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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
_____________________
Commission File Number 0-23078
MAPINFO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1166630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Global View
Troy, New York 12180
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (518) 285-6000
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
----- -----
The number of shares outstanding of the registrant's common stock, $.002 par
value per share, as of February 1, 1999 was 5,712,559.
================================================================================
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MAPINFO CORPORATION
FORM 10-Q
For the Quarter Ended December 31, 1998
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Income Statements
for the three months ended December 31, 1998 and 1997 1
Balance Sheets
as of December 31, 1998 and September 30, 1998 2
Cash Flows Statements
for the three months ended December 31, 1998 and 1997 3
Notes to Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
MapInfo Corporation and Subsidiaries
Income Statements
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
December 31,
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net revenues $16,145 $13,145
Cost of revenues 3,560 2,854
---------------- ----------------
Gross profit 12,585 10,291
---------------- ----------------
Operating expenses:
Research and development 2,688 2,431
Selling and marketing 7,118 6,072
General and administrative 2,169 1,686
---------------- ----------------
Total operating expenses 11,975 10,189
---------------- ----------------
Operating income 610 102
Other income - net 258 278
---------------- ----------------
Income before provision for income taxes 868 380
Provision for income taxes 260 76
---------------- ----------------
Net income $ 608 $ 304
================ ================
Earnings per share:
Basic $ 0.11 $ 0.05
Diluted $ 0.10 $ 0.05
Weighted average shares outstanding:
Basic 5,710 5,897
Diluted 5,902 5,985
</TABLE>
See accompanying notes.
1
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MapInfo Corporation and Subsidiaries
Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
----------------- ------------------
ASSETS (unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 9,419 $15,886
Short-term investments, at amortized cost 16,794 13,037
Accounts receivable, less allowance of $1,605 and $1,772
at December 31, 1998 and September 30, 1998, respectively 12,934 15,224
Inventories 542 601
Other current assets 1,796 1,971
Deferred income taxes 735 734
----------------- ------------------
Total current assets 42,220 47,453
Property and equipment - net 4,626 4,430
Product development costs - net 1,292 1,272
Deferred income taxes 1,369 1,369
Intangible assets - net 6,260 3,458
Investments and other assets 2,595 1,549
----------------- ------------------
Total assets $58,362 $59,531
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,985 $ 2,200
Accrued liabilities 8,919 10,522
Deferred revenue 3,955 3,781
Income taxes payable 1,125 992
----------------- ------------------
Total current liabilities 15,984 17,495
Other non-current liabilities 196 322
----------------- ------------------
Total liabilities 16,180 17,817
----------------- ------------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.002 par value 12 12
Preferred stock, $.01 par value - -
Paid-in capital 31,026 31,046
Retained earnings 14,341 13,733
Translation adjustment (91) 95
----------------- ------------------
45,288 44,886
Less treasury stock, at cost 3,106 3,172
----------------- ------------------
Total stockholders' equity 42,182 41,714
----------------- ------------------
Total liabilities and stockholders' equity $58,362 $59,531
================= ==================
</TABLE>
See accompanying notes.
2
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MapInfo Corporation and Subsidiaries
Cash Flows Statements
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months
Ended
December 31,
----------------------------------
1998 1997
-------------- --------------
Cash flows from (used for) operating activities
<S> <C> <C>
Net income $ 608 $ 304
Depreciation and amortization 1,001 1,026
Allowance for doubtful accounts, sales returns and inventory (193) 10
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 2,819 8
Inventories 122 78
Other current assets 78 (108)
Accounts payable and accrued liabilities (1,214) 577
Deferred revenue (307) 404
Income taxes payable 145 53
-------------- --------------
Net cash from operating activities 3,059 2,352
-------------- --------------
Cash flows from (used for) investing activities
Additions to property and equipment (773) (715)
Capitalized product development costs (192) (115)
Acquisition of business and technology (3,802) (2,088)
Short-term investments, net (3,757) (7,500)
Other investments (1,051) -
-------------- --------------
Net cash used for investing activities (9,575) (10,418)
-------------- --------------
Cash flows from (used for) financing activities
Proceeds from exercise of options and ESPP stock purchases 47 166
-------------- --------------
Net cash from financing activities 47 166
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents 2 -
-------------- --------------
Net change in cash and equivalents (6,467) (7,900)
Cash and equivalents, beginning of period 15,886 24,711
-------------- --------------
Cash and equivalents, end of period $ 9,419 $ 16,811
============== ==============
See accompanying notes.
