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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
---------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number: 0-27358
DOCUMENTUM, INC.
(exact name of registrant as specified in its charter)
DELAWARE 95-4261421
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588-8547
(Address of principal executive offices)
TELEPHONE NUMBER (510) 463-6800
(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
--- ---
The number of outstanding shares of the registrant's Common Stock, par
value $.001 per share, was 14,190,807 on May 1, 1997.
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1.
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FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
of March 31, 1997 and December 31, 1996.......... 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1997 and 1996.......................... 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1997 and 1996.......................... 5
Notes to Condensed Consolidated
Financial Statements............................. 6
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
Signature.......................................................... 17
Exhibit Index...................................................... 18
2.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,904 $ 5,369
Short-term investments 43,629 46,803
Accounts receivable, net of allowances of $832 and $1,069 11,104 13,531
Other current assets 1,801 1,519
--------------- --------------
Total current assets 70,438 67,222
Property and equipment, net 6,805 6,339
Other assets 1,473 1,383
--------------- --------------
$ 78,716 $ 74,944
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,206 $ 1,488
Accrued liabilities 9,051 8,124
Deferred revenue 7,119 4,956
Current portion of long term obligations 683 833
--------------- --------------
Total current liabilities 18,059 15,401
--------------- --------------
Long term obligations 129 211
--------------- --------------
Stockholders' equity:
Preferred stock, $0.001 par value;
5,000 shares authorized
Common stock, $0.001 par value; 35,000 shares authorized;
14,175 and 14,187 shares issued and outstanding 14 14
Additional paid-in capital 61,570 61,450
Cumulative translation adjustment 2 43
Accumulated deficit (1,058) (2,175)
--------------- --------------
Total stockholders' equity 60,528 59,332
--------------- --------------
$ 78,716 $ 74,944
=============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
<PAGE>
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Licenses (including $1,013,and $1,712 from a
stockholder and its affiliates) $ 11,062 $ 6,988
Services 3,975 1,694
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Total revenues 15,037 8,682
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Cost of revenues:
Licenses 386 503
Services 2,490 1,176
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Total cost of revenues 2,876 1,679
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Gross profit 12,161 7,003
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Operating expenses:
Sales and marketing 7,285 4,022
Research and development 2,298 1,541
General and administrative 1,304 959
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Total operating expenses 10,887 6,522
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Income from operations 1,274 481
Interest and other income, net 445 338
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Income before income tax provision 1,719 819
Provision for income taxes (602) (287)
------------- -------------
Net income $ 1,117 $ 532
============= =============
Net income per share $ 0.08 $ 0.04
Shares used to compute net income per share 14,880 14,132
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.
<PAGE>
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,117 $ 532
Adjustments to reconcile net income to net cash provided by
operating activities;
Depreciation and amortization 711 388
Changes in assets and liabilities:
Accounts receivable 2,428 33
Other current assets and other assets (373) 129
Accounts payable (282) 272
Accrued liabilities 927 (135)
Deferred revenue 2,163 396
-------------- -------------
Net cash provided by operating activities 6,691 1,615
-------------- -------------
Cash flows from investing activities
Purchase of short-term investments (22,586) (36,692)
Sales of investments 25,760 -
Purchases of property and equipment (1,177) (1,351)
-------------- -------------
Net cash provided (used) by investing activities 1,997 (38,043)
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Cash flows from financing activities
Issuance of common stock, net 120 45,183
Proceeds from term loan - 388
Repayments on capital lease obligations (62) (87)
Repayment on term loan (170) (122)
-------------- -------------
Net cash (used) provided by financing activities (112) 45,362
-------------- -------------
Effect of exchange rates on changes in cash (41) (7)
-------------- -------------
Net increase in cash and cash equivalents 8,535 8,927
Cash and cash equivalents at beginning of period 5,369 5,978
-------------- -------------
Cash and cash equivalents at end of period $ 13,904 $ 14,905
============== =============
Supplemental disclosures:
Cash paid for income taxes $ 45 $ 426
Cash paid for interest 22 32
Non-cash investing and financing activities:
Conversion of preferred stock to common stock - 13,391
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements of Documentum,
Inc. ("Documentum" or the "Company") included herein reflect all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to fairly state the Company's consolidated financial
position, results of operations, and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements as included in the Company's 1996 Annual
Report on Form 10-K. The consolidated results of operations for the period ended
March 31, 1997 are not necessarily indicative of the results to be expected for
any subsequent quarter or for the entire fiscal year ending December 31, 1997.
