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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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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 August 1, 1999 was 5,783,756.
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<PAGE>
MAPINFO CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1999
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Income Statements
for the three and nine months ended June 30, 1999 and 1998 1
Balance Sheets
as of June 30, 1999 and September 30, 1998 2
Cash Flows Statements
for the nine months ended June 30, 1999 and 1998 3
Notes to Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<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 Nine Months
Ended June 30, Ended June 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $19,012 $15,451 $53,185 $43,493
Cost of revenues 3,801 3,454 11,304 9,658
------- ------- ------- -------
Gross profit 15,211 11,997 41,881 33,835
------- ------- ------- -------
Operating expenses:
Research and development 2,787 2,519 8,195 7,626
Selling and marketing 8,260 6,633 22,828 18,855
General and administrative 2,727 2,164 7,410 5,791
------- ------- ------- -------
Total operating expenses 13,774 11,316 38,433 32,272
------- ------- ------- -------
Operating income 1,437 681 3,448 1,563
Other income - net 221 425 662 904
------- ------- ------- -------
Income before provision for income taxes 1,658 1,106 4,110 2,467
Provision for income taxes 531 275 1,315 568
------- ------- ------- -------
Net income $ 1,127 $ 831 $ 2,795 $ 1,899
======= ======= ======= =======
Earnings per share:
Basic $ 0.20 $ 0.14 $ 0.49 $ 0.32
Diluted $ 0.19 $ 0.14 $ 0.47 $ 0.32
Weighted average shares outstanding:
Basic 5,767 5,836 5,733 5,863
Diluted 6,090 5,955 5,990 5,976
</TABLE>
See accompanying notes.
1
<PAGE>
MapInfo Corporation and Subsidiaries
Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,525 $ 15,886
Short-term investments, at amortized cost 17,625 13,037
Accounts receivable, less allowance of $1,449 and $1,772
at June 30, 1999 and September 30, 1998, respectively 17,325 15,224
Inventories 529 601
Other current assets 2,792 1,971
Deferred income taxes 740 734
-------- --------
Total current assets 46,536 47,453
Property and equipment - net 4,547 4,430
Product development costs - net 1,237 1,272
Deferred income taxes 1,369 1,369
Intangible assets - net 5,546 3,458
Investments and other assets 2,904 1,549
-------- --------
Total assets $ 62,139 $ 59,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,811 $ 2,200
Accrued liabilities 9,908 10,522
Deferred revenue 4,073 3,781
Income taxes payable 1,304 992
-------- --------
Total current liabilities 17,096 17,495
Deferred revenue, long term 541 322
-------- --------
Total liabilities 17,637 17,817
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.002 par value 12 12
Preferred stock, $0.01 par value - -
Paid-in capital 30,820 31,046
Retained earnings 16,528 13,733
Translation adjustment (504) 95
-------- --------
46,856 44,886
Less treasury stock, at cost 2,354 3,172
-------- --------
Total stockholders' equity 44,502 41,714
-------- --------
Total liabilities and stockholders' equity $ 62,139 $ 59,531
======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
MapInfo Corporation and Subsidiaries
Cash Flows Statements
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months
Ended June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from (used for) operating activities
Net income $ 2,795 $ 1,899
Depreciation and amortization 3,306 3,218
Allowance for doubtful accounts, sales returns and inventory (241) 195
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (1,869) (3,049)
Inventories (5) (23)
Other assets (1,592) (183)
Accounts payable and accrued liabilities 1,161 1,040
Deferred revenue 163 810
Income taxes payable 347 182
-------- --------
Net cash from operating activities 4,065 4,089
-------- --------
Cash flows from (used for) investing activities
Additions to property and equipment (2,111) (2,431)
Capitalized product development costs (462) (211)
Acquisition of businesses and technology (4,960) (2,088)
Short-term investments, net (4,588) (4,625)
Other investments (1,011) (1,171)
-------- --------
Net cash used for investing activities (13,132) (10,526)
-------- --------
Cash flows from (used for) financing activities
Purchase of common stock for treasury (383) (2,837)
Proceeds from exercise of options and ESPP stock purchases 824 637
Tax benefit from option exercises 153 79
-------- --------
Net cash from (used for) financing activities 594 (2,121)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 112 (92)
