<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
MAY 31, 1998
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 13,855,563 shares of common stock, no par value per
share, outstanding as of the close of the period covered by this report.
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<PAGE> 2
InterVoice, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
May 31, February 28,
ASSETS 1998 1998
- ---------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,308,524 $ 4,190,940
Accounts and notes receivable, net of allowance
for doubtful accounts of $692,004 in 1999 and
$368,005 in 1998 33,727,429 26,040,332
Inventory 9,983,865 9,343,338
Prepaid expenses and other current assets 1,204,021 4,490,813
Deferred income taxes 2,325,745 2,325,745
-------------- --------------
53,549,584 46,391,168
PROPERTY AND EQUIPMENT
Building 16,253,715 16,249,914
Computer equipment 23,249,661 24,496,337
Furniture, fixtures and other 3,502,584 3,756,164
Service equipment 4,645,649 4,582,221
-------------- --------------
47,651,609 49,084,636
Less allowance for depreciation 16,235,631 16,736,766
-------------- --------------
31,415,978 32,347,870
OTHER ASSETS
Intangible assets, net of amortization
of $2,010,841 in 1999 and
$1,679,113 in 1998 5,836,702 6,154,437
-------------- --------------
$ 90,802,264 $ 84,893,475
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 11,906,982 $ 10,491,913
Customer deposits 4,224,249 2,625,498
Deferred income 5,109,717 5,500,743
Short term borrowings 9,000,000 9,000,000
-------------- --------------
30,240,948 27,618,154
DEFERRED INCOME TAXES 644,803 644,803
COMMITMENTS AND 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: 19,566,363 issued,
13,855,563 outstanding in 1999
and 19,503,291 issued, 13,802,491
outstanding in 1998 9,773 9,726
Additional capital 44,715,945 44,314,685
Treasury stock - at cost (50,320,899) (50,202,999)
Retained earnings 65,511,694 62,509,106
-------------- --------------
59,916,513 56,630,518
-------------- --------------
$ 90,802,264 $ 84,893,475
============== ==============
</TABLE>
See accompanying notes.
<PAGE> 3
InterVoice, Inc.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
May 31, May 31,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 30,000,337 $ 24,742,283
Cost of goods sold 12,530,098 11,414,879
------------ ------------
Gross margin 17,470,239 13,327,404
Research and development expenses 3,284,873 2,998,017
Selling, general and administrative
expenses 9,482,044 10,101,198
------------ ------------
Income from operations 4,703,322 228,189
Other income (expense) - net (126,734) 188,523
------------ ------------
Income before taxes 4,576,588 416,712
Income taxes 1,574,000 145,850
------------ ------------
Net income $ 3,002,588 $ 270,862
------------ ------------
------------ ------------
Net income per share - basic $ 0.22 $ 0.02
============ ============
Net income per share - diluted $ 0.21 $ 0.02
============ ============
</TABLE>
See accompanying notes.
<PAGE> 4
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Treasury Retained
Shares Amount Capital Stock Earnings Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1998 13,802,491 $ 9,726 $ 44,314,685 ($50,202,999) $ 62,509,106 $ 56,630,518
Exercise of stock
options 63,072 47 401,260 -- -- 401,307
Purchase of treasury
stock, net (10,000) -- -- (117,900) -- (117,900)
Net income -- -- -- 3,002,588 3,002,588
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 1998 13,855,563 $ 9,773 $ 44,715,945 ($50,320,899) $ 65,511,694 $ 59,916,513
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
InterVoice, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
May 31, May 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,002,588 $ 270,862
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 2,608,640 2,021,784
Changes in operating assets
and liabilities: (2,415,935) 669,464
------------ ------------
NET CASH FROM OPERATIONS 3,195,293 2,962,110
INVESTING ACTIVITIES
Purchase of property
and equipment (1,347,123) (2,976,717)
Purchased software (13,993) (1,157,399)
------------ ------------
Net cash used in investing activities (1,361,116) (4,134,116)
FINANCING ACTIVITIES
Exercise of stock options 401,307 80,188
Purchase of treasury stock (117,900) (1,797,099)
------------ ------------
Net cash used in financing activities 283,407 (1,716,911)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,117,584 (2,888,917)
Cash and cash equivalents,
beginning of period 4,190,940 24,162,024
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,308,524 $ 21,273,107
============ ============
</TABLE>
See accompanying notes
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. The consolidated balance sheet at February 28, 1998 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, 1998 and 1997
consolidated financial statements have been included. Operating results for the
three month period ended May 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending February 28, 1999 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 - REVENUE RECOGNITION
The Company recognizes revenue for sales of systems which do not require
customization by the Company at the time of shipment. Subsequent to December 1,
1997, revenue for systems which require customization by the Company are
recognized by the contract method of accounting using percentage of completion
for larger, more complex systems (generally over a $500,000 sales price) and the
completed contract method for smaller systems. Prior to December 1, 1997, the
Company recognized revenue on systems requiring customization at the date of
shipment or at the point after shipment when the remaining obligations of the
Company became insignificant. This change in accounting was required by the
American Institute of CPA's Statement of Position 97-2 which was adopted by the
Company as of December 1, 1997 and is required to be applied prospectively for
transactions entered into after that date.
