<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, 1997
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 29, 1997: 7,588,381 shares.
<PAGE>
DAVOX CORPORATION & SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements: -------
<S> <C>
Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Income
for the three months ended March 31, 1997
and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements 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>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 27,357,131 $ 21,333,300
Marketable securities 6,540,245 9,780,273
Accounts receivable, net of reserves of
approximately $576,000 and $699,000
in 1997 and 1996, respectively 6,890,574 3,184,814
Inventories 827,188 1,204,058
Prepaid expenses and other current assets 182,800 101,802
------------ ------------
Total current assets 41,797,938 35,604,247
Property and equipment, net 4,201,517 4,050,850
Other assets 107,754 74,207
------------ ------------
$ 46,107,209 $ 39,729,304
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 25,353 $ 40,067
Accounts payable 4,887,809 4,771,123
Accrued expenses 6,818,888 6,174,935
Customer deposits 2,016,568 3,413,726
Deferred revenue 5,004,588 2,494,390
------------ ------------
Total current liabilities 18,753,206 16,894,241
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 7,553,074 and 7,387,798
shares in 1997 and 1996, respectively 755,307 738,780
Capital in excess of par value 45,880,724 45,263,568
Accumulated deficit (19,257,882) (23,143,139)
------------ ------------
27,378,149 22,859,209
Less - Treasury Stock, 2,807 shares at cost (24,146) (24,146)
------------ ------------
Total stockholders' equity 27,354,003 22,835,063
------------ ------------
$ 46,107,209 $ 39,729,304
============ ============
</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
ended March 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Product revenue $11,791,769 $ 7,601,634
Service revenue 5,476,962 3,808,633
----------- -----------
Total revenue 17,268,731 11,410,267
----------- -----------
Cost of product revenue 2,806,444 2,204,435
Cost of service revenue 3,502,478 2,474,213
Total cost of revenue 6,308,922 4,678,648
----------- -----------
Gross profit 10,959,809 6,731,619
----------- -----------
Research, development and engineering expenses 1,881,910 1,267,870
Selling, general and administrative expenses 5,072,026 3,673,342
----------- -----------
Total operating expenses 6,953,936 4,941,212
----------- -----------
Income from operations 4,005,873 1,790,407
Interest income 410,072 166,483
Interest expense 880 3,232
----------- -----------
Income before provision
for income taxes 4,415,065 1,953,658
Provision for income taxes 529,808 195,359
----------- -----------
Net income $ 3,885,257 $ 1,758,299
=========== ===========
Net income per common and
common equivalent share $ 0.47 $ 0.22
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 8,305,446 8,009,032
=========== ===========
</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 three months
ended March 31,
----------------------------
Cash flows from operating activities: 1997 1996
------------ ------------
<S> <C> <C>
Net income $ 3,885,257 $ 1,758,299
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,007,330 578,438
Provision for losses on accounts receivable 15,000 22,000
Changes in current assets and liabilities -
Accounts receivable (3,720,760) (1,705,972)
Inventories 376,870 (92,342)
Prepaid expenses and other current assets (80,998) (65,127)
Accounts payable 116,686 1,044,596
Accrued expenses 643,953 (501,223)
Customer deposits (1,397,158) 1,231,946
Deferred revenue 2,510,198 2,057,276
------------ ------------
Net cash provided by operating activities 3,356,378 4,327,891
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment, net (1,157,997) (706,772)
Increase in other assets (33,547) (1,535)
Purchases of marketable securities (2,752,889) --
Sales of marketable securities 5,992,917 --
------------ ------------
Net cash provided by (used in) investing activities 2,048,484 (708,307)
------------ ------------
Cash flows from financing activities:
Principal payments of long-term debt (14,714) (25,570)
Proceeds from exercise of stock options 550,015 223,279
Proceeds from employee stock purchase plan 83,668 39,269
------------ ------------
Net cash provided by financing activities 618,969 236,978
------------ ------------
Net increase in cash and cash equivalents 6,023,831 3,856,562
Cash and cash equivalents at beginning of period 21,333,300 12,935,907
------------ ------------
Cash and cash equivalents at end of period $ 27,357,131 $ 16,792,469
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 880 $ 3,232
============ ============
Cash paid during the period for income taxes $ 3,228 $ 12,206
============ ============
</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 28, 1997. 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 month period ended March 31, 1997 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 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 purchase.
4. Marketable Securities
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. The marketable securities held at
March 31, 1997 consist principally of commercial paper with original maturities
of less than one year, and they are recorded at amortized cost on the balance
sheet.
The fair value of marketable securities at March 31, 1997 was
approximately equal to amortized cost. Gross unrealized holding gains at March
31, 1997 were approximately $67.
6
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Inventories
Inventories are stated at the lower of cost (first in, first out), or
market and consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw materials and
subassemblies..... $ 45,627 $ 82,684
Work-in-process.... 586,990 854,768
Finished goods..... 194,571 266,606
-------- ----------
$827,188 $1,204,058
======== ==========
</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. Provision for Income Taxes
The Company has available significant net operating loss
carryforwards. However, for the three months ended March 31, 1997, 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.
7. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent 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 do not differ
significantly from primary earnings per share.
8. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share. SFAS
No. 128 establishes
7
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. Recently Issued Accounting Standards (continued)
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common stock. This
statement is effective for the fiscal years ending after December 15, 1997 and
early adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt this
statement for its fiscal year ended December 31, 1997.