</TABLE>
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MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying balance sheets and related
statements of income and cash flows include all adjustments (consisting only of
normal recurring items) necessary for their fair presentation. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The results of operations for the interim period
are not necessarily indicative of the results of operations for the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
Certain reclassifications have been made to amounts previously reported to
conform to the 1999 presentation.
2. Earnings Per Share
The following table represents the reconciliation of the basic and diluted
earnings per share amounts for the three months ended December 31, 1998 and
1997.
<TABLE>
<CAPTION>
Three months Ended December 31,
----------------------------------
1998 1997
------------- -------------
(Amounts in thousands,
except per share data)
<S> <C> <C>
Net income $ 608 $ 304
============= =============
Weighted average shares for basic EPS 5,710 5,897
Effect of diluted stock options 192 88
------------- -------------
Weighted average shares and assumed exercise of
stock options for diluted EPS 5,902 5,985
============= =============
Basic EPS $ 0.11 $ 0.05
Diluted EPS $ 0.10 $ 0.05
</TABLE>
4
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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(Unaudited)
3. Comprehensive Income
Effective October 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130). This
Statement establishes standards for reporting and disclosure of comprehensive
income and its components. This statement requires foreign currency translation
adjustments, which are reported as separate components of stockholders' equity,
to be included in comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS 130.
Comprehensive income was as follows:
<TABLE>
<CAPTION>
Three months Ended December 31,
-----------------------------------
1998 1997
------------- -------------
(In thousands)
<S> <C> <C>
Net income $ 608 $ 304
Change in accumulated translation adjustments (186) (100)
------------- -------------
Total comprehensive income $ 422 $ 204
============= =============
</TABLE>
4. Commitments and Contingencies
The Company's saleable products rely on software applications. The Company
expects that some of its customers may be using older product versions that are
not Year 2000 compliant. The Company will be encouraging such customers to
migrate to compliant product versions. It is possible that the Company may
experience increased expenses in addressing migration issues for such customers.
5. Acquisition
Pursuant to an Asset Purchase Agreement dated December 15, 1998, the Company
acquired substantially all of the assets and assumed certain liabilities of On
Target Communications, Inc., a Pennsylvania corporation doing business as On
Target Mapping. A MapInfo value-added reseller since 1992, On Target Mapping
delivers data products and solutions for telecommunications providers. The
purchase price was approximately $2.2 million, net of cash acquired. In
addition, the Company may be obligated to make a contingent cash payment in
March 2001, based on the financial performance of On Target Mapping in the two
years following the acquisition. The acquisition has been accounted for as a
purchase; and, accordingly, the Company has included On Target Mapping's results
of operations in the financial statements from the date of acquisition.
Intangible assets resulting from the acquisition, including goodwill, are being
amortized on a straight-line basis over a period of five years.
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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(Unaudited)
6. New Accounting Standards
Effective October 1, 1998, the Company adopted American Institute of Certified
Public Accountants Statement of Position 97-2, "Software Revenue Recognition".
This statement provides guidance on recognizing revenue on software
transactions. The Company's revenue recognition policies have historically been
in compliance with the practices required by this new pronouncement. Therefore,
adoption of this new accounting standard did not affect the Company's results of
operations for the three months ended December 31, 1998, nor is it expected to
have a significant impact on results of operations for the remainder of the
fiscal year.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 is effective for fiscal years beginning after December 15,
1997 and requires disclosures about operating segments and enterprise-wide
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 will be effective for the Company's annual report for the fiscal
year ending September 30, 1999.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
MapInfo Corporation ("MapInfo" or the "Company") designs, develops, markets,
licenses and supports business mapping software products, application
development tools, and data products, together with a range of consulting,
training and technical support services. These products are sold through
multiple distribution channels, including an indirect channel of value-added
resellers and distributors, a corporate account sales force, and a telemarketing
sales group. The Company's products are translated into 20 languages and sold in
58 countries throughout the world. MapInfo markets its products worldwide
through sales offices in North America, Europe and Australia, and throughout the
rest of Europe and the Asia-Pacific region through exclusive and non-exclusive
distribution relationships.
