<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 March 31, 1996
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
April 26, 1996: 7,012,387 shares.
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DAVOX CORPORATION & SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page No.
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<S> <C>
Consolidated Balance Sheets as of
March 31, 1996 (unaudited) and December
31, 1995 3
Consolidated Statements of Operations
for the three months ended March 31, 1996
and 1995 (unaudited) 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1996
and 1995 (unaudited) 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>
March 31,
1996 December 31,
(unaudited) 1995
---------------------- ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,792,469 $ 12,935,907
Accounts receivable, net of reserves of
$534,376 in 1996 and $665,030 in 1995 6,143,569 4,459,597
Inventories 1,101,371 1,009,029
Prepaid expenses and other current assets 117,484 52,357
---------------------- ----------------------
Total current assets 24,154,893 18,456,890
Property and equipment, net 2,171,112 1,865,398
Capitalized software development costs, net 231,989 380,287
Other assets, net 94,440 121,987
---------------------- ----------------------
$ 26,652,434 $ 20,824,562
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 81,918 $ 92,896
Accounts payable 3,971,768 2,927,172
Accrued expenses 3,424,831 3,926,054
Customer deposits 2,524,573 1,292,627
Deferred revenue 3,686,357 1,629,081
---------------------- ----------------------
Total current liabilities 13,689,447 9,867,830
---------------------- ----------------------
Long-term debt, net of current maturities 30,299 44,891
---------------------- ----------------------
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 6,932,297 shares in 1996
and 6,845,789 shares in 1995 693,230 684,579
Capital in excess of par value 42,763,051 42,509,154
Accumulated deficit (30,499,447) (32,257,746)
---------------------- ----------------------
12,956,834 10,935,987
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
---------------------- ----------------------
Total stockholders' equity 12,932,688 10,911,841
---------------------- ----------------------
$ 26,652,434 $ 20,824,562
===================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Product revenue $ 7,601,634 $ 5,143,427
Service revenue 3,808,633 3,397,674
--------------------- --------------------
Total revenues 11,410,267 8,541,101
--------------------- --------------------
Cost of product revenue 2,204,435 1,719,437
Cost of service revenue 2,474,213 2,207,225
--------------------- --------------------
Total cost of revenues 4,678,648 3,926,662
--------------------- --------------------
Gross profit 6,731,619 4,614,439
--------------------- --------------------
Research, development and engineering expenses 1,267,870 935,736
Selling, general and administrative expenses 3,673,342 2,730,391
--------------------- --------------------
Total operating expenses 4,941,212 3,666,127
--------------------- --------------------
Income from operations 1,790,407 948,312
Interest income 166,483 71,437
Interest expense 3,232 5,792
--------------------- --------------------
Income before provision
for income taxes 1,953,658 1,013,957
Provision for income taxes 195,359 101,396
--------------------- --------------------
Net income $ 1,758,299 $ 912,561
==================== ===================
Net income per common and $ 0.22 $ 0.12
common equivalent share ==================== ===================
Weighted average number of common and
common equivalent shares outstanding 8,009,032 7,449,435
==================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months
ended March 31,
--------------------------------
<S> <C> <C>
Cash flows from operating activities: 1996 1995
------------- -------------
Net income $ 1,758,299 $ 912,561
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 578,438 561,525
Provision for losses on accounts receivable 22,000 74,456
Changes in assets and liabilities -
Accounts receivable (1,705,972) 451,277
Inventories (92,342) 15,710
Prepaid expenses and other current assets (65,127) 49,270
Accounts payable 1,044,596 (303,340)
Accrued expenses (501,223) (272,531)
Customer deposits 1,231,946 (246,608)
Deferred revenue 2,057,276 1,446,639
------------- -------------
Net cash provided by operating activities 4,327,891 2,688,959
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment, net (706,772) (201,311)
Increase in other assets (1,535) (2,058)
------------- -------------
Net cash used in investing activities (708,307) (203,369)
------------- -------------
Cash flows from financing activities:
Principal payments of long-term debt (25,570) (29,545)
Proceeds from exercise of stock options 223,279 88,347
Proceeds from exercise of employee stock purchase plan 39,269 11,700
------------- -------------
Net cash provided by financing activities 236,978 70,502
------------- -------------
Net increase in cash and cash equivalents 3,856,562 2,556,092
Cash and cash equivalents at beginning of period 12,935,907 5,277,780
------------- -------------
Cash and cash equivalents at end of period $16,792,469 $7,833,872
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $3,232 $5,792
============ ============
Cash paid during the period for income taxes $12,206 $14,005
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
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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 26, 1996. 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 three month period ended March 31, 1996 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 March 31, 1996
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 first-in, first-out (FIFO) cost
or market and consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Raw materials and
subassemblies..... $ 55,015 $ 52,032
Work-in-process.... 538,001 641,430
Finished goods..... 508,355 315,567
---------- ----------
$1,101,371 $1,009,029
========== ==========
</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 subcontract labor. Internal labor and overhead are not
significant and are charged to operations in the period incurred.
4. Capitalization of Software Development Costs
A change occurred in the Company's 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 ended March 31, 1996 there were no software development costs
capitalized. Approximately $148,000 of capitalized software development costs
were amortized to expense during the three months ended March 31, 1996.
