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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 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: 0-26198
UNISON SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2696878
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5101 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 988-2800
(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 shares of Common Stock outstanding as of September 11, 1997
was 11,968,837.
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UNISON SOFTWARE, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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PAGE
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ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of May 31, 1997 and August 31, 1997.......................3
Consolidated Statements of Operations for the three months ended August 31, 1996 and
August 31, 1997.....................................................................4
Consolidated Statements of Cash Flows for the three months ended August 31, 1996 and
August 31, 1997.....................................................................5
Notes to the 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...................................................11
SIGNATURES..................................................................................12
INDEX TO EXHIBITS...........................................................................13
</TABLE>
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ITEM 1
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 10,674 $ 10,852
Marketable securities............................................................ 11,716 11,891
Accounts receivable, net of allowance for doubtful accounts of $388 and $352
at May 31, 1997 and August 31, 1997, respectively........................... 13,387 10,948
Prepaid expenses and other current assets........................................ 540 688
Deferred income taxes............................................................ 313 301
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Total current assets........................................................ 36,630 34,680
Property and equipment, net......................................................... 2,498 2,595
Marketable securities............................................................... 4,108 4,108
Other assets, net................................................................... 196 604
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Total assets..................................................................... $ 43,432 $ 41,987
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 66 $ 64
Accounts payable................................................................. 532 383
Income taxes payable............................................................. 1,171 151
Accrued compensation............................................................. 1,897 1,389
Accrued expenses................................................................. 1,386 1,145
Deferred revenue................................................................. 7,959 7,466
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Total current liabilities................................................... 13,011 10,598
Long-term debt, net of current portion.............................................. 59 44
Deferred income taxes............................................................... 73 73
Deferred revenue, long-term......................................................... 403 403
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Total Liabilities........................................................... 13,546 11,118
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Preferred stock, $0.001 par value; authorized: 5,000 shares;
issued and outstanding: 0........................................................ -- --
Common stock, $0.001 par value; authorized: 40,000 shares; issued and outstanding:
11,929 and 11,968 shares at May 31, 1997 and August 31, 1997, respectively....... 12 12
Additional paid-in capital.......................................................... 17,595 17,815
Notes receivable for common stock................................................... (135) (135)
Unrealized holding losses on marketable securities, net............................. (19) (12)
Cumulative foreign currency translation adjustments................................. 49 37
Retained earnings................................................................... 12,384 13,152
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Total stockholders' equity....................................................... 29,886 30,869
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Total liabilities and stockholders' equity.................................. $ 43,432 $ 41,987
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</TABLE>
See accompanying notes.
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UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
---------- ----------
Net revenues:
License fees.............................. $ 4,546 $ 6,032
Services.................................. 3,033 4,308
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Total net revenues................... 7,579 10,340
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Costs and expenses:
Cost of license fees...................... 195 277
Cost of services.......................... 699 1,043
Sales and marketing....................... 3,783 5,149
Research and development.................. 1,092 1,720
General and administrative................ 801 1,186
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Total costs and expenses............. 6,570 9,375
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Income from operations........................ 1,009 965
Interest and other income (expense), net...... 232 284
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Income before income taxes.................... 1,241 1,249
Provision for income taxes.................... 478 481
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Net income.................................... $ 763 $ 768
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Net income per share.......................... $ 0.06 $ 0.06
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Shares used in per share calculation.......... 12,158 12,121
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See accompanying notes.
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UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
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Cash flows from operating activities:
Net income....................................... $ 763 $ 768
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.................. 124 221
Other.......................................... 7
Changes in current assets and liabilities:
Accounts receivable.......................... 2,227 2,439
Prepaid expenses and other current assets.... (138) (148)
Accounts payable and other accrued expenses.. (853) (1,918)
Deferred revenue............................. (359) (493)
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Net cash provided by operating activities.. 1,814 876
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Cash flows from investing activities:
Purchase of property and equipment............... (501) (318)
Increase in other long-term assets............... (5) (408)
Purchases of marketable securities............... (5,326) (1,283)
Sales of marketable securities................... 3,500 1,108
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Net cash used in investing activities...... (2,332) (901)
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Cash flows from financing activities:
Issuance of common stock and warrants............ 496 220
Payment on capital lease obligations and
notes payable.................................. (316) (17)
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Net cash provided by financing activities.. 180 203
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Net increase (decrease) in cash and
cash equivalents......................... (338) 178
Cash and cash equivalents at beginning of period... 4,558 10,674
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Cash and cash equivalents at end of period......... $ 4,220 $10,852
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See accompanying notes.