-------- --------
Net change in cash and equivalents (8,361) (8,650)
Cash and equivalents, beginning of period 15,886 24,711
-------- --------
Cash and equivalents, end of period $ 7,525 $ 16,061
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
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 and nine months ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
Three months Nine months
ended June 30, ended June 30,
--------------- ----------------
1999 1998 1999 1998
------ ------ ------- ------
(Amounts in thousands,
except per share data)
<S> <C> <C> <C> <C>
Net income $1,127 $ 831 $ 2,795 $1,899
====== ====== ======= ======
Weighted average shares for basic EPS 5,767 5,836 5,733 5,863
Effect of dilutive stock options 323 119 257 113
------ ------ ------- ------
Weighted average shares and assumed
exercise of stock options for diluted EPS 6,090 5,955 5,990 5,976
====== ====== ======= ======
Basic EPS $ 0.20 $ 0.14 $ 0.49 $ 0.32
Diluted EPS $ 0.19 $ 0.14 $ 0.47 $ 0.32
</TABLE>
4
<PAGE>
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 information below has been
reclassified to conform to the requirements of SFAS 130.
Comprehensive income was as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended June 30, ended June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Net income $ 1,127 $ 831 $ 2,795 $ 1,899
Change in accumulated translation
adjustments (160) (232) (599) (229)
------- ------- ------- -------
Total comprehensive income $ 967 $ 599 $ 2,196 $ 1,670
======= ======= ======= =======
</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.
5
<PAGE>
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 nine months ended June 30, 1999, 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.
7. Common Stock Repurchase Program
In February 1999, the Board of Directors authorized the Company to repurchase
from time to time up to $5,000,000 of the Company's Common Stock on the open
market or in negotiated transactions. The repurchase program will remain in
effect until September 30, 2000 unless discontinued earlier or extended by the
Board of Directors. The Company intends to use the repurchased shares for
issuance upon exercise of employee stock options, purchases under the Company's
stock purchase plan, or other corporate purposes. During the nine months ended
June 30, 1999, the Company repurchased 23,200 shares at a cost of $383,000
under this program.
6
<PAGE>
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 third quarter of 1999 increased 23% to $19.0 million from $15.5
million in the same period a year ago. Approximately two-thirds of the $3.5
million increase in revenue were attributable to increased sales of data
products. Included in the increase in data revenues is approximately $1.0
million in data/telecommunications solutions revenues attributable to the
December 1998 acquisition of On Target Mapping. Approximately 20% of the overall
revenue increase was related to increased sales of software products, including
MapInfo Professional(R) version 5.5 which was released in June 1999. On a
geographic basis, revenues increased 24% in the Americas and 36% in Europe. The
increase in the Americas revenue was primarily the result of increased data
revenues, including revenues attributable to On Target Mapping. The increase in
revenues in Europe was primarily due to strong software product sales in Germany
and continued expansion in the data business in the United Kingdom. Asia-Pacific
revenues decreased 2%, primarily due to lower revenues in Japan, partially
offset by increases in Australia and China.
For the nine months ended June 30, 1999, revenues increased 22% to $53.2 million
from $43.5 million in the same period in 1998. Data products accounted for $6.1
million or 63% of the overall revenue increase. The increase in data revenues
was primarily attributed to an additional $2.2 million of revenue relating to
the On Target Mapping acquisition, $1.3 million of incremental revenue from The
Data Consultancy acquisition, and to the sales of new data products in the
Americas. An increase in sales of the Company's software products accounted for
25% of the overall year-to-date revenue increase. On a geographic basis,
revenues in the Americas increased by $5.6 million or 25%. This was achieved
principally by 76% growth in data revenues (including revenues attributable to
On Target Mapping). In Europe, revenues for the nine months increased $4.7
million or 35%, of which approximately 27% of the increase was attributable to
The Data Consultancy. Asia-Pacific revenues declined by $660 thousand or 8% in
the first nine months of fiscal 1999 compared to the same period in fiscal 1998.
