<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 June 30, 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 July
30, 1997: 11,575,589 shares.
<PAGE>
DAVOX CORPORATION & SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page No.
--------
<S> <C> <C>
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 (Unaudited) 3
Consolidated Statements of Income
for the three months and six months ended
June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 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
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,373,774 $ 21,333,300
Marketable securities 9,504,134 9,780,273
Accounts receivable, net of reserves of
approximately $533,000 and $699,000
in 1997 and 1996, respectively 8,556,782 3,184,814
Inventories 722,459 1,204,058
Prepaid expenses and other current assets 178,527 101,802
---------------- --------------
Total current assets 47,335,676 35,604,247
Property and equipment, net 4,362,404 4,050,850
Other assets 113,398 74,207
---------------- --------------
$ 51,811,478 $ 39,729,304
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,660,169 $ 4,811,190
Accrued expenses 7,884,936 6,174,935
Customer deposits 2,956,166 3,413,726
Deferred revenue 4,469,798 2,494,390
---------------- --------------
Total current liabilities 19,971,069 16,894,241
---------------- --------------
Commitments and Contingencies
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 30,000,000 shares
Issued - 11,560,750 and 11,080,749
shares in 1997 and 1996, respectively 1,156,075 1,108,075
Capital in excess of par value 45,891,234 44,894,273
Accumulated deficit (15,182,754) (23,143,139)
---------------- --------------
31,864,555 22,859,209
Less - Treasury Stock, 3,294 shares
at cost (24,146) (24,146)
---------------- --------------
Total stockholders' equity 31,840,409 22,835,063
---------------- --------------
$ 51,811,478 $ 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 For the six months
ended June 30, ended June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product revenue $12,536,562 $8,702,957 $24,328,331 $16,304,591
Service revenue 5,633,617 3,962,392 11,110,579 7,771,025
------------ ------------- ------------- -------------
Total revenue 18,170,179 12,665,349 35,438,910 24,075,616
------------ ------------- ------------- -------------
Cost of product revenue 3,083,943 2,563,644 5,890,387 4,768,079
Cost of service revenue 3,588,227 2,574,654 7,090,705 5,048,867
------------ ------------- ------------- -------------
Total cost of revenue 6,672,170 5,138,298 12,981,092 9,816,946
------------ ------------- ------------- -------------
Gross profit 11,498,009 7,527,051 22,457,818 14,258,670
------------ ------------- ------------- -------------
Research, development and
engineering expenses 2,013,128 1,415,696 3,895,038 2,683,566
Selling, general and administrative
expenses 5,314,580 4,054,250 10,386,606 7,727,592
------------- ------------- ------------- -------------
Total operating expenses 7,327,708 5,469,946 14,281,644 10,411,158
------------- ------------- ------------- -------------
Income from operations 4,170,301 2,057,105 8,176,174 3,847,512
Interest income, net 460,529 218,305 869,721 381,556
------------- ------------- ------------- -------------
Income before provision
for income taxes 4,630,830 2,275,410 9,045,895 4,229,068
Provision for income taxes 555,702 227,549 1,085,510 422,908
------------- ------------- ------------- -------------
Net income $ 4,075,128 $ 2,047,861 $ 7,960,385 $ 3,806,160
============ ============= ============= =============
Net income per common and
common equivalent share $0.32 $0.17 $0.63 $0.31
============ ============= ============= =============
Weighted average number of common and
common equivalent shares outstanding 12,620,612 12,290,256 12,540,657 12,151,901
============ ============= ============= =============
</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 six months
ended June 30,
----------------------------------------------------
Cash flows from operating activities: 1997 1996
------------------ ------------------
<S> <C> <C>
Net income $ 7,960,385 $ 3,806,160
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,790,353 1,224,634
Provision for losses on accounts receivable 30,000 34,000
Changes in current assets and liabilities -
Accounts receivable (5,401,968) (467,856)
Inventories 481,599 (603,850)
Prepaid expenses and other current assets (76,725) (78,061)
Accounts payable (151,021) 703,008
Accrued expenses 1,710,001 147,780
Customer deposits (457,560) 4,185,352
Deferred revenue 1,975,408 1,625,021
--------------- ---------------
Net cash provided by operating activities 7,860,472 10,576,188
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment, net (2,101,907) (2,039,978)
Increase in other assets (39,191) (118,726)
Purchases of marketable securities (10,626,204) -----
Sales of marketable securities 10,902,343 -----
--------------- ---------------
Net cash used in investing activities (1,864,959) (2,158,704)
--------------- ---------------
Cash flows from financing activities:
Proceeds from exercise of stock options 961,293 1,199,545
Proceeds from employee stock purchase plan 83,668 39,269
--------------- ---------------
Net cash provided by financing activities 1,044,961 1,238,814
--------------- ---------------
Net increase in cash and cash equivalents 7,040,474 9,656,298
Cash and cash equivalents at beginning of period 21,333,300 12,935,907
--------------- ---------------
Cash and cash equivalents at end of period $ 28,373,774 $ 22,592,205
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,839 $ 6,536
=============== ===============
Cash paid during the period for income taxes $ 107,428 $ 114,306
=============== ===============
</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 and six month periods ended June 30, 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 June 30, 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 June 30, 1997 was approximately
equal to amortized cost. Gross unrealized holding losses at June 30, 1997 were
approximately $487.