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UNISON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements are unaudited, but have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position,
results of operations and cash flows at the dates and for the periods
presented have been included. The interim financial information herein is
not necessarily indicative of results for any future period. The interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto for the
fiscal year ended May 31, 1997 included in the Company's Form 10-K. The
balance sheet at May 31, 1997 was derived from audited financial statements;
however, it does not include all disclosure required by generally accepted
accounting principles.
NOTE 2 - COMPUTATION OF EARNINGS PER SHARE
Net income per share is computed using the weighted average number of
shares of common and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of options and warrants
(using the treasury stock method for all periods presented). The number of
shares used in the per share calculation have been adjusted retroactively to
give effect to a three-for-two stock split which was effective on January 31,
1997.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the audited
financial statements and notes thereto of the Company for the fiscal year
ended May 31, 1997 included in the Company's Form 10-K.
OVERVIEW
Unison Software, Inc. develops, markets, and supports networked systems
management software for distributed, heterogeneous computing environments.
The Company's workload management, storage management, and output management
tools support the deployment of business critical applications in
client/server environments. Unison was incorporated in California in 1980
and reincorporated in Delaware in July 1995.
The Company's revenues are derived from license fees for software
products and fees for a range of services complementing such products,
including software maintenance and support, training and system
implementation consulting. Software licenses typically are granted on a
perpetual, per-CPU basis, although the Company may grant site or
enterprise-wide licenses for larger installations. License fee revenues are
recognized upon product shipment if no significant vendor obligations remain
and collection of the resulting receivable is deemed probable. Allowances
are established for potential product returns and credit losses, which have
not been substantial to date. Fees for services are charged separately from
fees for software licenses. Service revenues from customer maintenance
services, which include on-going product support and periodic product
updates, are recognized ratably over the term of each contract, which is
typically twelve months. Payments for customer maintenance fees are
generally made in advance and are non-refundable. Service revenues from
training and consulting services are recognized when the services are
performed.
License fee revenues have been derived principally from direct sales of
software products to end users through the Company's direct field sales and
telesales force and national account sales group. Although the Company
believes that such
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direct sales will continue to account for a significant portion of license
fee revenues, the Company expects that revenues from sales through OEMs,
VARs, ISVs and other indirect channels will increase as a percentage of
license fee revenues. The Company's expansion of its field sales force has
caused, and is expected to continue to cause, sales and marketing expenses to
increase. The Company is also increasingly attempting to direct customers to
larger, enterprise-wide implementations of the Company's products, which may
increase the complexity and length of the sales cycle. In connection with
such larger sales, the Company may choose to grant greater pricing and other
concessions than for single department or local network sales.
The Company's operating results have fluctuated, and may continue to
fluctuate, on an annual and quarterly basis as a result of a number of
factors, many of which are outside of the Company's control. These factors
include the timing of significant orders, the length of sales cycles,
customer budget changes, the timing of new product introductions, changes in
pricing policies by the Company or its competitors, product mix, the market
acceptance of new and enhanced versions of the Company's products, and
conditions and events in the computer industry and the general economy. The
Company does not maintain a significant backlog, and therefore revenues for
each quarter depend to a large extent on orders booked and shipped in that
quarter. Additionally, the Company typically realizes a significant portion
of license fee revenues in the last month of a quarter, frequently in the
last weeks or even days of a quarter. As a result, license fee revenues for
any quarter can be subject to significant variation. The Company establishes
its expenditure levels for sales, marketing, product development and other
operating expenses based, in large part, on its expected future revenues. If
revenues fall below expectations in a particular quarter, operating results
and net income are likely to be materially adversely affected. A significant
portion of the Company's operating expenses are fixed, and planned
expenditures are based primarily on sales forecasts. Any inability of the
Company to adjust spending quickly enough to compensate for any failure to
meet sales forecasts or to receive anticipated revenues, or any unexpected
increase in product returns or other costs, could magnify the adverse impact
of such events on the Company's operating results. Further, the purchase of
the Company's products may involve a significant commitment of capital by the
customer, with the attendant delays frequently associated with large capital
expenditures and acceptance procedures within an organization. For these and
other reasons, the sales cycle associated with the purchase of client/server
networked systems management software is typically lengthy and subject to a
number of significant risks over which the Company has little or no control,
including customers' budgetary constraints and internal acceptance reviews.