This decline resulted from lower revenues in Japan, partially offset by an
increase in China revenues.
7
<PAGE>
Cost of Revenues, Operating Expenses and Income Taxes
Cost of revenues as a percentage of revenues decreased to 20.0% in the third
quarter of 1999 from 22.4% for the same period in 1998. As a result, the gross
margin increased to 80.0% from 77.6%. The gross margin increase was primarily
attributable to higher gross margin on services and improved gross margins on
data products. For the nine months ending June 30, 1999, gross margin improved
to 78.7% from 77.8% in 1998.
Research and development (R&D) expenses increased 11% over the prior year period
to $2.8 million in the third quarter of 1999. For the nine months ended June 30,
1999, R&D expenses increased approximately $600 thousand or 7% compared to the
same period last year. The increase for the quarter and year-to-date was
primarily attributed to a 10% increase in headcount, inclusive of the December
1998 acquisition of On Target Mapping. As a percentage of revenues, R&D expenses
declined to 14.7% in the third quarter of 1999 from 16.3% for the same period in
1998. For the first nine months of fiscal 1999, R&D expenses declined to 15.4%
of revenues from 17.5% in 1998.
Selling and marketing (S&M) expenses increased 25% to $8.3 million in the third
quarter of 1999 from $6.6 million for the same period in 1998. For the nine
months ended June 30, 1999, selling and marketing expenses increased 21% to
$22.8 million from $18.9 in the same period a year ago. The increase for the
quarter and year-to-date was primarily attributable to a 15% headcount increase
in the Americas sales and marketing organizations, a 20% headcount increase in
the European sales organization, and a 20% increase in spending on marketing
programs in the Americas. Such cost increases in the quarter and year-to-date
period include the cost of supporting the Company's relationship with Oracle
Corporation, as announced during the quarter. As a percentage of revenues,
selling and marketing expenses for the third quarter of 1999 increased to 43.4%
from 42.9% in the prior year. On a year-to-date basis, selling and marketing
expenses decreased to 42.9% of revenues from 43.4% in 1998.
General and administrative (G&A) expenses increased 26% to $2.7 million in the
third quarter of 1999 from $2.2 million for the same period a year ago. For the
nine months ended June 30, 1999, G&A expenses increased 28% to $7.4 million from
$5.8 million in 1998. The increase in G&A expenses for the third quarter and
year-to-date was primarily due to a 15% increase in headcount to support
expanded business operations, new MIS/Y2K initiatives and business development
initiatives. Amortization of goodwill amounted to $297 thousand for the third
quarter of fiscal 1999 and $750 thousand for the nine months ended June 30,
1999. For the third quarter of fiscal 1999, G&A expenses as a percentage of
revenues increased to 14.3% as compared to 14.0% for the same period in 1998.
For the nine months ended June 30, 1999, G&A expenses as a percentage of
revenues increased to 13.9% from 13.3% in 1998.
The effective income tax rates for the nine months ended June 30, 1999 and 1998
were approximately 32.0% and 23.0%, respectively. The increase in the provision
for income taxes was primarily attributable to an increase in the current year
pre-tax operating income.
8
<PAGE>
Financial Condition
The Company's cash and short-term investments totaled $25.2 million at June 30,
1999 compared to $28.9 million at September 30, 1998. At June 30, 1999, the
Company's investment portfolio consisted primarily of short-term, liquid,
tax-exempt and taxable 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 June 30, 1999.
Net cash generated from operating activities was $4.1 million for the nine
months ended June 30, 1999 and $4.1 million for the corresponding prior year
period. The cash generated from operating activities in the first nine months of
1999 was principally the result of net income ($2.8 million), and fluctuations
in the working capital components. Net cash used for investing activities in the
first nine months of 1999 was $13.1 million. Significant investing activities
included $2.7 million of contingent payments related to the acquisition of The
Data Consultancy; $2.2 million for the acquisition of On Target Mapping; $1.0
million for an investment in Three D Graphics, Inc.; $2.1 million in purchases
of property and equipment; and $4.6 million in net purchases of short-term
investments.
