<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, 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
October 30, 1996: 7,338,570 shares.
<PAGE>
DAVOX CORPORATION & SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page No.
-------
<S> <C>
Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Income
for the three months and nine months ended
September 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
and 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(unaudited) 1995
------------------- --------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,331,333 $ 12,935,907
Short-term investments 3,297,403 -------
Accounts receivable, net of reserves of
$530,350 in 1996 and $665,030 in 1995 3,568,694 4,459,597
Inventories 1,460,273 1,009,029
Prepaid expenses and other current assets 77,856 52,357
------------------- ------------------
Total current assets 32,735,559 18,456,890
Property and equipment, net 3,585,548 1,865,398
Capitalized software development costs, net ------ 380,287
Other assets, net 94,761 121,987
================== ==================
$ 36,415,868 $ 20,824,562
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 58,786 $ 92,896
Accounts payable 4,033,084 2,927,172
Accrued expenses 4,940,209 3,926,054
Customer deposits 5,430,432 1,292,627
Deferred revenue 3,075,786 1,629,081
------------------ ------------------
Total current liabilities 17,538,297 9,867,830
------------------ --------------------
Long-term debt, net of current maturities ------ 44,891
------------------- -------------------
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 7,325,606 shares in 1996
and 6,845,789 shares in 1995 732,561 684,579
Capital in excess of par value 44,143,692 42,509,154
Accumulated deficit (25,974,536) (32,257,746)
------------------ -------------------
18,901,717 10,935,987
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
------------------ -------------------
Total stockholders' equity 18,877,571 10,911,841
------------------ --------------------
$ 36,415,868 $ 20,824,562
================== ====================
</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 INCOME
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Product revenue $9,864,379 $6,019,485 $26,168,970 $16,586,985
Service revenue 4,214,845 3,549,134 11,985,870 10,538,819
------------------- ----------------- ----------------- -----------------
Total revenue 14,079,224 9,568,619 38,154,840 27,125,804
Cost of product revenue 2,894,865 1,799,463 7,662,944 5,136,364
Cost of service revenue 2,733,710 2,316,628 7,782,577 6,904,013
------------------- ----------------- ----------------- -----------------
Total cost of revenue 5,628,575 4,116,091 15,445,521 12,040,377
Gross profit 8,450,649 5,452,528 22,709,319 15,085,427
Research, development and
engineering expenses 1,549,027 1,084,154 4,232,593 3,047,864
Selling, general and administrative
expenses 4,511,770 3,052,595 12,239,362 8,677,672
------------------- ----------------- ----------------- -----------------
Total operating expenses 6,060,797 4,136,749 16,471,955 11,725,536
Income from operations 2,389,852 1,315,779 6,237,364 3,359,891
Interest income 364,537 121,103 752,629 302,935
Interest expense 1,667 4,501 8,203 15,402
------------------- ----------------- ----------------- -----------------
Income before provision
for income taxes 2,752,722 1,432,381 6,981,790 3,647,424
Provision for income taxes 275,672 143,296 698,580 364,877
------------------- ----------------- ----------------- -----------------
Net income $ 2,477,050 $ 1,289,085 $ 6,283,210 $ 3,282,547
=================== ================= ================= =================
Net income per common and
common equivalent share $0.30 $0.16 $0.77 $0.43
=================== ================= ================= =================
Weighted average number of common and
common equivalent shares outstanding 8,249,467 7,848,116 8,151,326 7,652,995
=================== ================= ================= =================
</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,
--------------------------------------------------
<S> <C> <C>
Cash flows from operating activities: 1996 1995
-------------------- --------------------
Net income $ 6,283,210 $ 3,282,547
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,860,198 1,960,070
Provision for losses on accounts receivable 46,000 241,061
Changes in current assets and liabilities -
Accounts receivable 844,903 120,894
Inventories (451,244) 91,505
Prepaid expenses and other current assets (25,499) 121,643
Accounts payable 1,105,912 (114,878)
Accrued expenses 1,014,155 57,240
Customer deposits 4,137,805 571,564
Deferred revenue 1,446,705 499,126
-------------------- --------------------
Net cash provided by operating activities 16,262,145 6,830,772
-------------------- --------------------
Cash flows from investing activities:
Purchase of property and equipment, net (3,166,060) (1,042,969)
(Increase) decrease in other assets (6,775) 20,277
Purchase of marketable securities (3,297,403) -------
-------------------- --------------------
Net cash used in investing activities (6,470,238) (1,022,692)
-------------------- --------------------
