<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-15578
DAVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware No. 02-0364368
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
6 Technology Park Drive
Westford, Massachusetts 01886
(Address of principal executive offices) (Zip Code)
Telephone: (508) 952-0200
(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 ___
--
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: Common Stock, par value $.10 per share, outstanding as of
October 27, 1995: 6,799,108 shares.
<PAGE>
DAVOX CORPORATION & SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
-------
<S> <C>
Consolidated Balance Sheets as of
September 30, 1995 (unaudited) and December 31, 1994 3
Unaudited Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1995 and 1994 4
Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995
and 1994 5
Notes to Consolidated Financial Statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(unaudited) (audited)
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,420,387 $ 5,277,780
Accounts receivable, net of reserves of
$552,808 in 1995 and $637,672 in 1994 4,337,764 4,699,719
Inventories 676,289 767,794
Prepaid expenses and other current assets 87,377 209,020
----------------- -----------------
Total current assets 16,521,817 10,954,313
Property and equipment, net 2,173,909 2,536,759
Capitalized software development costs, net 528,585 958,910
Other assets, net 182,932 327,135
----------------- -----------------
$19,407,243 $14,777,117
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 106,581 $ 108,459
Accounts payable 2,415,778 2,530,656
Accrued expenses 3,877,022 3,819,782
Customer deposits 1,401,859 830,295
Deferred revenue 2,357,367 1,858,241
----------------- -----------------
Total current liabilities 10,158,607 9,147,433
----------------- -----------------
Long-term debt, net of current maturities 59,125 137,788
----------------- -----------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 6,795,551 shares in 1995
and 6,580,295 shares in 1994 679,555 658,030
Capital in excess of par value 42,315,548 41,922,005
Accumulated deficit (33,781,446) (37,063,993)
----------------- -----------------
9,213,657 5,516,042
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
----------------- -----------------
Total stockholders' equity 9,189,511 5,491,896
----------------- -----------------
$19,407,243 $14,777,117
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product revenue $6,019,485 $4,667,876 $16,586,985 $11,900,92
Service revenue 3,549,134 3,475,075 10,538,819 9,810,379
--------------- --------------- --------------- ---------------
Total revenues 9,568,619 8,142,951 27,125,804 21,711,281
Cost of product revenue 1,799,463 1,568,969 5,136,364 5,141,934
Cost of service revenue 2,316,628 2,480,819 6,904,013 7,206,709
--------------- --------------- --------------- ---------------
Total cost of revenues 4,116,091 4,049,788 12,040,377 12,348,643
Gross profit 5,452,528 4,093,163 15,085,427 9,362,638
Research, development and
engineering expenses 1,084,154 865,735 3,047,864 2,681,146
Selling, general and administrative
expenses 3,052,595 2,760,054 8,677,672 9,677,538
Restructuring costs - - - - - - - - - - - - 3,379,031
--------------- --------------- --------------- ---------------
Total operating expenses 4,136,749 3,625,789 11,725,536 15,737,715
Income (loss) from operations 1,315,779 467,374 3,359,891 (6,375,077)
Interest income 121,103 8,690 302,935 29,341
Interest expense 4,501 7,484 15,402 23,292
--------------- --------------- --------------- ---------------
Income (loss) before provision
for income taxes 1,432,381 468,580 3,647,424 (6,369,028)
Provision for income taxes 143,296 - - - - 364,877 - - - -
--------------- --------------- --------------- ---------------
Net income (loss) $ 1,289,085 $ 468,580 $ 3,282,547 ($6,369,028)
=============== =============== =============== ===============
Net income (loss) per common and $0.16 $0.08 $0.43 ($1.18)
=============== =============== =============== ===============
common equivalent share
Weighted average number of common and
common equivalent shares outstanding 7,848,116 5,921,754 7,652,995 5,398,529
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------------------------
Cash flows from operating activities: 1995 1994
---------------- ----------------
<S> <C> <C>
Net income (loss) $3,282,547 ($6,369,028)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation and amortization 1,960,070 2,474,761
Provision for losses on accounts receivable 241,061 264,250
Changes in assets and liabilities -
Accounts receivable 120,894 3,035,920
Inventories 91,505 1,249,635
Prepaid expenses and other current assets 121,643 20,733
Accounts payable (114,878) (442,192)
Accrued expenses 493,735 (697,943)
Restructuring costs (436,495) 906,697
Customer deposits 571,564 218,907
Deferred revenue 499,126 203,825
---------------- ----------------
Net cash provided by operating activities 6,830,772 865,565
---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (1,042,969) (944,516)
Increase in other assets 20,277 (72,537)
Capitalized software development costs - - - - (309,961)
---------------- ----------------
Net cash used in investing activities (1,022,692) (1,327,014)
---------------- ----------------
Cash flows from financing activities:
Principal payments for long-term debt (80,541) (102,551)
Proceeds from private placement - - - - 1,399,999
Proceeds from exercise of stock options 378,973 274,742
Proceeds from exercise of employee stock purchase plan 36,095 18,277
---------------- ----------------
Net cash provided by financing activities 334,527 1,590,467
---------------- ----------------
Net increase in cash and cash equivalents 6,142,607 1,129,018
Cash and cash equivalents at beginning of period 5,277,780 2,718,249
---------------- ----------------
Cash and cash equivalents at end of period $11,420,387 $3,847,267
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 15,402 $ 23,292
================ ================
Acquisition of equipment under
capital lease obligation $ - $190,812
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Preparation
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K, Commission File No. 0-15578 which was filed with the
Securities and Exchange Commission on February 17, 1995. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
summarize fairly the Company's financial position and results of operations.