The Company recognizes revenue from services at the time the service is
performed or over the period of the contract for maintenance/support.
NOTE C - EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effect of stock options and
restricted stock arrangements. Diluted earnings per share includes the dilutive
impact of stock options and restricted stock arrangements.
<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
May 31, May 31,
1998 1997
----------- -----------
<S> <C> <C>
Numerator:
Net Income $ 3,002,588 $ 270,862
=========== ===========
Denominator:
Denominator for basic earnings per share
weighted avereage shares outstanding 13,855,563 16,185,059
=========== ===========
Effect of dilutive securities:
Employee Stock Options 252,117 210,918
Non-vested restricted stock 3,743 26,472
----------- -----------
Dilutive Potential common shares 255,860 237,340
----------- -----------
Denominator for diluted earnings per share 14,111,423 16,422,449
=========== ===========
Net income per common share - basic $ 0.22 $ 0.02
=========== ===========
Net income per common share - diluted $ 0.21 $ 0.02
=========== ===========
</TABLE>
Options to purchase 583,825 and 985,149 shares of common stock at average prices
of $16.60 and $16.66, respectively, were outstanding during the first three
months of fiscal 1999 and 1998, respectively, but were not included in the
computation of diluted earnings per share because the options' prices were
greater than the average market price of the Company's common shares during such
periods and, therefore, the effect would have been anti-dilutive.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SALES. The Company's total sales of approximately $30.0 million in the
first quarter of fiscal 1999 increased approximately $5.3 million, or 21%, from
the same period of the previous year. The Company's domestic Customer Premises
Equipment (CPE) sales during the first quarter of fiscal 1999 rose to $15.7
million, an increase of 2% versus the same period of the previous year, and
constituted 52% of the Company's total sales. International CPE sales in the
amount of $3.1 million during the quarter were flat versus the same period of
the previous year, and constituted 10% of the Company's total sales. Worldwide
Telecommunications (Telco) sales during the quarter were $7.9 million, a 164%
increase versus the same period of the previous year, and constituted 26% of the
Company's total sales. Telco sales increased, in part, due to a sale of $4.0
million to a Venezuelan telecommunications company during the first quarter of
fiscal 1999. No other customer accounted for 10% or more of the Company's total
sales.
COST OF GOODS SOLD. Cost of goods sold of approximately $12.5 million
during the first quarter of fiscal 1999 decreased to 42% of total sales from 46%
in the same period of the previous year. This was the result of increased sales
during the first quarter of fiscal 1999 and the Company's continued emphasis on
expense control.
RESEARCH AND DEVELOPMENT. Research and development expenses of
approximately $3.3 million during the first quarter of fiscal 1999 increased
approximately $0.2 million, or 10%, over the same period of the previous year.
