UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2000
or
o 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: 0-18391
ASPECT COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its
charter)
| California
|
94-2974062
|
| (State or other jurisdiction of
|
(I.R.S. Employer
|
| incorporation or organization)
|
Identification No.)
|
| |
|
| 1310 Ridder Park Drive, San Jose, California
95131-2313
|
| (Address of principal executive offices and zip
code)
|
| |
|
| Registrant's telephone number: (408)
325-2200
|
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
The number of shares outstanding of the Registrant's
Common Stock, $.01 par value, was 51,316,077 at April 30,
2000.
ASPECT COMMUNICATIONS CORPORATION
INDEX
ASPECT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
| |
|
|
March 31,
2000
|
|
December 31,
1999
|
| |
|
|
(unaudited)
|
|
|
|
| |
|
|
|
|
|
|
|
| ASSETS
|
|
|
|
|
|
| Current assets:
|
|
|
|
|
|
| |
Cash and cash equivalents
|
$
|
74,847
|
|
$
|
84,826
|
| |
Short-term investments
|
|
158,157
|
|
|
167,840
|
| |
Marketable equity securities
|
|
67,980
|
|
|
86,139
|
| |
Accounts receivable, net
|
|
97,371
|
|
|
77,138
|
| |
Inventories
|
|
15,160
|
|
|
16,636
|
| |
Other current assets
|
|
24,536
|
|
|
17,475
|
| |
|
|
|
|
|
| |
|
Total current assets
|
|
438,051
|
|
|
450,054
|
| |
|
|
|
|
|
|
|
| |
Property and equipment, net
|
|
82,847
|
|
|
79,397
|
| |
Intangible assets, net
|
|
158,928
|
|
|
98,711
|
| |
Other assets
|
|
7,066
|
|
|
8,050
|
| |
|
|
|
|
|
| |
|
Total assets
|
$
|
686,892
|
|
$
|
636,212
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
| Current liabilities:
|
|
|
|
|
|
| |
Accounts payable
|
$
|
20,486
|
|
$
|
14,525
|
| |
Accrued compensation and related benefits
|
|
25,839
|
|
|
25,866
|
| |
Other accrued liabilities
|
|
41,103
|
|
|
59,437
|
| |
Deferred revenue
|
|
48,697
|
|
|
36,964
|
| |
|
|
|
|
|
| |
|
Total current liabilities
|
|
136,125
|
|
|
136,792
|
| |
|
|
|
|
|
|
|
| Deferred taxes
|
|
15,005
|
|
|
5,114
|
| Convertible subordinated debentures
|
|
165,539
|
|
|
163,107
|
| Commitments and contingencies
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Shareholders' equity:
|
|
|
|
|
|
| |
Preferred stock, $.01 par value: 2,000,000 shares
authorized, none outstanding
|
|
—
|
|
|
—
|
| |
Common stock, $.01 par value: 100,000,000 shares
authorized, shares outstanding:
51,173,137 and 49,462,303 at March 31, 2000 and
December 31, 1999, respectively
|
|
209,319
|
|
|
155,277
|
| |
Accumulated other comprehensive income
|
|
36,097
|
|
|
48,328
|
| |
Retained earnings
|
|
124,807
|
|
|
127,594
|
| |
|
|
|
|
|
| |
|
Total shareholders' equity
|
|
370,223
|
|
|
331,199
|
| |
|
|
|
|
|
| |
|
Total liabilities and shareholders' equity
|
$
|
686,892
|
|
$
|
636,212
|
| |
|
|
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
ASPECT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data -
unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
| |
|
|
2000
|
|
1999
|
|
| |
|
|
|
|
|
|
|
|
| Net revenues:
|
|
|
|
|
|
|
| |
Product
|
$
|
86,361
|
|
$
|
51,196
|
|
| |
Services
|
|
61,890
|
|
|
48,889
|
|
| |
|
|
|
|
|
|
| |
|
Total net revenues
|
|
148,251
|
|
|
100,085
|
|
| |
|
|
|
|
|
|
| Cost of revenues:
|
|
|
|
|
|
|
| |
Cost of product revenues
|
|
29,724
|
|
|
17,740
|
|
| |
Cost of services revenues
|
|
41,215
|
|
|
35,654
|
|
| |
|
|
|
|
|
|
| |
|
Total cost of revenues
|
|
70,939
|
|
|
53,394
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Gross margin
|
|
77,312
|
|
|
46,691
|
|
| |
|
|
|
|
|
|
|
|
| Operating expenses:
|
|
|
|
|
|
|
| |
Research and development
|
|
26,221
|
|
|
19,501
|
|
| |
Selling, general and administrative
|
|
50,924
|
|
|
45,943
|
|
| |
Purchased in-process technology
|
|
5,018
|
|
|
—
|
|
| |
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
82,163
|
|
|
65,444
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Loss from operations
|
|
(4,851
|
)
|
|
(18,753
|
)
|
| |
|
|
|
|
|
|
|
|
| Interest and other income