Pro forma calculations of basic and diluted earnings per share as required
by SFAS No. 128 are as follows:
<TABLE>
<CAPTION> Three Months ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
Basic EPS
Net Income $3,885,257 $1,758,299
Weighted average common
shares outstanding 7,483,011 6,899,048
Basic EPS $ .52 $ .25
========== ==========
Diluted EPS
Net Income $3,885,257 $1,758,299
Weighted average common
and common equivalent
shares outstanding 8,305,446 8,009,032
Diluted EPS $ .47 $ .22
========== ==========
</TABLE>
9. Stock Split
On April 24, 1997, the Company's Board of Directors authorized a three-
for-two stock split which will be effected in the form of a 50% stock dividend
to be paid on May 28, 1997 to shareholders of record on May 13, 1997. The
financial statements included herein have not been retroactively restated for
the effect of the stock split.
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 Ended March 31, 1997 and 1996
Total revenue for the first quarter of 1997 increased approximately $5.9
million, or 51.3% compared to the same period in 1996.
Product revenue increased approximately $4.2 million, or 55.1% to $11.8
million in the first quarter of 1997 as compared to the same period in 1996.
This 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 $602,000, or 27.3% to $2.8
million for the first quarter of 1997, but as a percentage of product revenue
decreased 5.2% as compared to the first quarter of 1996. 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 $1.7 million, or 43.8% to $5.5
million for the first quarter of 1997 as compared to the first quarter of 1996.
This increase is due to an increase in maintenance revenue related to the growth
in the number of the Company's customers, professional services revenue in the
first quarter of 1997 generated in Europe, and increased installation revenue
related to the increased volume of product shipments
Cost of service revenue increased approximately $1.0 million, or 41.6% to
$3.5 million for the first quarter of 1997. This increase was attributable to
accelerated depreciation on certain service assets and higher payroll and
related expenses in 1997 resulting from headcount increases. As a percentage of
service revenue, cost of service revenue decreased by 1.0% as compared to the
first quarter of 1996. This decrease was primarily attributable to the higher
service revenue relative to fixed costs.
Research, development and engineering expenses increased approximately
$614,000, or 48.4% to $1.9 million for the first quarter of 1997 as compared to
the same period in 1996. This increase was primarily attributable to higher
payroll and related expenses in 1997 resulting from headcount increases and
higher consulting expense in 1997. As a percentage of total revenue, research,
development and engineering expenses decreased 0.2% from 11.1% for the first
quarter of 1996 to 10.9% for the first quarter of 1997.
9
<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 increased by
approximately $1.4 million or 38.1% to $5.1 million for the first quarter of
1997 as compared to the same period in 1996. This increase was primarily
attributable to increased payroll and related expenses in 1997 resulting from
headcount increases and direct and indirect selling expenses related to the
increased revenue. As a percentage of total revenue, SG&A expenses decreased
2.8% from 32.2% for the first quarter of 1996 to 29.4% for the first quarter of
1997.
Interest income in 1997 was derived primarily from money market instruments
and investments in commercial paper. Interest income increased 146.3% for the
first quarter of 1997, compared to the same period in 1996. This increase
reflects the higher average cash and investment balances in 1997 compared to
1996, as well as the increased investment returns received as a result of the
Company's new investment strategy of investing in commercial paper and
government securities.
Interest expense in 1997 was attributable to capital lease obligations.
Interest expense decreased 72.8% for the first quarter 1997 as compared to the
same period in 1996. The decrease reflects an overall decrease in the
outstanding balances of the capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's principal sources of liquidity were its
cash and cash equivalent balances of approximately $27,357,000, as well as its
marketable securities of approximately $6,540,000. As of the end of fiscal year
1996, the Company's cash and cash equivalent balances were approximately
$21,333,000 and its marketable securities were approximately $9,780,000. The
increase was due primarily to the collection of deferred annual maintenance
contracts, the favorable operating results, and proceeds from exercises of stock
options. In addition, the Company has an agreement for a 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, 1997.
At March 31, 1997, the working capital of the Company increased to
approximately $23,045,000 from approximately $18,710,000 as of December 31,
1996. The increase was primarily attributable to the net income of approximately
$3,885,000 for the first three months of 1997.
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)
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 working capital line of credit will be sufficient to meet
the Company's cash requirements for the next twelve months.
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, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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: May 1, 1997 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: May 1, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 27,357,131
<SECURITIES> 6,540,245
<RECEIVABLES> 7,466,952
<ALLOWANCES> 576,378
<INVENTORY> 827,188
<CURRENT-ASSETS> 41,797,938
<PP&E> 4,201,517
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,107,209
<CURRENT-LIABILITIES> 18,753,206
<BONDS> 0
0
0
<COMMON> 755,307
<OTHER-SE> 26,622,842
<TOTAL-LIABILITY-AND-EQUITY> 46,107,209
<SALES> 11,791,769
<TOTAL-REVENUES> 17,268,731
<CGS> 2,806,444
<TOTAL-COSTS> 6,308,922
<OTHER-EXPENSES> 1,881,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409,192
<INCOME-PRETAX> 4,415,065
<INCOME-TAX> 529,808
<INCOME-CONTINUING> 3,885,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,885,257
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