5. Provision for Income Taxes
The Company has available significant net operating loss
carryforwards. However, for the three months ended March 31, 1996, the
Company provided for federal alternative minimum tax and for certain state
income taxes in those states which do not allow for net operating loss
carryforwards.
6. Net Income 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.
7
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
Total revenues for the first quarter of 1996 increased 33.6% compared to the
same period in 1995.
Product revenue increased approximately $2.5 million, or 47.8% to $7.6
million in the first quarter of 1996 as compared to the same period in 1995.
The increase was caused by continued increasing demand for the Unison call
center management system in all markets.
Product cost of revenue increased approximately $485,000 to $2.2 million, but
as a percentage of product revenue for the first quarter of 1996 decreased 4.4%
as compared to the first quarter of 1995. This decrease as a percentage of
product revenue was mainly attributable to the increased volume of product
shipments relative to fixed costs, and a higher margin product mix.
Service revenue increased by approximately $411,000, or 12.1% to $3.8 million
in the first quarter of 1996 as compared to the first quarter of 1995 due to
increased installation revenue related to the increased volume of product
shipments and an increase in maintenance revenues related to the growth in the
number of the Company's customers.
Service cost of revenue increased approximately $267,000 to $2.5 million, but
as a percentage of service revenue was the same for the first quarter of 1996 as
compared to the same period in 1995.
Research, development and engineering expenses increased approximately
$332,000, or 35.5% to $1.3 million for the first quarter of 1996 as compared to
the same period in 1995. This increase was primarily attributable to higher
payroll and related expenses in the first quarter of 1996 resulting from
headcount increases. As a percentage of total revenues, research, development
and engineering expenses increased only slightly from 11.0% for the first
quarter of 1995 to 11.1% for the first quarter of 1996.
Selling, general and administrative (SG&A) expenses increased by
approximately $943,000, or 34.5% to $3.7 million for the first quarter of 1996
as compared to the same period in 1995. This increase was primarily
attributable to increased payroll and related expenses in the first quarter of
1996 resulting from headcount increases, and indirect and direct selling
expenses related to the increased revenues. As a percentage of total revenues,
SG&A expenses increased slightly from 32.0% for the first quarter of 1995 to
32.2% for the first quarter of 1996.
8
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest income in 1996 was derived primarily from money market
investments. Interest income increased 133.0% in the first quarter of 1996
compared to the same period in 1995. The increase reflects the higher average
cash balances in 1996 compared to 1995.
Interest expense in 1996 was attributable to capital lease obligations.
Interest expense decreased 44.2% in the first quarter of 1996 compared to the
same period in 1995. This decrease reflects an overall decrease in the
oustanding balances of the capital lease obligations.
RESTRUCTURING
In response to lower revenues, the Company implemented a restructuring
program in the second quarter of 1994. In total, the restructuring cost was
approximately $3,379,000, of which approximately $64,000 of related costs have
yet to be paid as of March 31, 1996. These costs are expected to be completely
paid off in the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's principal sources of liquidity were its
cash and cash equivalent balances of approximately $16,792,000. As of the end of
fiscal year 1995, the Company's cash and cash equivalent balances were
approximately $12,936,000. The increase was due primarily to the collection of
deferred annual maintenance contracts, an increase in customer deposits, as well
as 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 $2,000,000
based on eligible receivables, as defined. There were no outstanding balances
under the line of credit as of March 31, 1996.
At March 31, 1996, the working capital of the Company increased to
approximately $10,465,000 from approximately $8,589,000 as of December 31, 1995.
The increase was primarily attributable to the net income of approximately
$1,758,000 for the first three months of 1996. Total assets during the same
period increased to approximately $26,652,000 from approximately $20,825,000.
The increase was primarily due to the cash provided by operations and an
increase in accounts receivable.
Management believes, based on the current operating plan, that the Company's
existing cash and cash equivalents, cash generated from it's future 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.
9
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which are
not historical facts, so-called "forward-looking statements," which involve risk
and uncertainties. The Company's actual future results may differ significantly
from those stated in any forward-looking statements.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could have a materially adverse affect on revenues and
profitability, including, but not limited to: the timing of customer orders, the
ability to introduce new products on a timely basis, introduction of products
and technologies by the Company's competitors, and market acceptance of the
Company's and its competitors' products. As a result of the foregoing and other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition, operating results and stock price.
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, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit
Number Description of Exhibit
------ -----------------------
27 Article 5 - Summary Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
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: May 1, 1996 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: May 1, 1996 By: /s/ John J. Connolly
--------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,792,469
<SECURITIES> 0
<RECEIVABLES> 6,677,945
<ALLOWANCES> 534,376
<INVENTORY> 1,101,371
<CURRENT-ASSETS> 24,154,893
<PP&E> 2,171,112
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,652,434
<CURRENT-LIABILITIES> 13,689,447
<BONDS> 30,299
0
0
<COMMON> 693,230
<OTHER-SE> 12,263,604
<TOTAL-LIABILITY-AND-EQUITY> 26,652,434
<SALES> 7,601,634
<TOTAL-REVENUES> 11,410,267
<CGS> 2,204,435
<TOTAL-COSTS> 4,678,648
<OTHER-EXPENSES> 1,267,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,251
<INCOME-PRETAX> 1,953,658
<INCOME-TAX> 195,359
<INCOME-CONTINUING> 1,758,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,758,299
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