2 Net Income Per Share
--------------------
Net income per share is computed using the weighted average number of common
stock and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options and warrants calculated using the
treasury method. Common equivalent shares are excluded from the computation if
their effect is antidilutive. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalents shares, options and
warrants issued by the Company during the 12-month period prior to the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to and including February 5, 1996.
Effective for both interim and annual financial statements for periods ending
after December 15, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which replaces
primary earnings per share computed in accordance with APB Opinion 15 with a new
and simpler calculation called Basic Earnings Per Share and Diluted Earnings Per
Share. Basic Earnings Per Share will be calculated by dividing income available
to common stockholders by the weighted average common shares outstanding.
Diluted Earnings Per Share is calculated by dividing income available to common
stockholders by the assumed conversion of all potentially dilutive securities
under the treasury stock method. The adoption of SFAS 128 would not have a
material impact on the Company's earnings per share for the quarter ended March
31, 1997.
3 Accrued Expense and Other Current Liabilities
---------------------------------------------
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
-------------------------------------
1997 1996
---------------- -----------------
Compensation and related benefits $ 3,514 $ 3,617
Taxes 1,855 1,103
Other 3,682 3,404
---------------- -----------------
$ 9,051 $ 8,124
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6.
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DOCUMENTUM, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this Form 10-Q contains forward-looking statements regarding
the Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein as well as those discussed under
the caption "Risk Factors" in the Company's 1996 annual report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
OVERVIEW
Documentum, which was formed in 1990, provides object-oriented,
client/server software solutions that enable large organizations to effectively
manage and optimize the use of their unstructured business-critical information.
From its inception through December 1992, the Company's activities consisted
primarily of developing its products, establishing its infrastructure and
conducting market research. The Company shipped the first commercial version of
its Documentum Server product in late 1992, and since then substantially all of
the Company's revenues have been from licenses of its family of enterprise
document management system ("EDMS") products and related services, which include
maintenance and support, training and consulting services. The Company continues
to invest in research and development in order to update its family of products.
In the first three months of 1997, the Company introduced and shipped Documentum
DocLink for SAP's R/3, a bi-directional interface designed to provide seamless
integration between Documentum's Enterprise Document Management System (EDMS)
and SAP's R/3. In addition, the Company announced a new strategic alliance with
Infinity Financial Technology, Inc. to develop an interface between Infinity
Derivatives and Documentum's EDMS which would develop an enhanced solution for
integrated, automated confirmation generation and management for the financial
services market. Furthermore, Documentum, Adobe Systems Incorporated and
Cornerstone Imaging announced a technology integration to develop complete
solutions for capturing and managing large volumes of paper documents using
corporate Intranets, the World Wide Web and traditional client/server
information systems. The Company expects that EDMS-related revenue will continue
to account for substantially all of the Company's revenues for the foreseeable
future. As a result, the Company's future operating results are dependent upon
continued market acceptance of EDMS and enhancements thereto.
Since inception, the Company has invested significant resources in
developing its EDMS software, as well as building its sales, marketing and
general administrative organizations. As a result, since inception the Company's
operating expenses have increased in absolute dollar amounts and are expected to
continue to increase for the remainder of the fiscal year.
Although the Company has experienced significant revenue growth in recent
years, the Company does not believe that such growth rates are sustainable.
Accordingly, the rate at which the Company has grown in the past should not be
considered to be indicative of future revenue growth, if any, or future
operating results. There can be no assurance that the Company will remain
profitable on a quarterly basis, or at all.
7.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statement of operations as a percentage of total revenues for the
periods indicated:
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
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Revenues:
Licenses 74% 80%
Services 26% 20%
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Total revenues 100% 100%
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Cost of revenues:
Licenses 3% 6%
Services 17% 14%
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Total cost of revenues 20% 20%
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Gross profit 80% 80%
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Operating expenses:
Sales and marketing 48% 46%
Research and development 15% 18%
General and administrative 9% 11%
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Total operating expenses 72% 75%
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Income from operations 8% 5%
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Interest and other income, net 3% 4%
----------- ------------
Income before income tax provision 11% 9%
Provision for income taxes (4%) (3%)
=========== ===========
Net income 7% 6%
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REVENUES
--------
The Company's revenues are derived from perpetual licenses for its document
management software and related services, which include maintenance and support,
training and consulting services. License revenues are recognized upon shipment
of the product if no significant vendor obligations remain and collection of the
resulting receivable is probable. In instances where a significant vendor
obligation exists, revenue recognition is deferred until the obligation has been
satisfied. Allowances for estimated future returns are provided upon shipment.