Net Revenues
Revenues for the first quarter of fiscal 1999 increased 23% to $16.1 million
from $13.1 million in the same period a year ago. Approximately 26% of the $3
million increase in revenues were attributable to increased unit sales of data
products in the Americas and approximately 33% were attributable to the effect
of the December 2, 1997 acquisition of The Data Consultancy. The balance of the
increase was attributable to increased unit sales of enterprise and desktop
software products worldwide. On a geographic basis, revenues increased
approximately 21% in the Americas and 55% in Europe. Approximately one-half of
the increase in Europe's revenue was attributable to the acquisition of The Data
Consultancy. Asia-Pacific revenues decreased 16% primarily due to lower royalty
income from Japan and the decline of the Australian dollar versus the US dollar.
Excluding the effect of the translation of the Australian dollar, Asia-Pacific
revenue would have decreased 9% for the quarter.
Cost of Revenues, Operating Expenses and Income Taxes
Cost of revenues as a percentage of revenues increased to 22.1% in the first
quarter of 1999 from 21.7% for the same period in 1998. As a result, the gross
margin decreased to 77.9% from 78.3%. The gross margin decline was primarily
attributable to an increase in revenue from lower margin data products as a
percentage of total revenues.
Research and development (R&D) expenses of $2.7 million in the first quarter of
fiscal 1999 increased 11% over the prior year period. The increase in R&D
expenses was primarily attributable to increased headcount resulting from the
acquisition of The Data Consultancy. Excluding the effect of the acquisition,
R&D expenses increased approximately 5% from the prior year period. As a
percentage of revenues, R&D expenses declined to 16.6% in the first quarter of
1999 from 18.5% for the same period in 1998.
7
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Selling and marketing expenses increased 17% to $7.1 million in the first
quarter of 1999 from $6.1 million for the same period in 1998. The increase was
primarily attributable to a 17% increase in headcount in the Americas sales
organization and a 33% increase in sales and marketing expenses in Europe to
support expanded operations. The acquisition of The Data Consultancy accounted
for approximately 27% of the worldwide increase and 78% of Europe's increase.
As a percentage of revenues, selling and marketing expenses decreased to 44.1%
in the first quarter of 1999 from 46.2% for the same period in 1998 due to
improved sales productivity.
General and administrative (G&A) expenses increased 29% to $2.2 million in the
first quarter of fiscal 1999 from $1.7 million for the same period in 1998. The
increase in G&A expenses was primarily due to The Data Consultancy acquisition,
including associated amortization of intangible assets ($164 thousand), and
increased headcount to support MIS infrastructure and business development
initiatives. For the first quarter of fiscal 1999, general and administrative
expenses as a percentage of revenues increased to 13.4% as compared to 12.8% for
the same period in fiscal 1998.
The effective income tax rate for the quarter ended December 31, 1998 and 1997
was approximately 30% and 20%, respectively. The increase in the provision for
income taxes was primarily attributable to an increase in the current year pre-
tax income and an increase in taxable investment income.
Financial Condition
The Company's cash and short-term investments totaled $26.2 million at December
31, 1998 compared to $28.9 million at September 30, 1998. At December 31, 1998,
the Company's investment portfolio consisted primarily of short-term, liquid,
tax-exempt securities.
MapInfo has no long-term debt. The Company has a $10 million credit facility
with a bank that expires in December 1999, and a $10 million credit facility
with a bank that expires in January 2000. There were no outstanding borrowings
under either facility at December 31, 1998.
Net cash generated from operating activities was $3.1 million for the quarter
ended December 31, 1998, compared to $2.4 million for the corresponding period
in the prior year. The cash generated from operating activities in the first
quarter of 1999 was principally the result of net income ($608 thousand), and
strong accounts receivable collections ($2.8 million) partially offset by
decreases in accounts payable and accrued liabilities ($1.2 million) and
deferred revenue ($307 thousand). Net cash used for investing activities in the
first quarter of 1999 was $9.6 million, primarily consisting of: an additional
$1.9 million for the acquisition of The Data Consultancy; $1.9 million for the
acquisition of On Target Mapping; $1.0 million for an investment in Three D
Graphics, Inc.; approximately $800 thousand in purchases of property and
equipment; and $3.8 million in purchases of short-term investments.
Management believes existing cash and short-term investments together with funds
generated from operations should be sufficient to meet the Company's operating
requirements for the next twelve months.