The results of operations for the nine month period ended September 30, 1995
may not be indicative of the results that may be expected for the full fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements at September 30,
1995 include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
3. Inventories
Inventories are stated at the lower of the first-in, first-out (FIFO)
cost or market and consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(unaudited) (audited)
------------ ---------
<S> <C> <C>
Raw materials and
subassemblies....... $ 45,757 $ 59,916
Work-in-process...... 335,774 503,505
Finished goods....... 294,758 204,373
---------- ----------
$ 676,289 $ 767,794
========== ==========
</TABLE>
6
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. Inventories (continued)
Subassemblies, work-in-process and finished goods inventories include
material and sub-contract labor. Internal labor and overhead are not
significant.
4. Capitalization of Software Development Costs
A change has occurred in the Company's current development cycle, such
that the period between the attainment of technological feasibility and the
first commercial shipment of a software enhancement has shortened, and the
level of capitalizable costs incurred are no longer material. Accordingly,
during the three months and nine months ended September 30, 1995, there were
no software development costs capitalized. Approximately $146,000 and
$430,000 of capitalized software development costs were amortized to expense
during the three months and nine months ended September 30, 1995,
respectively.
5. Provision for Income Taxes
The Company has significant available net operating loss
carryforwards. However, the Company provided for federal alternative minimum
tax and certain income taxes in states which do not allow for net operating
loss carryforwards for the three months and nine months ended September
30,1995.
6. Net Income (loss) Per Share
Net income per share was computed based on the weighted average number
of common and common equivalent shares (stock options and warrants)
outstanding during the period. Common stock equivalents were not considered
in computing the net loss per share in the first nine months of 1994, as the
effect would have been antidilutive.
7
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues for the third quarter of 1995 increased approximately
$1,426,000, or 17.5% compared to the same period in 1994, while total revenues
increased approximately $5,415,000, or 24.9% for the first nine months of 1995
compared to the same period in 1994.
Product revenue for the third quarter of 1995 increased by 29.0% compared
to the third quarter of 1994, while product revenue for the first nine months of
1995 increased 39.4% compared to the same period in 1994. These increases were
caused by continued increasing demand for the Unison call center management
system in all markets.
Cost of product revenue as a percentage of product revenue for the third
quarter of 1995 decreased 3.7% compared to the same period of 1994. Cost of
product revenue as a percentage of product revenue decreased 12.2% for the first
nine months of 1995 compared to the same period in 1994. These decreases were
due to the increased volume relative to fixed costs, a higher margin product
mix, and a decrease in overhead costs which was mostly related to the decrease
in headcount resulting from the June 1994 restructuring.
Service revenue for the third quarter of 1995 increased 2.1% compared to
the third quarter of 1994, while service revenue for the first nine months of
1995 increased 7.4% compared to the same period in 1994. These increases were
due to increased maintenance revenues due to the growth in the number of the
Company's customers and increased installation revenue related to the higher
product revenues.
Cost of service revenue as a percentage of service revenue for the third
quarter of 1995 decreased 6.1% compared to the same period of 1994. This
decrease was mostly attributable to lower third party repair costs, equipment
depreciation, and third party maintenance costs, as well as the higher service
revenues relative to fixed costs. Cost of service revenue as a percentage of
service revenue for the first nine months of 1995 decreased 7.9% compared to the
same period in 1994. This decrease was mostly attributable to the higher
service revenues relative to fixed costs, as well as lower third party repair
costs, third party maintenance costs, and freight expense.
Research, development and engineering expenses for the third quarter of
1995 increased 25.2% compared to the same period in 1994. This increase was due
primarily to increased personnel costs and consulting expenses. Research,
development and engineering expenses for the first nine months of 1995 increased
13.7% compared to the same period in 1994. This increase was primarily due to
the absence of capitalized software development costs in 1995. As a percentage
of total revenues, research, development and engineering expenses increased by
.7% from 10.6% for the third quarter of 1994 to 11.3% for the third quarter of
1995. Research, development and engineering expenses as a percentage of total
revenues decreased by 1.1% from 12.3% for the first nine months of 1994 to 11.2%
for the first nine months of 1995.