Annual maintenance and support revenues are recognized for providing ongoing
support and product updates and are recognized ratably over the term of the
contract. Renewals of maintenance contracts are recorded when collectibility is
deemed probable. Revenues from training and consulting are recognized when the
services are performed and collectibility is deemed probable.
License revenues increased by 58% to $11.1 million for the three months
ended March 31, 1997 from $7.0 million for the three months ended March 31,
1996. The growth in license revenues was due to an increase in the number of
licenses sold, reflecting increased acceptance of the Company's EDMS family of
products, as well as the growing number of customers who have
8.
<PAGE>
repeatedly purchased large quantities of product licenses, and the expansion of
the Company's sales organization. During the quarter ended March 31, 1997, a
single sale to one customer accounted for 45% or $5.0 million of total license
revenues for the quarter. For the quarters ended March 31, 1997 and 1996,
license revenues from Xerox and certain Xerox affiliates ("Xerox"), acting as
systems integrators, a VAR and a distributor for the Company's products,
accounted for 9% and 25% of total license revenues respectively. Although the
Company's customer base has grown as revenues have increased, a relatively small
number of end user customers have historically accounted for a significant
percentage of the Company's revenues, particularly on a quarterly basis, as
noted above. The loss of a major customer or any reduction or delay in orders by
such customers would have a material adverse effect on the Company's business,
operating results and financial condition.
Service revenue increased 135% to $4.0 million for the three months
ended March 31, 1997 from $1.7 million for the three months ended March 31, 1996
representing 26% and 20% of total revenues in the respective periods. The growth
in both service revenue dollars and in service revenues as a percent of total
revenues was attributable to increased demand for services, larger installed
base of customers receiving ongoing maintenance, training and support services,
and increases in the Company's professional services consulting staff.
The Company markets its products through its direct sales force and its
indirect channel partners. Historically, the Company has generated the majority
of its revenues from its direct sales force. However, the Company has also
focused on complementing its direct sales channel with indirect channels,
consisting of system integrators and distributors. Revenues from all indirect
channel partners comprised 18% and 33% of license revenues for the quarters
ended March 31, 1997 and 1996, respectively. License revenues from indirect
channels include revenues from Xerox. License revenues from Xerox acting in its
role as an indirect channel partner represented 9%, and 25% of total license
revenues for the three months ended March 31, 1997 and 1996, respectively. Xerox
owned approximately 26% of the Company's outstanding common shares as of March
31, 1997. Management believes that the revenues, gross profit and costs and
expenses relating to transactions with Xerox are indicative of amounts which
would have been incurred or realized from nonrelated parties. The decrease in
both indirect channel revenues and revenues from Xerox as a percent of license
revenues is due to one large direct sale recorded during the quarter ended March
31, 1997 which was equal to 45% of license revenues for the quarter. Excluding
this direct sale, revenues from all indirect channel partners and from Xerox
would have been 32% and 17% for the period ending March 31, 1997, respectively.
Revenues from indirect partners including Xerox for any period are subject to
significant variations. As a result, the Company believes that period to period
comparisons of indirect revenues are not necessarily meaningful and should not
be relied upon as indications of future performance. There can be no assurance
that Xerox or the Company's other indirect channel partners will elect or be
able to continue to market or support EDMS effectively, or that economic
conditions or industry demand will not adversely affect these partners.
International revenues represented 15% and 26% of license revenues for the
three months ended March 31, 1997 and 1996, respectively. The decrease in
international revenues as a percent of license revenues for the three months
ended March 31, 1997 is due to one large domestic sale recorded during the
quarter ended March 31, 1997 which was equal to 45% of license revenues for the
quarter. Excluding this direct sale, international revenues would have been 21%
of licenses revenue for the three months ending March 31, 1997. A significant
portion of the international revenues are derived from the Company's indirect
channel partners, which include Xerox. International revenues are subject to
significant variations. The Company classifies license revenue as domestic or
international based upon the billing location of the customer. In many
instances, especially with large purchases from multinational companies, the
customer has the right to deploy the licenses anywhere in the world. Thus the
percentages discussed herein represent where licenses were sold, and may or may
not represent where they are used. As a result, the Company believes that period
to period comparison of international revenues are not necessarily meaningful
and should not be relied upon as indications of future performance. The
Company's direct international sales are primarily denominated in United States
dollars and the Company does not currently engage in hedging activities.