8
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Acquisition of On Target Mapping
Pursuant to an Asset Purchase Agreement dated December 15, 1998, the Company
acquired substantially all of the assets and assumed certain liabilities of On
Target Communications, Inc., a Pennsylvania corporation doing business as On
Target Mapping. A MapInfo value-added reseller since 1992, On Target Mapping
delivers data products and solutions for telecommunications providers. The
purchase price was approximately $2.2 million, net of cash acquired. In
addition, the Company may be obligated to make a contingent cash payment in
March 2001, based on the financial performance of On Target Mapping in the two
years following the acquisition. The acquisition has been accounted for as a
purchase; and, accordingly, the Company has included On Target Mapping's results
of operations in the financial statements from the date of acquisition.
Intangible assets resulting from the acquisition, including goodwill, are being
amortized on a straight-line basis over a period of five years.
Acquisition of The Data Consultancy
Pursuant to a Share Sale and Purchase Agreement dated December 2, 1997, the
Company acquired all of the issued share capital of The URPI Group Limited, an
English company trading as The Data Consultancy ("The Data Consultancy") and
engaged in the sale of market analysis solutions and information products in the
United Kingdom. The purchase price was approximately $5.4 million, consisting
of $5.0 million in cash and $400 thousand in stock. Approximately $1.0 million
of the purchase price is payable in April 1999. The acquisition has been
accounted for as a purchase; and, accordingly, the Company has included The Data
Consultancy's results of operations in its financial statements from the date of
acquisition. Intangible assets resulting from the acquisition, including
goodwill, are being amortized on a straight-line basis over a period of seven
years.
Investment in Three D Graphics
On October 21, 1998, the Company invested approximately $1 million in Three D
Graphics, Inc., a California software company, under a five-year Convertible
Promissory Note (the "Note"). The Note bears interest at 10% per anum, payable
on a quarterly basis. The Company has the option, at any time prior to October
21, 2003, to convert the outstanding principal amount of the Note into 20% of
the then issued and outstanding shares of capital stock of Three D Graphics,
Inc. As part of the agreement, the Company also received an option to purchase,
on or before October 2, 1999, a majority of the shares of capital stock of Three
D Graphics, Inc. In addition, under a Technology License Agreement, the Company
received a license to bundle Three D Graphics technology with MapInfo's products
for a period of five years.
Investment in Object/FX Corporation
Pursuant to a Purchase Agreement dated April 3, 1998, the Company invested $1.1
million in the form of convertible debt and a minority equity interest in
Object/FX Corporation, a Minnesota company engaged in the development and sale
of Java-based mapping technology. As part of the investment, the Company also
received a warrant to acquire additional shares over a period of 5 years at a
total cost of $550,000 and options from existing stockholders to acquire a
majority interest in Object/FX Corporation at any time during the period
commencing October 3, 2000 and ending April 3, 2001. In addition, MapInfo and
Object/FX Corporation entered into a non-exclusive worldwide marketing
agreement, under which the Company may enhance and sell
9
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Object/FX Java-based products. The investment in Object/FX has been accounted
for under the cost method.
Year 2000 Compliance
Background
Many currently installed computer systems are not capable of correctly
processing 21st century dates. As a result, computer systems, software and other
computer controlled processes used by many companies in a wide variety of
applications will experience operating difficulties unless they are modified or
upgraded to adequately process information involving, related to, or dependent
upon the century change. Significant uncertainty exists concerning the scope
and magnitude of problems associated with the century change.
What the Company is Doing
The Company recognizes the need to take appropriate action so that its
operations will not be adversely impacted by Year 2000 computer failures and has
established a project team, consisting of specifically assigned employees, to
address Year 2000 risks. The project team is coordinating the identification
and implementation of changes to computer hardware and software applications
that will attempt to ensure availability and integrity of the Company's
information systems, operational systems and critical business processes. An
appropriate program of assessment, remediation and testing for both products and
internal systems are underway, but is not yet complete. The Company is also
assessing the potential overall risks of the impending century change on its
business partners, results of operations and financial position.
Status of Company Products
The Company's saleable products rely on software applications. The Company has
designed and tested the most current versions of its saleable products and
believes that such products are Year 2000 compliant, with the exception of
certain minor products. It should be noted that despite these efforts, there can
be no assurances that the Company's current products do not contain undetected
errors or defects associated with Year 2000 date functions that may result in
additional costs to the Company.