|
|
6,715
|
|
|
2,242
|
|
| Interest expense |
|
(2,596
|
)
|
|
(2,461
|
)
|
| |
|
|
|
|
|
|
| Loss before income taxes
|
|
(732
|
)
|
|
(18,972
|
)
|
| |
|
|
|
|
|
|
|
|
| Benefit (provision) for income taxes
|
|
(2,057
|
)
|
|
5,692
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Net loss
|
$
|
(2,789
|
)
|
$
|
(13,280
|
)
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Basic loss per share
|
$
|
(0.06
|
)
|
$
|
(0.27
|
)
|
| |
|
|
|
|
|
|
|
|
| Weighted average shares outstanding
|
|
50,482
|
|
|
49,156
|
|
| |
|
|
|
|
|
|
|
|
| Diluted loss per share
|
$
|
(0.06
|
)
|
$
|
(0.27
|
)
|
| |
|
|
|
|
|
|
|
|
| Weighted average shares outstanding—assuming
dilution
|
|
50,482
|
|
|
49,156
|
|
See Notes to Condensed Consolidated Financial
Statements.
ASPECT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands—unaudited)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Three Months Ended March 31,
|
| |
|
|
|
|
2000
|
|
1999
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Cash flows from operating activities:
|
|
|
|
|
|
|
| |
Net loss
|
$
|
(2,789
|
) |
$
|
(13,280
|
) |
| |
Reconciliation of net loss to cash provided by
operating activities:
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
4,692
|
|
|
5,144
|
|
| |
|
Amortization of intangible assets
|
|
6,352
|
|
|
5,134
|
|
| |
|
Purchased in-process technology
|
|
5,018
|
|
|
—
|
|
| |
|
Noncash interest expense on debentures
|
|
2,432
|
|
|
2,292
|
|
| |
|
Deferred taxes
|
|
(17,869
|
) |
|
(1,666
|
) |
| |
|
Changes in assets and liabilities; net of effects
from company acquired in 2000:
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
(21,236
|
) |
|
34,187
|
|
| |
|
|
Inventories
|
|
1,404
|
|
|
(3,603
|
) |
| |
|
|
Other current assets and other assets
|
|
27,254
|
|
|
(7,974
|
) |
| |
|
|
Accounts payable
|
|
5,962
|
|
|
(3,307
|
) |
| |
|
|
Accrued compensation and related benefits
|
|
(807
|
) |
|
(3,519
|
) |
| |
|
|
Other accrued liabilities
|
|
(13,051
|
) |
|
1,287
|
|
| |
|
|
Deferred revenue
|
|
11,574
|
|
|
9,088
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Cash provided by operating activities
|
|
8,936
|
|
|
23,783
|
|
| Cash flows from investing activities:
|
|
|
|
|
|
|
| |
Short-term investment purchases
|
|
(66,278
|
) |
|
(35,110
|
) |
| |
Short-term investment sales and maturities
|
|
76,961
|
|
|
29,718
|
|
| |
Property and equipment purchases
|
|
(7,907
|
) |
|
(5,084
|
) |
| |
Purchase of company, net of cash acquired
|
|
(44,942
|
) |
|
—
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Cash used in investing activities
|
|
(42,166
|
) |
|
(10,476
|
) |
| Cash flows from financing activities:
|
|
|
|
|
|
|
| |
Other common stock transactions—net
|
|
24,530
|
|
|
3,530
|
|
| |
Repurchase of common stock
|
|
—
|
|
|
(9,751
|
) |
| |
Payments on notes payable
|
|
(1,676
|
) |
|
(1,401
|
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Cash provided by (used in) financing
activities
|
|
22,854
|
|
|
(7,622
|
) |
| Effect of exchange rate changes on cash and cash
equivalents
|
|
397
|
|
|
1,548
|
|
| |
|
|
|
|
|
|
|
|
| Increase (decrease) in cash and cash
equivalents
|
|
(9,979
|
) |
|
7,233
|
|
| Cash and cash equivalents:
|
|
|
|
|
|
|
| |
Beginning of year
|
|
84,826
|
|
|
67,071
|
|
| |
|
|
|
|
|
|
|
|
| |
End of year
|
$
|
74,847
|
|
$
|
74,304
|
|
| |
|
|
|
|
|
|
|
|
| Noncash investing and financing activities: |
|
|
|
|
|
|
| |
Stock options issued in connection with the
acquisition of
PakNetX Corporation |
$
|
10,422
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED
Basis of Presentation
The consolidated financial statements include the
accounts of Aspect Communications Corporation (Aspect or the Company) and
its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for annual financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's 1999
"Annual Financial Report to Shareholders" attached as an appendix
to the Proxy Statement for the 2000 Annual Meeting of
Shareholders.
