287 $ 15,566,572 $ 18,935,287 $ 15,566,572
============ ============ ============ ============
</TABLE>
<PAGE> 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1996
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 29, 1996 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 November 30, 1996 and 1995 financial statements
have been included. Operating results for the nine month period ended November
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending February 28, 1997 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SALES. Sales in the first nine months of fiscal 1997 increased
approximately $6.3 million, or 9%, when compared to the same period of fiscal
1996. The increase was due primarily to increased domestic customer premise
equipment sales and international customer premise equipment sales,
particularly to Latin America and Asia-Pacific markets. Domestic customer
premise equipment sales for the first nine months of fiscal 1997 increased 10%
when compared to the same period of fiscal 1996. International customer
premise equipment sales for the same period increased 35% when compared to the
same period of fiscal 1996. The Company believes that some telecommunications
companies have temporarily delayed their implementation of call automation
solutions while they evaluate marketing and investment strategies in the light
of new opportunities resulting from deregulation under the Telecommunications
Act of 1996 and while they also evaluate the implications of the recent
judicial stay of certain provisions of the Act and its regulations. Management
believes that these regulatory changes for the telecommunications industry, and
the industry's reaction to such changes are the primary reasons why sales to
domestic telecommunications companies declined to 17% of the Company's total
sales for the first nine months of fiscal 1997 as compared to 23% during the
same period in fiscal 1996. Sales to a leading domestic telecommunications
company in the first nine months of fiscal 1997 were approximately $7.9
million, or 10% of the Company's total sales.
Sales in the third quarter of fiscal 1997 decreased $0.8 million, or 3%,
compared to the same period of fiscal 1996. Domestic customer premise
equipment sales for the third quarter of fiscal 1997 decreased 17% when
compared to the same period of fiscal 1996 while international customer premise
equipment sales increased 91%. The decrease in domestic customer premise
equipment sales was primarily attributable to a decline in reseller sales and a
tight local employment market which impacted the Company's ability to ship its
backlog of orders. The increase in international sales was partially
attributable to $2.9 million in sales, or 12% of the Company's total sales
during the third quarter, to a Mexican public utility through one of the
Company's resellers. For the reasons mentioned above, sales to
telecommunications companies declined to 13% of the Company's total sales in
the third quarter of fiscal 1997, as compared to 20% of the Company's total
sales for the same period of fiscal 1996.
COST OF GOODS SOLD. Cost of goods sold as a percentage of the Company's
total sales increased to 38% and 40% in the first nine months and the third
quarter of fiscal 1997, respectively, from 35% in the same periods of fiscal
1996. This increase is primarily due to 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 in the first
nine months and third quarter of fiscal 1997 increased approximately $1.6
million and $0.5 million, or 22% and 20%, respectively, over the same periods
of fiscal
<PAGE> 8
1996. Research and development expenses, as a percentage of the Company's
total sales, in the first nine months and third quarter of fiscal 1997
increased to 11% and 12%, respectively, from 10% in the same periods of fiscal
1996. This increase is primarily due to the Company's research and development
efforts in the first nine months and third quarter of fiscal 1997 which
included porting the Company's InterSoft core software to the UNIX and Windows
NT operating systems, the development of VisualConnect (the ability to
communicate with OneVoice Systems via the Internet), development of InVision
(the Company's next generation customer application development tool), and the
enhancement of products acquired in the VoicePlex Corporation transaction.
Additionally, expenditures were made for the ongoing development of the
Company's multi-application platform including OneVoice (the Company's
Interactive Voice Response system), InterDial (the Company's outbound
predictive dialer system), OneLink (a digital interface for analog switches),
and continued development of digital VocalCard software and hardware
functionality.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased approximately $4.1 million and $0.9 million in the first
nine months and third quarter of fiscal 1997, respectively, as compared to the
same periods of fiscal 1996. Selling, general and administrative expenses, as
a percentage of the Company's total sales, in the first nine months and third
quarter of fiscal 1997 increased to 33% and 31%, respectively from 28% in the
same periods of fiscal 1996. This increase is primarily due to the Company's
continued investment in selling, general and administrative resources as it
expands its worldwide sales, service and support infrastructure and invests in
marketing and advertising programs.