In February 1999, the Board of Directors authorized the Company to repurchase
from time to time up to $5 million of the Company's Common Stock on the open
market or in negotiated transactions. The repurchase program will remain in
effect until September 30, 2000 unless discontinued earlier or extended by the
Board of Directors. The Company intends to use the repurchased shares for
issuance upon exercise of employee stock options, purchases under the Company's
stock purchase plan, or other corporate purposes. During the nine months ended
June 30, 1999, the Company repurchased 23,200 shares at a cost of $383 thousand
under this program.
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.
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.
9
<PAGE>
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 was paid 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 annum, 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 Object/FX Java-based
products. The investment in Object/FX has been accounted for under the cost
method.
Pursuant to a letter agreement dated April 19, 1999, Object/FX was given
the right to pre-pay the convertible debt and to repurchase the Company's equity
interest at a premium to its purchase price, subject to Object/FX's consummation
of additional financing. Additionally, the Company provided Object/FX with the
right to rescind the Company's purchase option to acquire a majority interest in
Object/FX Corporation in exchange for purchase warrants for 200,000 shares of
common stock. On June 21, 1999, Object/FX issued to the Company a Common Stock
Purchase Warrant for 200,000 shares of common stock which may be exercised on or
before June 21, 2004, thus rescinding the Company's purchase option.
10
<PAGE>
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 has coordinated the identification of
all potential risk areas and is in the process of completing necessary 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 products is complete. The assessment for internal
systems is complete and the remediation and testing is nearing completion. 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
believes that such products are Year 2000 compliant, with the exception of
certain retired products or products for which remediation versions are
available. 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 has completed 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 order
processing, principal accounting and production systems are Year 2000 compliant.
Some systems have been remediated as a consequence of normal and previously
planned business improvement and system replacement projects prior to 2000.
Others systems, such as personal computers and office productivity software,
have been remediated specifically for Year 2000 issues, in many cases through
low cost or free upgrades provided by the product vendors. The Company believes
that the majority of its business-critical computer systems are presently Year
2000 compliant and the remaining will be replaced, upgraded or modified prior to
2000.
11
<PAGE>
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 completed its estimate of Year 2000 costs at this stage of the
project, and expects to refine the estimate as testing and the remediation and
contingency planning tasks are completed in the near term. It is estimated that
the aggregate cost of the Company's Year 2000 efforts will be approximately
$500,000 to $600,000 of which more than $310,000 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 has established a process
and is 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. While certain IT projects have been
deferred, 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
associated with preparing its internal systems for the year 2000, there can be
no assurances that the Company will not experience serious unanticipated
12
<PAGE>
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 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.
13
<PAGE>
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 plus continued
market acceptance of upgrades and new releases of MapInfo's core 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 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
14
<PAGE>
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 46% of total Company revenues in the third 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
31% of the Company's revenues were denominated in foreign currencies during the
third quarter of fiscal 1999. Of the Company's international operations, the
Asia-Pacific region represented 14% of total Company revenues in the third
quarter of fiscal 1999. The Company's Asia-Pacific operations, in general, have
been affected by the adverse macroeconomic conditions in Asia. 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 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
15
<PAGE>
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 and 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".
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None applicable.
16
<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 June 30,
1999.
17
<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: August 13, 1999 By: /s/ D. Joseph Gersuk
--------------------------
D. Joseph Gersuk,
Executive Vice President,
Finance, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
18
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ------- ----------------------
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 7,525
<SECURITIES> 17,625
<RECEIVABLES> 18,774
<ALLOWANCES> 1,449
<INVENTORY> 529
<CURRENT-ASSETS> 46,536
<PP&E> 14,620
<DEPRECIATION> 10,073
<TOTAL-ASSETS> 62,139
<CURRENT-LIABILITIES> 17,096
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 44,490
<TOTAL-LIABILITY-AND-EQUITY> 62,139
<SALES> 53,185
<TOTAL-REVENUES> 53,185
<CGS> 11,304
<TOTAL-COSTS> 11,304
<OTHER-EXPENSES> 38,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,110
<INCOME-TAX> 1,315
<INCOME-CONTINUING> 2,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,795
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.47
</TABLE>