8
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Selling, general and administrative (SG&A) expenses for the third quarter
of 1995 increased by 10.6% as compared to the same period in 1994. This
increase was primarily due to increased variable selling costs, advertising and
documentation expenses. SG&A expenses for the first nine months of 1995
decreased 10.3% as compared to the same period in 1994. This decrease was
attributable to lower employee benefits costs and rent expense resulting from
the June 1994 restructuring, a decrease in legal fees resulting from the
settlement of a patent dispute with Digital Systems International, and a
decrease in indirect sales expenses. As a percentage of total revenues, SG&A
expenses decreased by 2.0% from 33.9% for the third quarter of 1994 to 31.9% for
the third quarter of 1995. SG&A expenses as a percentage of total revenues
decreased by 12.6% from 44.6% for the first nine months of 1994 to 32.0% for the
first nine months of 1995. This decrease was primarily attributable to the
increase in total revenues as well as lower employee benefits and rent expense
resulting from the June 1994 restructuring, a decrease in legal fees resulting
from the settlement of a patent dispute with Digital Systems International, and
a decrease in indirect sales expenses.
Interest income in 1995 was derived primarily from money market
investments. Interest income increased 1293.6% and 932.5% in the third quarter
and first nine months of 1995, respectively, compared to the same periods in
1994. The increases reflect the significantly higher average cash balances in
1995 compared to 1994.
Interest expense in 1995 was attributable to capital lease obligations.
Interest expense for the third quarter and first nine months of 1995 decreased
by 39.9% and 33.9%, respectively, as compared to the same periods in 1994.
These decreases reflect an overall decrease in outstanding lease obligations.
RESTRUCTURING
- -------------
In response to the lower revenues, the Company implemented a
restructuring program in the second quarter of 1994. The restructuring was
intended to refocus the strategic direction of the Company to exploit the full
potential of the Unison product line and maintain the Company's operating
expenses in line with the revised revenue plan. As a result of this program,
the Company hired a new Chief Executive Officer and a new Chief Financial
Officer. This restructuring resulted in a 21% reduction in the Company's work
force world wide.
The Company offered or was contractually committed to severance packages
of up to fifteen months' salary. Additionally the Company accelerated the phase
out of certain older product lines, necessitating the write down of certain
assets. In total, the restructuring cost was approximately $3,379,000, of which
$164,000 of severance payments and other costs have yet to be paid as of
September 30, 1995. The restructuring charge reflected approximately $1,487,000
of severance related costs and $1,892,000 related to the phase out of certain
older product lines. There have been no non-cash adjustments to the accrual
during the quarter ended September 30, 1995.
9
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1995 the Company's principal sources of liquidity
were its cash and cash equivalents of approximately $11,420,000. As of the end
of fiscal 1994 the Company's cash and cash equivalents were approximately
$5,278,000. The increase in cash was due to the collection of deferred annual
maintenance contracts, increased customer deposits, and the favorable operating
results. In addition, the Company has an agreement for a secured working capital
line of credit with a bank for up to $2 million based on eligible receivables,
as defined. There were no outstanding balances as of September 30, 1995.
At September 30, 1995, the working capital of the Company increased to
approximately $6,363,000 from approximately $1,807,000 as of December 31, 1994.
This increase was primarily attributable to the favorable operating results for
the first nine months of 1995. Total assets increased to approximately
$19,407,000 at September 30, 1995 from approximately $14,777,000 at December 31,
1994. The increase was primarily due to the cash generated by operations.
Management believes, based on the current operating plan, that the
Company's existing cash and cash equivalents, cash generated from operations,
and amounts available under its secured working capital line of credit will be
sufficient to meet the Company's cash requirements for the foreseeable future.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes since the Company's Annual Report on
Form 10-K for the period ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------
<S> <C>
27 Article 5 - Summary Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
11
<PAGE>
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.
DAVOX CORPORATION
Date: November 2, 1995 By: /s/ Alphonse M. Lucchese
-------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: November 2, 1995 By: /s/ John J. Connolly
--------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
<S> <C> <C>
27 Article 5 - Summary Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 11,420,387
<SECURITIES> 0
<RECEIVABLES> 4,890,572
<ALLOWANCES> 552,808
<INVENTORY> 676,289
<CURRENT-ASSETS> 16,521,817
<PP&E> 2,173,909
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,407,243
<CURRENT-LIABILITIES> 10,158,607
<BONDS> 59,125
<COMMON> 679,555
0
0
<OTHER-SE> 8,534,102
<TOTAL-LIABILITY-AND-EQUITY> 19,407,243
<SALES> 16,586,985
<TOTAL-REVENUES> 27,125,804
<CGS> 5,136,364
<TOTAL-COSTS> 12,040,377
<OTHER-EXPENSES> 3,047,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287,533
<INCOME-PRETAX> 3,647,424
<INCOME-TAX> 364,877
<INCOME-CONTINUING> 3,282,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,282,547
<EPS-PRIMARY> $.429
<EPS-DILUTED> $.425
</TABLE>