Furthermore, the Company's business has experienced and is expected to
continue to experience significant seasonality, due, among other things, to
customer capital spending patterns, the general summer slowdown in the
computer industry and the fact that the Company's first fiscal quarter
coincides with such summer slowdown. Based upon the foregoing and other
factors, the Company believes that its quarterly revenues, expenses and
operating results could vary significantly in the future, that
period-to-period comparisons of its results of operations are not necessarily
meaningful, and that, in any event, such comparisons should not be relied
upon as indications of future performance.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of
operations data as a percentage of total net revenues:
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
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Net revenues:
License fees 60.0% 58.3%
Services 40.0% 41.7%
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Total net revenues 100.0% 100.0%
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Cost and expenses:
Cost of license fees 2.6% 2.7%
Cost of services 9.2% 10.1%
Sales and marketing 49.9% 49.8%
Research and development 14.4% 16.6%
General and administrative 10.6% 11.5%
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Total costs and expenses 86.7% 90.7%
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Income from operations 13.3% 9.3%
Interest and other income (expense), net 3.1% 2.7%
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Income before income taxes 16.4% 12.0%
Provision for income taxes 6.3% 4.7%
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Net income 10.1% 7.3%
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NET REVENUES
Net revenues increased 36% from $7.6 million for three months ended
August 31, 1996 to $10.3 million for the three months ended August 31, 1997.
The increase was primarily the result of growth in open systems license fees
attributable to increased market acceptance of the Company's UNIX and
Microsoft Windows NT products, and increased revenues from indirect channels.
Service revenues also increased, reflecting the increase in the installed
base of the Company's products and additional revenue generated as a result
of the expansion of the Company's consulting services group.
License fees accounted for 60.0% of net revenues for the three months
ended August 31, 1996 compared to 58.3% of net revenues for the three months
ended August 31, 1997. Conversely, service revenues accounted for 40.0% of
net revenues for the three months ended August 31, 1996 compared to 41.7% of
net revenues for the three months ended August 31, 1997.
UNIX and Windows NT license fees accounted for 69.2% of total license
fees for the three months ended August 31, 1996 and 74.4% of total license
fees for the three months ended August 31, 1997. The increases in UNIX and
Windows NT license fee revenues both in absolute dollars and as a percentage
of total license fees resulted from the expansion of the Company's product
offerings and its increased efforts to address the open distributed systems
market. The Company's future growth, if any, will depend on continued growth
in UNIX and Windows NT license fees. License fees from HP3000 products have
been, and are expected to continue to be, a significant though declining
portion of the Company's net revenues. However, there can be no assurance as
to how long the HP3000 will continue to be a viable product or be used in
ways which benefit from use of the Company's networked systems management
tools. The Company anticipates that HP3000 license fees may decline in the
future, as the Company continues to focus on the open distributed systems
market.
Sales to customers outside of the United States, including sales
generated by the Company's United Kingdom subsidiary, represented 22.5% of
net revenues for the three months ended August 31, 1996 as compared to 23.8%
of net revenues for the three months ended August 31, 1997.
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COST OF LICENSE FEES
Cost of license fees consists primarily of product packaging, shipping,
delivery media, documentation and third-party royalties payable in connection
with sales of certain of the Company's products. Cost of license fees
increased from $195,000, or 4.3% of license fees, in the three months ended
August 31, 1996 to $277,000, or 4.6% of license fees, in the three months
ended August 31, 1997. The increase in cost of license fees in both absolute
dollars and as a percentage of license fees was primarily the result of
increased revenues from the Company's products that are subject to royalty
obligations.
COST OF SERVICES
Cost of services consists primarily of the direct and indirect costs of
providing software maintenance and support, training and consulting services
to the Company's customers. Cost of services increased from $699,000, or
23.0% of service revenues, in the three months ended August 31, 1996 to
$1,043,000, or 24.2% of service revenues, in the three months ended August
31, 1997. The increases were due to increases in support personnel in
anticipation of increased demand for customer support services relating to
the Company's UNIX and Windows NT products and additional training and
consulting personnel to assist customers in deploying these products.