Although exposure to currency fluctuations to date has been insignificant, there
can be no assurance that fluctuations in the currency exchange rates in the
future will not have a material adverse impact on revenues from direct
international sales and thus the Company's business, operating results and
financial condition.
COST OF REVENUES
----------------
Cost of license revenues consists primarily of the royalties paid to
third-party vendors and product costs such as packaging, documentation,
production and freight. Cost of license revenues decreased by 23% to $386,000
for the three months ended March 31, 1997 from $503,000 for the three months
ended March 31, 1996, representing 3% and 7% of license revenues for the three
months ended March 31, 1997 and 1996, respectively. The decrease in cost of
license revenues and the decrease in costs of license revenues as a percentage
of license revenues was principally related to a decrease in the number of
shipments requiring royalty payments due to the fact that 45% of the Company's
license revenue was attributable to one customer. The Company expects that the
cost of license revenues will increase in dollar amount and may increase as a
percentage of revenues for the remainder of the year.
9.
<PAGE>
Cost of service revenues consists primarily of personnel-related costs
incurred in providing telephone support, consulting services and training to
customers. Cost of service revenues increased by 112% to $2.5 million for the
three months ended March 31, 1997 from $1.2 million for the three months ended
March 31, 1996, representing 63% and 69% of related service revenues for the
three months ended March 31, 1997 and 1996, respectively. The increase in cost
of service revenue was a result of increased personnel-related costs as the
Company expanded its customer support and training operations to support its
increased installed customer base in both the US and Europe, as well as payments
to third parties for providing support and consulting services. The Company
expects that the cost of services revenues will increase in dollar amount for
the remainder of the year in order to support and service the growing installed
base of customers.
OPERATING EXPENSES
------------------
Sales and marketing. Sales and marketing expenses consist primarily of
-------------------
salaries, benefits, sales commissions and other expenses related to the direct
sales force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses increased by 81% to $7.3 million for the
three months ended March 31, 1997 from $4.0 million for the three months ended
March 31, 1996, representing 48% and 46% of total revenues for the three months
ended March 31, 1997 and 1996, respectively. The increase in dollar amount and
the increase as a percentage of revenues was the result of the Company's
strategy to continue to invest in its sales and marketing infrastructure,
including increasing the number of sales teams during the quarter and increasing
the number of marketing programs. The Company expects that sales and marketing
expenses will increase in dollar amount for the remainder of the year, in order
to drive the Company's anticipated revenue growth.
Research and development. Research and development expenses consist
------------------------
primarily of salaries and benefits for software developers, contracted
development efforts and related facilities costs. Research and development
expenses increased by 49% to $2.3 million for the three months ended March 31,
1997 from $1.5 million for the three months ended March 31, 1996, representing
15% and 18% of total revenues for the three months ended March 31, 1997 and
1996, respectively. The increase in dollar amount reflects the expansion of the
Company's engineering staff and related costs required to support the
development of new products and enhancement of existing products. The decrease
in research and development as a percentage of revenue is due primarily to the
Company's strategic decision to increase the level of investment in sales and
marketing activities. Accounting Standards No. 86 ("SFAS 86") requires the
capitalization of software development costs once technological feasibility is
established. To date, the software development costs qualifying for
capitalization have been insignificant, and as a result, no software development
costs have been capitalized. The Company expects research and development
expenses will increase in dollar amount for the remainder of the year in order
to support increased development efforts to both existing products and new
products.
General and administrative. General and administrative expenses consist
--------------------------
primarily of personnel costs for finance, management information systems, human
resources and general management as well as outside professional services.
General and administrative expenses increased by 36% to $1.3 million for the
three months ended March 31, 1997 from $959,000 for the three months ended March
31, 1996, representing 9% and 11% of total revenues for the three months ended
March 31, 1997 and 1996, respectively. The increase in dollar amount is
primarily due to increased staffing and professional fees necessary to manage
and support the Company's growth. The decrease in spending as a percentage of
revenues is primarily due to economies of scale realized as certain expenses
such as management compensation grew proportionately less than revenues. The
Company expects general and administrative expenses to increase in dollar amount
for the remainder of the year in order to support the growing needs of the
Company.