Cash flows from financing activities:
Principal payments of long-term debt (79,001) (80,541)
Proceeds from exercise of stock options 1,591,601 378,973
Proceeds from exercise of employee stock purchase plan 90,919 36,095
-------------------- --------------------
Net cash provided by financing activities 1,603,519 334,527
-------------------- --------------------
Net increase in cash and cash equivalents 11,395,426 6,142,607
Cash and cash equivalents at beginning of period 12,935,907 5,277,780
-------------------- --------------------
Cash and cash equivalents at end of period $ 24,331,333 $ 11,420,387
==================== ====================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 8,203 $ 15,402
==================== ====================
Cash paid during the period for income taxes $ 151,891 $ 23,755
==================== ====================
</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 26, 1996. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
The results of operations for the three and nine month periods ended
September 30, 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 September 30,
1996 include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
3. Cash and Cash Equivalents
Cash equivalents are highly liquid investments consisting mainly of
commercial paper with original maturities of less than three months at the
date of acquisition .
4. Short Term Investments
The Company's investment portfolio of debt securities consists of
marketable securities classified as held-to-maturity under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (SFAS No. 115). The marketable
securities held at September 30, 1996 consist principally of commercial paper
with original maturities of less than one year, and they are recorded at
amortized cost on the balance sheet.
6
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. Short Term Investments (continued)
The fair value of marketable securities at September 30, 1996 was
approximately equal to amortized cost. Gross unrealized holding gains at
September 30, 1996 were approximately $88.
5. Inventories
Inventories are stated at the lower of cost (first in, first out), or
market and consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials and
subassemblies..... $ 79,062 $ 52,032
Work-in-process.... 610,466 641,430
Finished goods..... 770,745 315,567
---------- ----------
$1,460,273 $1,009,029
========== ==========
</TABLE>
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.
6. 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 and nine months ended September 30, 1996, there were no software
development costs capitalized. Approximately $84,000 and $380,000 of
capitalized software development costs were amortized to expense during the
three months and nine months ended September 30, 1996, respectively.
7
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. Provision for Income Taxes
The Company has available significant net operating loss
carryforwards. However, for the three months and nine months ended September
30, 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.
8. Net Income Per Common Share
Net income per common share is computed based on the weighted average
number of common and common equivalent shares (stock options and warrants)
outstanding during the period when diluted. Fully diluted earnings per share
have not been presented as their amounts would not differ significantly from
primary earnings per share.
8
<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 and Nine Months Ended September 30, 1996 and 1995
Total revenue for the third quarter of 1996 increased approximately $4.5
million, or 47.1% compared to the same period in 1995, while total revenue for
the first nine months of 1996 increased approximately $11.0 million, or 40.7%
compared to the same period in 1995.
Product revenue increased approximately $3.8 million, or 63.9% to $9.9
million in the third quarter of 1996 as compared to the same period in 1995.
Product revenue for the first nine months of 1996 increased approximately $9.6
million, or 57.8% to $26.2 million as compared to the same period in 1995. The
increase was caused by continued increasing demand for the Unison call center
management system, especially the telemarketing and collections outbound
capabilities.
Cost of product revenue increased approximately $1.1 million, or 60.9% to
$2.9 million for the third quarter of 1996, but as a percentage of product
revenue decreased 0.5% as compared to the third quarter of 1995. Cost of
product revenue for the first nine months of 1996 increased approximately $2.5
million, or 49.2% to $7.7 million, but as a percentage of product revenue,
decreased 1.7% as compared to the same period in 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 approximately $666,000, or 18.8% to $4.2 million
for the third quarter of 1996 as compared to the third quarter of 1995, while
service revenue for the first nine months of 1996 increased approximately $1.4
million, or 13.7% to $12.0 million as compared to the same period in 1995.
These increases are 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.