SALES AND MARKETING
Sales and marketing expenses consist principally of salaries, commissions
and advertising and promotion costs. Sales and marketing expenses increased
from $3.8 million, or 49.9% of net revenues, in the three months ended August
31, 1996 to $5.1 million, or 49.8% of net revenues, in the three months ended
August 31, 1997. The increase in absolute dollars was primarily the result of
the expansion of the Company's field sales organization and increased sales
compensation. The Company anticipates that as it continues to expand its
sales and marketing efforts in the open systems market, such expenses will
continue to increase in absolute dollars.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel related
costs. Research and development expenses increased from $1.1 million, or
14.4% of net revenues, in the three months ended August 31, 1996 to $1.7
million, or 16.6% of net revenues, in the three months ended August 31, 1997.
Research and development expenses increased in absolute dollars and are
expected to continue to increase as a result of the Company's efforts to
enhance and expand its product offerings.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $801,000, or 10.6% of
net revenues, in the three months ended August 31, 1996 to $1.2 million, or
11.5% of net revenues, in the three months ended August 31, 1997. The
Company expects that its general and administrative expenses will increase in
absolute dollars in the future, as the Company expands its staffing to
support expanded operations.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net is comprised primarily of
interest and dividend income, gains on foreign currency translations and
gains on sales of assets, net of interest expense and any losses on the
foregoing. Interest income is comprised primarily of interest on proceeds
from the Company's initial public offering completed in July 1995.
PROVISIONS FOR INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. The Company's effective tax rate for
the periods ended August 31, 1996 and August 31, 1997 was 38.5%. Such rate
approximately represented the combined federal and state statutory rate and
certain taxes due in the United Kingdom.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations and capital
expenditures primarily with cash flow from operations. Net cash provided by
operating activities in the three months ended August 31, 1997 was $876,000,
resulting primarily from net income and decreases in accounts receivable,
offset by decreases in accounts payable, and deferred revenue. This
compares to net cash provided by operating activities of $1.8 million for the
same period of fiscal 1997.
Net cash used in investing activities was $2.3 million and $901,000 in
the three months ended August 31, 1996 and August 31, 1997, respectively.
The latter amount consisted primarily of purchases of marketable securities
and equipment, increases in long-term assets, offset in part by sales of
marketable securities.
Financing activities provided $180,000 in the three months ended August
31, 1996 and $203,000 in the three months ended August 31, 1997, primarily as
a result of issuance of common stock, offset in part by repayment of notes
payable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which
this report is filed.
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SIGNATURE
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.
UNISON SOFTWARE, INC.
(Registrant)
By: /s/ RICHARD J. ARMITAGE
---------------------------------
Date: October 1, 1997 Richard J. Armitage
Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT PAGE
11.1 Statement Regarding Computation of Net Income Per Share ........ 14
27.1 Financial Data Schedule ........................................ --
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EXHIBIT 11.1
UNISON SOFTWARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE (1)
(in thousands, except per share data)
(unaudited)
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<CAPTION>
THREE MONTHS ENDED AUGUST 31,
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1996 1997
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Weighted average common shares outstanding for the period . . . . . . 11,613 11,931
Common equivalent shares assuming conversion of stock options
and warrants under the treasury stock method . . . . . . . . . . . 545 190
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Shares used in per share calculation . . . . . . . . . . . . . . . . . 12,158 12,121
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 763 $ 768
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Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.06 $ 0.06
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</TABLE>
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(1) There is no difference between primary and fully diluted net income (loss)
per share for all periods presented.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNISON SOFTWARE, INC. FOR THE QUARTER ENDED
AUGUST 31, 1997 INCLUDED ELSEWHERE IN THIS REPORT 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> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 10852
<SECURITIES> 15999
<RECEIVABLES> 11300
<ALLOWANCES> 352
<INVENTORY> 0
<CURRENT-ASSETS> 34680
<PP&E> 4509
<DEPRECIATION> 1914
<TOTAL-ASSETS> 41987
<CURRENT-LIABILITIES> 10598
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 30857
<TOTAL-LIABILITY-AND-EQUITY> 41987
<SALES> 0
<TOTAL-REVENUES> 10340
<CGS> 0
<TOTAL-COSTS> 1320
<OTHER-EXPENSES> 8055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 1249
<INCOME-TAX> 481
<INCOME-CONTINUING> 768
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 768
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