INTEREST AND OTHER INCOME, NET
------------------------------
Interest and other income, net consists primarily of interest income earned
on the Company's cash and cash equivalents and short term investments, and other
items including foreign exchange gains and losses and interest expense. Interest
and other income, net increased 32% to $445,000 for the three months ended March
31, 1997 from $338,000 for the three months ended March 31, 1996. The increase
in dollar amount is primarily due to interest income earned on higher cash
balances. To date, the Company's international sales have been generally
denominated in US dollars and the Company has not engaged in hedging activities
as the exposure to currency fluctuations has been insignificant. In the future,
as the Company expands its international operations, the Company expects to have
an increased amount of non-US denominated contracts. Unexpected changes in the
exchange rates for these foreign currencies could result in significant
fluctuation in the foreign currency translation gains and losses in future
periods.
10.
<PAGE>
PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes reflects the estimated annualized
effective tax rate of 35% applied to earnings for the three months ended March
31, 1997 and March 31, 1996. In accordance with Financial Accounting Standards
No. 109, "Accounting for Income Taxes", the Company provides a valuation
allowance for deferred tax assets when it is more likely than not, based on
available evidence, that some portion or all of the deferred tax assets will not
be realized. At March 31, 1997 the Company has valued its deferred tax assets at
$1.3 million which is comprised of reserves not deductible for tax purposes. The
Company will continue to assess the realizability of the deferred tax assets
based on actual and forecasted operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has financed its operations primarily through the
sale of stock and through cash generated from operations. In February 1996, the
Company completed its initial public offering of common stock, and its common
stock began trading on the Nasdaq National Market under the symbol DCTM. Through
the offering, the Company sold 2,058,000 shares of its common stock, and
received net proceeds of approximately $45 million cash.
The Company's cash and investments totaled $57.5 million at March 31, 1997
representing 73% of total assets. The Company has invested the Company's cash in
excess of current operating requirements in a portfolio of both taxable and
tax-exempt investment grade securities. The investments have variable and fixed
interest rates and short term and long term maturities. In accordance with SFAS
115, "Accounting for Certain Investments in Debt and Equity Securities" such
investments are classified as "available for sale".
Net cash provided by operating activities was $6.7 million and $1.6 million
for the three months ended March 31, 1997 and 1996, respectively. For the three
months ended March 31, 1997, the cash generated by operations was primarily
attributable to net income of $1.1 million, growth in accrued liabilities of
$927,000 and deferred revenue of $2.2 million, offset by the decrease in
accounts receivable of $2.6 million. For the three months ended March 31, 1997,
capital expenditures of $1.2 million were primarily for computer equipment,
fixed assets and leasehold improvements acquired in conjunction with the
Company's expansion to new facilities.
The Company has a current line of credit facility which allows for
borrowings of up to $5.0 million at the bank's prime rate. This facility expires
in November, 1997 and the Company presently anticipates that it will be able to
renew the line of credit. At March 31, 1997, the Company had no outstanding
borrowings under its line of credit.
At March 31, 1997, the Company had $324,000 outstanding under a term note
payable to a bank. The balance of the term note is repayable in 7 equal monthly
payments of approximately $41,000 together with interest at the Bank's prime
rate plus 0.75%. The Company also had $339,000 outstanding under a second term
note payable to a bank. The balance of the term note is repayable in 20 equal
monthly payments of approximately $16,000 together with interest at the Bank's
prime rate plus 0.50%. Subsequent to the end of the quarter, the Company paid in
full the balance outstanding on both term notes.
In addition, the Company may borrow up to an additional $1.5 million
through November 1997. Interest only is payable on such additional borrowings at
the Bank's prime rate plus 0.25% through November 1997 after which any
outstanding balance is due in 24 equal installments. All obligations shall bear
interest, from and after the occurrence of an event of default, at a rate equal
to 5% points above the interest rate applicable immediately prior to the
occurrence of the event of default. Borrowings under the loan agreement are
secured by substantially all of the assets of the Company.
The Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and capital leases.
The Company believes that its existing cash balances, its available bank
financing and the cash flows generated from operations, if any, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. A portion of the Company's cash
could be used to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. The Company is currently
evaluating, in the ordinary course of business, potential investments such as
businesses, products or technologies. The Company has no current commitments or
agreements with respect to any material acquisition of other businesses,
products or technologies.
11.