Status of Internal Systems
The Company is in the process of conducting a company-wide assessment of its
internal computer systems and operations infrastructure to identify computer
hardware, software, and process control systems that are not Year 2000
compliant. Based on this assessment, the Company believes that its principal
accounting system is Year 2000 compliant. However, as a result of its review,
the Company has determined that it will need to modify or replace certain
information and operational systems so they will be Year 2000 compliant. Some
systems will be remediated as a consequence of normal and previously planned
business improvement and system replacement projects. Others systems, such as
personal computers and office productivity software, will be remediated
specifically for Year 2000 issues, in many cases through low cost or free
upgrades provided by the product vendors. The Company presently believes that
its
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business-critical computer systems that are not presently Year 2000 compliant
will be replaced, upgraded or modified prior to 2000.
Status of the Company's Customers and Partners
The Company faces risk to the extent that suppliers of products, services, and
systems important to its business operations, and others, with whom the Company
transacts business on a worldwide basis, do not comply with Year 2000
requirements. The Company has initiated formal communications with significant
suppliers to determine the extent to which these parties have addressed their
own Year 2000 issues. In the event any such third parties cannot provide the
Company with products, services or systems that meet the Year 2000 requirements
on a timely basis, or in the event Year 2000 issues prevent such third parties
from timely delivery of products or services required by the Company, the
Company's results of operations could be materially adversely affected.
The Company also faces risk to the extent that major customers or channel
partners do not comply with Year 2000 requirements in their own organizations
and suffer business disruption as a result. To the extent Year 2000 issues
cause significant delays in or cancellation of purchases of the Company's
products or services, the Company's business, results of operations and
financial position could be materially adversely affected. The Company has
initiated formal communications with its largest customers and channel partners
to determine the extent to which the Company is vulnerable to any such third-
party's failure to remediate their own Year 2000 issues.
Remediation Plans, Contingency Plans and Estimated Costs
The Company has not yet completed its estimate of Year 2000 costs at this stage
of the project, but expects to complete the estimates as the assessment and
remediation planning tasks are completed in the near term. It is currently
estimated that the aggregate cost of the Company's Year 2000 efforts will be
approximately $500,000 to $600,000 of which less than $50,000 has been expended
to date. Much of the expenditures relating to the Company's Year 2000 efforts
are expected to be capitalized and funded through operating cash flows. To the
extent that equipment is deemed obsolete as a result of the Year 2000 issue, the
applicable costs and accumulated depreciation will be removed from the accounts
and the resulting loss, if any, will be recognized in the income statement.
The Company expects that some of its customers may be using older product
versions that are not Year 2000 compliant. The Company will be encouraging such
customers to migrate to compliant product versions. It is possible that the
Company may experience increased expenses in upgrading these customers. Such
amounts are not included in the estimates above.
The Company expects to complete its Year 2000 project during 1999. Based on
currently available information and remediation plans, the Company does not
believe any material exposure to significant business interruption exists as a
result of Year 2000 compliance issues. Certain IT projects have been deferred.
However, the Company believes deferral of these projects will not have a
material impact on the Company. Although the Company does not believe that it
will incur any material costs or experience material disruptions in its business
11
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associated with preparing its internal systems for the year 2000, there can be
no assurances that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal systems, which are composed of
third-party software, third-party hardware that contains embedded software and
the Company's own software products. The most reasonably likely worst case
scenario would include: (i) corruption of data contained in the Company's
internal information systems, (ii) hardware failure, and (iii) delays in
shipping the Company's saleable products. The Company is in the process of
developing a contingency plan to address situations that may result if the
Company is unable to achieve Year 2000 readiness of its critical operations, as
anticipated, in a timely manner.
These costs and the timing in which the Company plans to complete its Year 2000
modification and testing processes are based on management's best estimates.
However, there can be no assurance that the Company will timely identify and
remediate all significant Year 2000 problems, that remedial efforts will not
involve significant time and expense, or that such problems will not have a
material adverse effect on the Company's business, results of operations or
financial position.
This discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance are Year 2000 Readiness Disclosures as defined
in the Year 2000 Information and Readiness Disclosure Act (S. 2392, 105th
Congress, 2nd Session).