LITIGATION SETTLEMENT. The Company incurred litigation settlement
expenses of $1.8 million during the third quarter of fiscal 1997. These
expenses are discussed in Part II, Item I of this quarterly report.
OTHER INCOME. Other income in the first nine months of fiscal 1997,
consisting primarily of interest income on cash and other non-operating
interest income, increased approximately $0.1 million from the same period of
fiscal 1996 as the result of reduced cash balances, during the same period of
fiscal 1996, resulting from the completion of the Company's stock repurchase
program, the purchase of VoicePlex Corporation, and the completion of the
Company's new facilities in Dallas. Other income during the third quarter of
fiscal 1997 was flat as compared to the same period of fiscal 1996.
INCOME FROM OPERATIONS. Operating income and net income, adjusted for
litigation settlement expenses, during the first nine months of fiscal 1997
decreased 18% and 15%, respectively, from the same period in fiscal 1996. The
Company increased its investment in sales, marketing, application engineering,
and research and development resources at a greater rate than the increase in
the Company's total sales, in order to continue to pursue opportunities in the
customer premise equipment and telecommunications markets. For the reasons
discussed above, operating income and net
<PAGE> 9
income, adjusted for litigation settlement expenses, during the third quarter
of fiscal 1997 decreased 47% and 43%, respectively, from the same period in
fiscal 1996. Net income during the first nine months and third quarter of
fiscal 1997 decreased at a slightly lower rate than operating income due to the
favorable tax impact of the Company's international sales through its Foreign
Sales Corporation.
LIQUIDITY AND CAPITAL RESOURCES. At November 30, 1996, the Company had
cash reserves of approximately $18.9 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
opportunities as they arise. The Company recently announced a decision by the
Board of Directors authorizing the Company to repurchase up to one million
shares of its common stock over the next year. The Company believes it has
access to the financial resources necessary to repurchase shares from time to
time pursuant to the Board's share repurchase authorization.
DISCLOSURES REGARDING 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 Form 10-Q, including without limitation, statements
contained in this "Management Discussion and Analysis of Financial Condition
and Results of Operations" and under "Notes to Unaudited Financial Statements"
located elsewhere herein 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 1997, 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 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
<PAGE> 10
functionality and to ensure that the Company's products are compatible
with the increased variety of technologies and standards.
o Intense competition in the voice 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 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 MCI Telecommunications, which
accounted for over ten percent of the Company's total sales in the last
three fiscal years) 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 intellectual property rights,
and 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
<PAGE> 11
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.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this paragraph and otherwise
in this report.
<PAGE> 12
PART II, OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its wholly-owned French subsidiary recently entered into a
settlement agreement with Realizzazione Investimenti per lo Sviluppo delle
Comunicazioni s.r.l. ("RISC"), an Italian registered limited company. The
settlement will result in the dismissal, with prejudice, of the lawsuit pending
between the companies before the Commercial Court of Nanterre in France. The
lawsuit was most recently discussed in the Company's Annual Report on Form 10-K
for the year ended February 29, 1996, and Quarterly Report on Form 10-Q for the
quarter ended August 31, 1996. Pursuant to the settlement, the Company paid
$1.8 million to RISC, and RISC returned all equipment and software previously
purchased from the Company.
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: 1/14/97 By: /S/ ROB-ROY J. GRAHAM
----------------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 13
INTERVOICE, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
Furnished upon request
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 18,935,287
<SECURITIES> 0
<RECEIVABLES> 34,442,964
<ALLOWANCES> 208,833
<INVENTORY> 16,081,326
<CURRENT-ASSETS> 72,869,590
<PP&E> 33,898,979
<DEPRECIATION> 12,312,384
<TOTAL-ASSETS> 102,152,380
<CURRENT-LIABILITIES> 20,176,226
<BONDS> 0
0
0
<COMMON> 9,640
<OTHER-SE> 81,793,440
<TOTAL-LIABILITY-AND-EQUITY> 102,152,380
<SALES> 77,195,497
<TOTAL-REVENUES> 77,195,497
<CGS> 29,052,321
<TOTAL-COSTS> 29,052,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (56,032)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,126,848
<INCOME-TAX> 4,626,543
<INCOME-CONTINUING> 9,500,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,500,305
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