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
Uncertainty of Future Operating Results; Fluctuations in Quarterly
------------------------------------------------------------------
Operating Results. Prior growth rates in the Company's revenue and operating
- -----------------
results should not be considered indicative of future growth, if any, or of
future operating results. Future operating results will depend upon many
factors, including the demand for the Company's products, the level of product
and price competition, the length of the Company's sales cycle, the size and
timing of individual license transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the Company's
success in expanding its direct sales force and indirect distribution channels,
the timing of new product introductions and product enhancements by the Company
and its competitors, the mix of products and services sold, levels of
international sales, activities of and acquisitions by competitors, the timing
of new hires, changes in foreign currency exchange rates, the ability of the
Company to develop and market new products and control costs and general
domestic and international economic and political conditions. In addition, the
operating results of many software companies reflect seasonal trends, and the
Company's business, operating results and financial condition may be affected by
such trends in the future. A relatively small number of end user customers
account for a significant percentage of the Company's revenues. The Company
expects that sales of its products to a limited number of customers and industry
segments will continue to account for a high percentage of revenue for the
foreseeable future. The Company's sales generally reflect a relatively high
amount of revenues per order. The loss or delay of individual orders, therefore,
could have a significant impact on the revenues and quarterly results of the
Company. Moreover, the timing of license revenue is difficult to predict because
of the length of the Company's sales cycle, which is typically six to twelve
months from the initial contact. Because the Company's operating expenses are
based on anticipated revenue trends and because a high percentage of the
Company's expenses are relatively fixed, a delay in the recognition of revenue
from a limited number of license transactions could cause significant variations
in operating results from quarter to quarter and could result in losses. To the
extent such expenses precede increased revenues, the Company's operating results
would be materially adversely affected. As a result of these factors, operating
results for any quarter are subject to significant variation, and the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Furthermore, due to all of the foregoing factors, it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.
Lengthy Sales and Implementation Cycles. The license of the Company's
---------------------------------------
software products is often an enterprise-wide decision by prospective customers
and generally requires the Company to engage in a lengthy sales cycle (typically
between six and twelve months) to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
Additionally, the size of the transaction and the complexity of the arrangement
can also cause delays in the sales cycle. Additionally, the implementation by
customers of the Company's products involves a significant commitment of
resources by such customers over an extended period of time and is commonly
associated with substantial reengineering efforts. For these and other reasons,
the sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. Delay in the
sale or customer implementation of a limited number of license transactions
could have a material adverse effect on the Company's business and operations
and cause the Company's operating results to vary significantly from quarter to
quarter. Therefore, the Company believes that its quarterly operating results
are likely to vary in the future.
Risk of Product Defects. Software products as complex as those offered by
-----------------------
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Although the Company conducts
extensive product testing, the Company has in the past released products that
contain defects, and has discovered software errors in certain of its new
products and enhancements after their introduction. The Company could in the
future lose or delay recognition of revenues as a result of software errors or
defects. The Company's products are typically intended for use in applications
that may be critical to a customer's business. As a result, the Company expects
that its customers and potential customers have a greater sensitivity to product
defects than the general market for software products. Although the Company's
business has not been adversely affected by any such errors to date, there can
be no assurance that, despite testing by the Company and by current and
potential customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, diversion of development resources, damage to the Company's
reputation, or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
12.
<PAGE>
Product Concentration. To date, substantially all of the Company's revenues
---------------------
have been attributable to sales of licenses of the Documentum EDMS family of
products and related services. The Company currently expects the Documentum EDMS
family of products, and related services, to account for substantially all of
its future revenues. As a result, factors adversely affecting the pricing of or
demand for the Documentum EDMS products such as competition or technological
change could have a material adverse effect on the Company's business, operating
results and financial condition. The Company's future financial performance will
depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of the Documentum EDMS family
of products.
End User Customer and Industry Concentration. A relatively small number of
--------------------------------------------
end user customers account for a significant percentage of the Company's
revenues. The Company expects that sales of its products to a limited number of
customers and industry segments will continue to account for a high percentage
of revenue for the foreseeable future. In addition, the future success of the
Company will depend on its ability to obtain orders from new customers and its
ability to successfully market its products in industries other than the
pharmaceutical industry. The loss of a major customer or any reduction or delay
in orders by such customers, or the failure of the Company to successfully
market its products outside existing targeted industry segments would have a
material adverse effect on the Company's business, operating results and
financial condition.
Reliance on Certain Relationships. The Company has established strategic
---------------------------------
relationships with a number of organizations that it believes are important to
its worldwide sales, marketing, support and development activities. The
Company's relationships with indirect channel partners and other consultants
provide marketing and sales opportunities for the Company's direct sales force,
expand the distribution of its products and broaden its product offerings
through product bundling. The Company's relationships with its technology
partners provide its customers with integrated product solutions, updates and
enhancements to third party products used in conjunction with the Company's
products, and changes in customer requirements or emerging industry standards.