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability
to achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
Outlook: Issues and Risks
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements, including
statements as to the sufficiency of funds to meet operating requirements for the
next 12 months and statements as to the Year 2000 assessment. The following
important factors, among others, could cause actual results to differ materially
from those indicated by forward-looking statements made in this Quarterly Report
on Form 10-Q and presented elsewhere by management from time to time. In
addition to the other information in this Quarterly Report on Form 10-Q, the
following issues and risks, among others, should be considered in evaluating
MapInfo's outlook and future.
New products and technological change. The mapping software and information
business is characterized by extremely rapid technological change, evolving
industry standards, and frequent new product introductions. These conditions
require continuous expenditures on product
12
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research and development to enhance existing products and to create new
products. The Company believes that the timely development of new products and
continuing enhancements to existing products is essential to maintain its
competitive position in the marketplace. During fiscal 1997 and 1998, the
Company introduced a number of new products, including SpatialWare(R),
TargetPro(TM), dbPlanner(TM), MapXsite(R), MapXtreme(TM) and MapInfo MapX(R).
The Company's future success depends, in part, upon customer and market
acceptance of these new products. Any failure to achieve acceptance of these and
other new product offerings could have a material adverse effect on the
Company's business and results of operations.
There can be no assurance that the Company will successfully complete the
development of new or enhanced products or successfully manage transitions from
one product release to the next.
Competition. The Company encounters significant competition in the market for
business mapping systems worldwide. Some of the Company's competition may have
significant name recognition, as well as substantially greater capital
resources, marketing experience, research and development staffs and production
facilities than the Company. Any future growth in the Company's market may make
it more likely that such larger companies will increasingly focus on this
market. Increased competition may lead to pricing pressures that could
adversely affect the Company's gross margins. Prices of software in Europe and
Asia are generally higher than in the Americas to cover localization costs and
higher costs of distribution. Such price uplifts could erode in the future.
Reliance on third parties. The Company relies in part on strategic partners and
independent developers for the development of specialized data products that use
MapInfo software. Failure by such strategic partners or independent developers
to continue to develop such data products, or changes in the contractual
arrangements with such strategic partners or independent developers, could have
a material adverse effect on the Company's business and results of operations.
Expansion to enterprise market. The Company has previously marketed its
products primarily in the desktop mapping market. The Company continues to
expand its product offerings beyond the desktop market to the enterprise and
Internet/intranet markets. Sales to the enterprise and Internet/intranet
markets are directed to different decision-makers within customer organizations
and require different selling and marketing programs than are used in the
desktop market. The failure of these products to achieve market acceptance
could have a material adverse effect on the Company's business and results of
operations.
Prices. Future prices the Company is able to obtain for its products may
decrease from previous levels depending upon market or competitive pressures or
distribution channel factors. Any decrease could have a material adverse effect
on the Company's business and results of operations.
Intellectual property rights. The Company regards its software as proprietary
and attempts to protect it with a combination of copyright, trademark and trade
secret laws, employee and third-party non-disclosure agreements, and other
methods of protection. Despite these precautions, it
13
<PAGE>
may be possible for unauthorized third parties to copy certain portions of the
Company's products, reverse engineer or obtain and use information the Company
regards as proprietary. In addition, the Company's shrink-wrap licenses, under
which the Company licenses its products, may be unenforceable under the laws of
certain jurisdictions; and the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Any misappropriation of the Company's intellectual property could have a
material adverse effect on the Company's business and results of operations.
Furthermore, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products. Any such assertion could require the Company to enter into
royalty arrangements or result in costly litigation.
Cost of revenues. Cost of revenues varies with the mix of technology
development and licensing fees, product revenues, and services revenues, as well
as with the distribution channel mix. Changes in the revenue mix, as well as
the distribution model, may affect cost of revenues as a percentage of net
revenues in the future.