6
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Provision for Income Taxes
The Company has available significant net operating loss carryforwards.
However, for the three months and six months ended June 30, 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.
6. 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.
7. 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 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.
7
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Recently Issued Accounting Standards (continued)
Pro forma calculations of basic and diluted earnings per share as required
by SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS
Net Income $ 4,075,128 $ 2,047,861 $ 7,960,385 $ 3,806,160
Weighted average common
shares outstanding 11,459,836 10,636,644 11,343,304 10,492,606
Basic EPS: $ 0.36 $ 0.19 $ 0.70 $ 0.36
=========== =========== =========== ===========
Diluted EPS
Net Income $ 4,075,128 $ 2,047,861 $ 7,960,385 $ 3,806,160
Weighted average common
and common equivalent
shares outstanding 12,620,612 12,290,256 12,540,657 12,151,901
Diluted EPS: $ 0.32 $ 0.17 $ 0.63 $ 0.31
=========== =========== =========== ===========
</TABLE>
8. Stock Split
On April 24, 1997, the Company's Board of Directors approved an increase in
the authorized number of common shares of the Company's stock from 10,000,000 to
30,000,000 and authorized a three-for-two stock split of the Company's common
stock which was effected in the form of a 50% stock dividend paid on May 28,
1997 to shareholders of record on May 13, 1997. All share and per share amounts
have been retroactively restated for all periods presented to reflect the stock
split. Accordingly, approximately $ 385,000 was transferred from capital in
excess of par to common stock.
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 Six Months Ended June 30, 1997 and 1996
Total revenue for the second quarter of 1997 increased approximately $5.5
million, or 43.5% compared to the same period in 1996, while total revenue for
the first six months of 1997 increased approximately $11.4 million, or 47.2%
compared to the same period in 1996.
Product revenue increased approximately $3.8 million, or 44.0% to $12.5
million in the second quarter of 1997 as compared to the same period in 1996.
Product revenue for the first six months of 1997 increased approximately $8.0
million, or 49.2% to $24.3 million as compared to the same period in 1996. These
increases are caused by continued increasing demand for the Unison call center
management system, especially the telemarketing, collections, and
inbound/outbound call blending capabilities.
Cost of product revenue increased approximately $.5 million, or 20.3% to
$3.1 million for the second quarter of 1997, but as a percentage of product
revenue decreased 4.9% as compared to the second quarter of 1996. Cost of
product revenue for the first six months of 1997 increased $1.1 million, or
23.5% to $5.9 million, but as a percentage of product revenue decreased 5.0% as
compared to the same period in 1996. The decreases as a percentage of product
revenue are 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 42.2% to $5.6
million for the second quarter of 1997 as compared to the second quarter of
1996. Service revenue for the first six months of 1997 increased $3.3 million,
or 43.0% to $11.1 million as compared to the same period in 1996. These
increases are due to an increase in maintenance revenue related to the growth in
the number of the Company's customers, increased installation revenue related to
the increased volume of product sales, and professional services revenue in the
first quarter of 1997 generated in Europe.
Cost of service revenue increased approximately $1.0 million, or 39.4% to
$3.6 million for the second quarter of 1997. Cost of service revenue for the
first six months of 1997 increased approximately $2.0 million, or 40.4% to $7.1
million. These increases are attributable to higher payroll and related expenses
in 1997 resulting from headcount increases, increased third party maintenance
and installation charges in 1997, and accelerated depreciation on certain
service assets. As a percentage of service revenue, cost of service revenue
decreased by 1.3% and 1.2% for the second quarter and first six months
respectively, as compared to the same periods in 1996. These decreases are
primarily attributable to the higher service revenue relative to fixed costs.
9
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Research, development and engineering expenses increased approximately $.6
million, or 42.2% to $2.0 million for the second quarter of 1997 as compared to
the second quarter of 1996. Research, development and engineering expenses
increased approximately $1.2 million, or 45.1% to $3.9 million for the first six
months of 1997 as compared to the same period in 1996. These increases are
primarily attributable to higher payroll and related expenses in 1997 resulting
from headcount increases and higher outside consulting fees in 1997. As a
percentage of total revenue, research, development and engineering expenses
decreased from 11.2% for the second quarter of 1996 to 11.1% for the second
quarter of 1997 and from 11.1% for the first six months of 1996 to 11.0% for the
first six months of 1997.