There can be no assurance that any systems integrator or distributor will
continue to market or to resale the Company's products or that the Company will
be successful in maintaining relationships that assist the Company in keeping
pace with the technological and marketing developments of major vendors, and in
certain instances, provide the Company with technical assistance for the
Company's product development efforts. The failure by the Company to maintain
these relationships, or to establish new relationships in the future, could have
a material adverse effect on the Company's business, operating results and
financial condition.
New Products and Rapid Technological Change. The document management
-------------------------------------------
software market is characterized by rapid technological change, changes in
customer requirements, frequent new product introductions and enhancements and
emerging industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. Accordingly, the life cycles of the
Company's products are difficult to estimate. The Company's future success will
depend in part upon its ability to enhance current products and to develop and
introduce new products that respond to evolving customer requirements and keep
pace with technological developments and emerging industry standards. Moreover,
the Company has in the past experienced delays in the release dates of
enhancements to its EDMS products. If release dates of any future EDMS
enhancements are delayed or, if when released, fail to achieve market
acceptance, the Company's business, operating results and financial condition
could be materially adversely affected.
Dependence on Emerging Markets. The client/server application software
------------------------------
market is a relatively new market and is intensely competitive, highly
fragmented and subject to rapid change. The Company markets its products solely
to customers who have migrated their enterprise computing systems to
client/server computing environments. The Company's future financial performance
will depend in large part on continued growth in the number of organizations
adopting client/server computing environments. There can be no assurance that
the client/server market will maintain its current level of growth or continue
to grow at all. If the client/server market fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected.
In addition, the commercial market for products and services designed for
use with the Internet, corporate intranets and the World Wide Web has only
recently begun to develop, and the success of the Company's products may depend,
in part, on their continued compatibility with the Internet, corporate intranets
and the World Wide Web. It is difficult to predict with any assurance whether
the Internet will prove to be a viable commercial marketplace or whether the
demand for Internet-related products and services will increase or decrease in
the future. The increased commercial use of the Internet could require
substantial modification and customization of the Company's products and
services and the continued introduction of new products and services.
Intense Competition. The market for the Company's products is intensely
-------------------
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for open, client/server
software solutions, and the Company's competitors offer a variety of products
and
13.
<PAGE>
services to address this market. The Company currently encounters direct
competition from a number of public and private companies such as Saros, a
FileNet Company, PC DOCS, Novasoft, OpenText, Metaphase and Lotus Notes. Several
of these competitors have longer operating histories, significantly greater name
recognition, installed base of customers, financial, technical, marketing and
other resources than the Company.
It is also possible that new and emerging competitors such as Oracle,
Microsoft, or alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that competition will
increase as a result of software industry consolidations. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, operating results and financial
condition.
Management of Growth; Dependence Upon Key Personnel. The Company's ability
---------------------------------------------------
to compete effectively and to manage future anticipated growth, will require the
Company to expand, train and manage its employee work force. The Company's plans
include hiring a significant number of highly-qualified technical, sales and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to attract assimilate or retain
such key employees which could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
-----------------------------------------------------------
success is heavily dependent upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent applications
pending. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company is not aware that any of
its products infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments overlaps.
Any such claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. In addition, the Company also relies
on certain software that it licenses from third parties, including software that
is integrated with internally developed software and used in the Company's
products to perform key functions. There can be no assurances that such firms
will remain in business, that they will continue to support their products or
that their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software can be developed, identified, licensed and integrated,
which would adversely affect the Company's business, operating results and
financial condition.
International Operations. The Company's sales are primarily to large
------------------------
multinational companies. To service the needs of such companies, both
domestically and internationally, the Company and its support partners must
provide worldwide product support services. As a result, the Company intends to
continue expanding its existing international operations and enter additional
international markets, which will require significant management attention and
financial resources and could adversely affect the Company's operating margins
and earnings, if any. The Company opened an office in London in April 1994, in
Frankfurt in December 1994, in Paris in November 1994 and in Munich in October
1996. In 1996, the Company established its own European technical support
operation, located in the London office. In order to successfully expand
international sales, the Company must establish additional foreign operations,
hire additional personnel and develop relationships with additional
international vendors. To the extent that the Company is unable to do so in a
timely manner, the Company's growth, if any, in international sales will be
limited, and the Company's business, operating results and financial condition
could be materially adversely affected.