Risks associated with international operations. Revenues outside the Americas
represented approximately 50% of total Company revenues in the first quarter of
fiscal 1999. The international portion of the Company's business is subject to
a number of inherent risks, including the difficulties in building and managing
international operations, reliance on financial commitments from certain
international distributors, difficulties in localizing products and translating
documentation into foreign languages, fluctuations in import/export duties and
quotas, risks associated with the introduction of the Euro and unexpected
regulatory, economic, or political changes in international markets. The
Company's operating results are also affected by exchange rates. Approximately
32% of the Company's revenues were denominated in foreign currencies during the
first quarter of fiscal 1999. Of the Company's international operations, the
Asia-Pacific region represented 14% of total Company revenues in the first
quarter of fiscal 1999. The Company's Asia-Pacific operations, in general, have
been affected by the adverse macroeconomic conditions in Asia, including the
decline of the Australia dollar versus the U.S. dollar. Approximately 53% of
the Company's Asia-Pacific first quarter 1999 revenues were denominated in
Australian dollars. Changes in international business conditions could have a
material adverse effect on the Company's business and results of operations.
Variability of quarterly operating results. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the introduction and market acceptance of new products and new versions
of existing products, the ability to reduce expenses, and the activities of
competitors. Because a high percentage of the Company's expenses are relatively
fixed in the near term, minor variations in the timing of orders and shipments
can cause significant variations in quarterly operating results. Substantially
all of its product revenues in each quarter result from software licenses issued
in that quarter. Accordingly, the Company's ability to accurately forecast
future revenues and income for any period is necessarily limited.
Potential volatility of stock price. There has been significant volatility in
the market price of securities of technology companies. The Company believes
factors such as announcements of
14
<PAGE>
new products by the Company or its competitors, quarterly fluctuations in the
Company's financial results or other software companies' financial results,
shortfalls in the Company's actual financial results compared to results
previously forecasted by stock market analysts, and general conditions in the
software industry and conditions in the financial markets could cause the market
price of the Common Stock to fluctuate substantially. These market fluctuations
may adversely affect the price of the Company's Common Stock.
Risks associated with acquisitions and investments. The Company has made a
number of acquisitions and investments and will continue to review future
opportunities. No assurances can be given that acquisition candidates will
continue to be available on terms and conditions acceptable to the Company.
Acquisitions involve numerous risks, including, among other things, possible
dilution to existing shareholders, difficulties and expenses incurred in
connection with the acquisitions and the subsequent assimilation of the
operations and services or products of the acquired companies, the difficulty of
operating new (albeit related) businesses, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired company. In the event that the operations of an acquired
business or investment do not meet expectations, the Company may be required to
restructure the acquired business or write-off the value of some or all of the
assets of the acquired business or investment. There can be no assurance that
any acquisition will be successfully integrated into the Company's operations.
Risks associated with distribution channels. The Company primarily markets
and distributes its products in The Americas, Europe and Australia through the
Company's telesales, outside sales force and through third party resellers. In
Asia-Pacific, the Company's products are marketed and distributed through
exclusive and non-exclusive distribution relationships. There can be no
assurance that the Company will be able to retain its current resellers and
distributors, or expand its distribution channels by entering into arrangements
with new resellers and distributors in the Company's current markets or in new
markets.
Reliance on attracting and retaining key employees. The Company's continued
success will depend in large part on its ability to attract and retain highly
qualified technical, managerial, sales and marketing and other personnel.
Competition for such personnel is intense. The Company has non-competition
agreements with its key management and technical personnel. There can be no
assurance that the Company will be able to continue to attract or retain such
personnel.
For risks related to the Year 2000 problem, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations Year 2000
Compliance".
15
<PAGE>
MapInfo Corporation
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The exhibits listed in the Exhibit Index filed as part of this report are
filed as part of this report or are included in this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
16
<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.
MAPINFO CORPORATION
Date: February 12, 1999 By: /s/ D. Joseph Gersuk
-----------------------
D. Joseph Gersuk,
Executive Vice President,
Finance, Chief Financial
Officer and Treasurer
17
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ------ ----------------------
27 Financial Data Schedule.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,419
<SECURITIES> 16,794
<RECEIVABLES> 14,539
<ALLOWANCES> 1,605
<INVENTORY> 542
<CURRENT-ASSETS> 42,220
<PP&E> 13,431
<DEPRECIATION> 8,805
<TOTAL-ASSETS> 58,362
<CURRENT-LIABILITIES> 15,984
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 42,170
<TOTAL-LIABILITY-AND-EQUITY> 58,362
<SALES> 16,145
<TOTAL-REVENUES> 16,145
<CGS> 3,560
<TOTAL-COSTS> 3,560
<OTHER-EXPENSES> 11,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 868
<INCOME-TAX> 260
<INCOME-CONTINUING> 608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