Selling, general and administrative (SG&A) expenses increased by
approximately $1.3 million or 31.1% to $5.3 million for the second quarter of
1997 as compared to the second quarter of 1996. SG&A expenses for the first six
months of 1997 increased approximately $2.7 million, or 34.4% to $10.4 million
as compared to the same period in 1996. These increases are primarily
attributable to increased payroll and related expenses in 1997 resulting from
headcount increases and indirect and direct selling expenses related to the
increased revenue. As a percentage of total revenue, SG&A expenses decreased
from 32.0% for the second quarter of 1996 to 29.2% for the second quarter of
1997 and from 32.1% for the first six months of 1996 to 29.3% for the first six
months of 1997. These decreases are due primarily to the increase in revenue.
Interest income in 1997 was derived primarily from money market instruments
and investments in commercial paper and government securities. Interest income
increased 108.2% and 124.6% for the second quarter and first six months of 1997
respectively, compared to the same periods in 1996. This increase reflects the
higher average cash and cash equivalents and marketable securities balances in
1997 compared to 1996, as well as the higher investment returns received as a
result of the Company's new investment strategy of investing in commercial paper
and government securities.
The Company provided for income taxes at its anticipated effective annual
rate, which is 12%. This rate differs from the federal statutory rate due to
utilization of net operating loss carryforwards and tax credits.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's principal sources of liquidity were its
cash and cash equivalent balances of approximately $28.4 million, its marketable
securities of approximately $9.5 million, and its accounts receivable of
approximately $8.6 million. As of the end of fiscal year 1996, the Company's
cash and cash equivalent balances were approximately $21.3 million, its
marketable securities were approximately $9.8 million, and its
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)
accounts receivable were approximately $3.2 million. The overall increase in
cash and cash equivalents and marketable securities was due primarily to the
favorable operating results, collection of deferred annual maintenance
contracts, and proceeds from exercises of stock options. The increase in
accounts receivable over year end was primarily due to a large number of product
sales in the fourth quarter of 1996 being paid in full at the time of revenue
recognition. In addition, the Company has an agreement for a working capital
line of credit with a bank for up to $2.0 million based on eligible receivables,
as defined. There were no outstanding balances under the line of credit as of
June 30, 1997.
At June 30, 1997, the working capital of the Company increased to
approximately $27.4 million from approximately $18.7 million as of December 31,
1996. The increase was primarily attributable to the net income of approximately
$8.0 million for the first six months of 1997.
Management believes, based on its current operating plan, that the
Company's existing cash and cash equivalents, marketable securities, 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 4. Submission of Matters to a Vote of Security Holders
The annual meeting of security-holders of the Company was held on April
24, The number of directors was fixed at four and the following persons
were elected as directors:
<TABLE>
<CAPTION>
Total Votes Total Votes
Nominee for Nominee Withheld for Nominee
------- ----------- --------------------
<S> <C> <C>
Alphonse M. Lucchese 6,547,051 210,203
Michael D. Kaufman 6,547,051 210,203
Walter J. Levison 6,547,051 210,203
R. Scott Asen 6,547,051 210,203
</TABLE>
An amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Common
Stock, $.10 par value, from 10,000,000 to 30,000,000 shares, was
adopted and approved, with 5,228,360 shares voting in favor, 1,450,666
shares voting against and 6,956 shares abstaining.
The Company's 1996 Stock Plan was adopted and approved, with 5,211,474
shares voting in favor, 413,801 shares voting against and 87,504 shares
abstaining.
The selection of the firm of Arthur Andersen LLP as auditors for the
fiscal year ending December 31, 1997 was ratified, with 6,738,968
shares voting in favor, 14,440 shares voting against and 3,846 shares
abstaining.
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 June
30, 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: August 1, 1997 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,373,774
<SECURITIES> 9,504,134
<RECEIVABLES> 9,089,493
<ALLOWANCES> 532,711
<INVENTORY> 722,459
<CURRENT-ASSETS> 47,335,676
<PP&E> 4,362,404
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,811,478
<CURRENT-LIABILITIES> 19,971,069
<BONDS> 0
0
0
<COMMON> 1,156,075
<OTHER-SE> 30,708,480
<TOTAL-LIABILITY-AND-EQUITY> 51,811,478
<SALES> 24,328,331
<TOTAL-REVENUES> 35,438,910
<CGS> 5,890,387
<TOTAL-COSTS> 12,981,092
<OTHER-EXPENSES> 3,895,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 869,721
<INCOME-PRETAX> 9,045,895
<INCOME-TAX> 1,085,510
<INCOME-CONTINUING> 7,960,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,960,385
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