Additional risks inherent in the Company's international business
activities generally include currency fluctuations, unexpected changes in
regulatory requirements, tariffs and other trade barriers, costs of and the
Company's limited experience in localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences including restrictions on the
14.
<PAGE>
repatriation of earnings, and the burdens of complying with a wide variety of
foreign laws. To date, substantially all of the Company's international revenues
have been denominated in U.S. dollars. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in the currency exchange rates in the future will not have a
material adverse impact on revenues from direct international sales and thus the
Company's business, operating results or financial condition.
Product Liability. The Company's license agreements with its customers
-----------------
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Control By Existing Stockholders. The Company's executive officers,
--------------------------------
directors and affiliated entities together beneficially own approximately 40% of
the outstanding shares of Common Stock as of March 31, 1997. In particular,
Xerox owned approximately 26% of the outstanding shares of Common Stock. As a
result, these stockholders are effectively able to exercise control over matters
requiring stockholder approval, including the election of directors, and
mergers, consolidations and sales of all or substantially all of the assets of
the Company. This may prevent or discourage tender offers for the Company's
Common Stock or changes in the control of the Company unless the terms are
approved by such stockholders.
Possible Volatility of Stock Price. The trading price of the Company's
----------------------------------
Common Stock is subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant orders, changes in
earning estimates by analysts, announcements of technological innovations or new
products by the Company or its competitors, general conditions in the software
and computer industries and other events or factors. In addition, the stock
market in general has experienced extreme price and volume fluctuations which
have affected the market price for many companies in industries similar or
related to that of the Company and which have been unrelated to the operating
performance of these companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock.
Effect of Certain Charter Provisions: Antitakeover Effects of Certificate
-------------------------------------------------------------------------
of Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has
- -----------------------------------------
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
current plans to issue any shares of Preferred Stock. Further, certain
provisions of the Company's Amended and Restated Certificate of Incorporation,
including provisions that create a classified board of directors, and certain
provisions of the Company's Amended and Restated Bylaws and of Delaware law
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company.
15.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(1)3.1 Registrant's Amended and Restated Certificate of
Incorporation.
(2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated June 9, 1995, between the
Registrant and Sunol Center
Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley
Bank.
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993,
between the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994,
between the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated
November 10, 1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV
Limited Partnership.
11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
27.1 Financial Data Schedule.
- --------
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1,
as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(b) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED MARCH
31, 1997.
16.
<PAGE>
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOCUMENTUM, INC.
(Registrant)
Date: May 9, 1997 By: /s/ Mark S. Garrett
----------------------
Mark S. Garrett
Vice President, and Chief Financial Officer,
(Duly Authorized Officer and Principal Financial
Officer)
17.
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(1)3.1 Registrant's Amended and Restated Certificate of
Incorporation (2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated June 9, 1995, between the
Registrant and Sunol Center
Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley
Bank.
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993,
between the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994,
between the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated
November 10, 1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV
Limited Partnership.
11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
27.1 Financial Data Schedule.
- --------
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1,
as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
<PAGE>
EXHIBIT 11.1
DOCUMENTUM, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
Three Months Ended
March 31,
--------------------------------
1997 1996
-------------- --------------
Net Income $ 1,117 $ 532
============== ==============
Primary shares outstanding:
Weighted average shares outstanding
during the period 14,174 13,090
Common stock equivalent shares 706 1,042
-------------- --------------
14,880 14,132
============== ==============
Primary net income per
common stock and common stock
equivalent share (1) $ 0.08 $ 0.04
============== ==============
(1) Fully diluted earnings per share is not required to be presented
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,904
<SECURITIES> 43,629
<RECEIVABLES> 11,936
<ALLOWANCES> 832
<INVENTORY> 0
<CURRENT-ASSETS> 70,438
<PP&E> 11,032
<DEPRECIATION> 4,227
<TOTAL-ASSETS> 78,716
<CURRENT-LIABILITIES> 18,059
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 60,514
<TOTAL-LIABILITY-AND-EQUITY> 78,716
<SALES> 11,062
<TOTAL-REVENUES> 15,037
<CGS> 386
<TOTAL-COSTS> 2,876
<OTHER-EXPENSES> 10,887
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 1,719
<INCOME-TAX> 602
<INCOME-CONTINUING> 1,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,117
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
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