Such expenses during the first quarter of fiscal 1999 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;
developing the NSP 5000 platform; and the integrating of the ESP product line
purchased from Integrated Telephony Products, Inc. into the Company's InControl
product offering for enhanced network services. Additionally, expenditures were
made for the ongoing development of the Company's OneVoice Software Agent
Platform, including OneVoice Systems (the Company's IVR system), InVision (the
Company's custom application development tool), InterDial (the Company's
outbound predictive dialer system), OneLink (a digital interface for analog
switches), and digital VocalCard software and hardware functionality.
<PAGE> 9
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased to approximately $9.5 million during the first
quarter of fiscal 1999 from approximately $10.1 million during the same period
of the previous year and, as a percentage of the Company's total sales,
decreased to 32% from 41%. The Company has continued its measures to control
expenses, particularly selling, general and administrative expenses.
OTHER INCOME/EXPENSE. Other expense of approximately $0.1 million
during the first quarter of fiscal 1999 was primarily net interest expense paid
on its short term borrowings.
INCOME FROM OPERATIONS. Operating income and net income during the
first quarter of fiscal 1999 were approximately $4.6 million and $3.0 million,
respectively, compared to $0.2 million and $0.3 million, respectively, during
the same period of the previous year. The increases in operating income and net
income are the result of increased sales and the Company's efforts to control
expenses.
LIQUIDITY AND CAPITAL RESOURCES. At May 31, 1998, the Company had cash
reserves of approximately $6.3 million while borrowings under the Company's
unsecured, revolving credit line with NationsBank were $9.0 million. Operating
cash flow during the quarter was approximately a positive $3.2 million.
Investing activities, primarily the purchase of computer and test equipment,
used approximately $1.4 million while financing activities, primarily proceeds
from the exercise of employee stock options, contributed approximately $0.3
million to cash flow. Net cash flow during the quarter was approximately a
positive $2.1 million. The Company did not increase its borrowings during the
quarter. The Company believes its cash reserves and internally generated cash
flow will be sufficient to meet its operating cash requirements for the
foreseeable future. Additionally, the Company has $6.0 million of borrowing
capacity remaining under its $15 million unsecured, revolving credit line with
NationsBank. 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 1999, the Company repurchased
10,000 shares of its common stock at a cost of $117,900 pursuant to an
authorization by its Board of Directors. The Company believes that market
conditions made the repurchase of such shares of value to its shareholders. The
Company is currently negotiating an extension of its $15 million credit facility
with NationsBank which is scheduled to expire July 31, 1998. As with any
negotiation, there is no assurance that the Company and NationsBank will agree
to an extension of the credit facility, however, the Company believes it has
access to other potential sources for credit facility financing if the facility
with NationsBank is not renewed.
FORWARD LOOKING STATEMENTS. This report on Form 10-Q 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
<PAGE> 10
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 1999, 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 intense competition based on product capabilities and
experiences 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. 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 Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
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 Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
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. Since such customers generally are not
contractually obligated to place further orders with the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the 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
<PAGE> 11
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 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 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 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 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 Mergers and acquisitions between companies in the telecommunications
industry which could result in fewer companies purchasing the Company's
products for telecommunications 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 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.
<PAGE> 12
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: 07/14/98 By: /s/ ROB-ROY J. GRAHAM
--------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 13
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-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 6,308,524
<SECURITIES> 0
<RECEIVABLES> 33,727,429
<ALLOWANCES> 692,004
<INVENTORY> 9,983,865
<CURRENT-ASSETS> 53,549,584
<PP&E> 47,651,609
<DEPRECIATION> 16,235,631
<TOTAL-ASSETS> 90,802,264
<CURRENT-LIABILITIES> 30,240,948
<BONDS> 0
0
0
<COMMON> 9,773
<OTHER-SE> 59,906,740
<TOTAL-LIABILITY-AND-EQUITY> 90,802,264
<SALES> 30,000,337
<TOTAL-REVENUES> 30,000,337
<CGS> 12,530,098
<TOTAL-COSTS> 12,530,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 324,000
<INTEREST-EXPENSE> 232,931
<INCOME-PRETAX> 4,576,588
<INCOME-TAX> 1,574,000
<INCOME-CONTINUING> 3,002,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,002,588
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