Cost of service revenue increased approximately $417,000, or 18.0% to $2.7
million for the third quarter of 1996, but as a percentage of service revenue
decreased by 0.4% as compared to the third quarter of 1995. Cost of service
revenue for the first nine months of 1996 increased approximately $879,000, or
12.7% to $7.8 million, but as a percentage of service revenue decreased by 0.6%
as compared to the same period in 1995. This decrease was primarily
attributable to the higher service revenues relative to fixed costs.
Research, development and engineering expenses increased approximately
$465,000, or 42.9% to $1.5 million for the third quarter of 1996 as compared to
the same period in 1995. Research, development and engineering expenses for the
first nine months of 1996 increased approximately $1.2 million, or 38.9% to $4.2
million as compared to the same period in 1995.
9
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
These increases were primarily attributable to higher payroll and related
expenses in 1996 resulting from headcount increases. As a percentage of total
revenues, research, development and engineering expenses decreased from 11.3%
for the third quarter of 1995 to 11.0% for the third quarter of 1996, while
research, development and engineering expenses as a percentage of total revenues
for the first nine months decreased from 11.2% for the first nine months of 1995
to 11.1% for the first nine months of 1996.
Selling, general and administrative (SG&A) expenses increased by
approximately $1.5 million or 47.8% to $4.5 million for the third quarter of
1996 as compared to the same period in 1995. SG&A expenses for the first nine
months of 1996 increased by approximately $3.6 million, or 41.0% to $12.2
million as compared to the same period in 1995. These increases were primarily
attributable to direct and indirect selling expenses related to the increased
revenues, and increased payroll and related expenses in 1996 resulting from
headcount increases. As a percentage of total revenues, SG&A expenses increased
slightly from 31.9% for the third quarter of 1995 to 32.0% for the third quarter
of 1996, while SG&A expenses as a percentage of total revenues for the first
nine months increased slightly from 32.0% for the first nine months of 1995 to
32.1% for the first nine months of 1996 .
Interest income in 1996 was derived primarily from money market instruments
and investments in commercial paper. Interest income increased 201.0% and 148.4%
in the third quarter and first nine months of 1996, respectively, compared to
the same periods in 1995. The increases reflect the higher average cash and
investment balances in 1996 compared to 1995, as well as the increased interest
percentages received as a result of the Company's new investment strategy of
investing in commercial paper and government securities.
Interest expense in 1996 was attributable to capital lease obligations.
Interest expense decreased 63.0% and 46.7% in the third quarter and first nine
months of 1996, respectively, as compared to the same periods in 1995. The
decreases reflect an overall decrease in the outstanding balances of the capital
lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal sources of liquidity
were its cash and cash equivalent balances of approximately $24,331,000, as well
as its short term investments of approximately $3,297,000. 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, the
favorable operating results, and proceeds from exercises of stock options. In
addition, the Company has an agreement for a secured working capital line of
credit with a
10
<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 (Continued)
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 September 30, 1996.
At September 30, 1996, the working capital of the Company increased to
approximately $15,197,000 from approximately $8,589,000 as of December 31, 1995.
The increase was primarily attributable to the net income of approximately
$6,283,000 for the first nine months of 1996.
Management believes, based on its 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.
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.
11
<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
September 30, 1996.
12
<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 4, 1996 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: November 4, 1996 By: /s/ John J. Connolly
--------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 24,331,333
<SECURITIES> 3,297,403
<RECEIVABLES> 4,099,044
<ALLOWANCES> 530,350
<INVENTORY> 1,460,273
<CURRENT-ASSETS> 32,735,559
<PP&E> 3,585,548
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,415,868
<CURRENT-LIABILITIES> 17,538,297
<BONDS> 0
0
0
<COMMON> 732,561
<OTHER-SE> 18,169,156
<TOTAL-LIABILITY-AND-EQUITY> 36,415,868
<SALES> 26,168,970
<TOTAL-REVENUES> 38,154,840
<CGS> 7,662,944
<TOTAL-COSTS> 15,445,521
<OTHER-EXPENSES> 4,232,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 744,426
<INCOME-PRETAX> 6,981,790
<INCOME-TAX> 698,580
<INCOME-CONTINUING> 6,283,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,283,210
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