Business Combinations
On February 18, 2000, the Company acquired privately
held PakNetX Corporation (PakNetX), an eBusiness software provider based in
Salem, New Hampshire. The transaction will enable Aspect to integrate
multimedia-over-IP technology into its flagship customer relationship portal
software and strengthen the Company's eCRM market position. The transaction
was accounted for as a purchase and resulted in a one-time charge of
approximately $5 million related to in-process technology in the quarter
ended March 31, 2000. The Company paid approximately $45 million in cash for
all of the outstanding common and preferred shares and warrants of PakNetX.
The Company is also obligated to make up to $10 million in future payments
contingent on the achievement of certain milestones. Such payments will be
capitalized as part of the purchase price when the milestones are attained.
In addition, Aspect assumed the existing PakNetX stock option plan and
converted PakNetX stock options into options to purchase approximately
160,000 shares of Aspect Common Stock with a fair value of approximately $10
million, plus transaction costs of approximately $2 million. The historical
operations of PakNetX are not material to the financial position or results
of operations of the Company.
The total purchase price and final allocation among the
tangible and intangible assets and liabilities acquired (including purchased
in-process technology) is summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
Amortization period
(years)
|
| Total purchase price: |
|
|
|
Purchase price allocation: |
|
|
|
| |
Total cash consideration |
$
|
44,948
|
|
|
Tangible assets |
$
|
301
|
|
|
| |
Value of options assumed |
|
10,422
|
|
Intangible assets: |
|
|
|
|
| |
Transaction costs |
|
1,850
|
|
|
Developed and core technology |
|
41,466
|
|
7
|
| |
|
|
|
|
|
Assembled workforce |
|
567
|
|
4
|
| |
|
|
|
|
|
Testing tools |
|
518
|
|
4
|
| |
|
|
|
|
|
Goodwill |
|
24,018
|
|
7
|
| |
|
|
|
|
In-process technology |
|
5,018
|
|
Expensed
|
| |
|
|
|
|
Tangible liabilities |
|
(1,790
|
) |
|
| |
|
|
|
|
Deferred tax liabilities |
|
(12,878
|
) |
|
| |
|
|
|
|
|
|
|
|
| |
|
$
|
57,220
|
|
|
|
$
|
57,220
|
|
|
| |
|
|
|
|
|
|
|
|
As noted above, Aspect recorded a one-time charge of $5
million in the first quarter of 2000 for purchased in-process technology
that had not reached technological feasibility and had no alternative future
use. The purchased in-process technology related to the development of
Version 4.0 of PakNetX's integrated contact center solution that had not
reached technological feasibility and for which the successful development
was therefore uncertain. Management expects that this product will be
completed and will become available for sale in fiscal 2000. Aspect will
begin to benefit from the acquired research and development related to this
product upon shipment. Failure to reach successful completion of this
project could result in impairment of the associated capitalized intangible
assets and could require the Company to accelerate the time period over
which the intangibles are being amortized, which could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
Significant assumptions used to determine the value of
in-process technology included: (i) projected net cash flows that were
expected to result from the development effort; (ii) an estimate of
percentage complete for the project; and (iii) a discount rate of
approximately 25%. As of March 31, 2000, technological feasibility had not
been reached and no significant departures from the assumptions included in
the valuation analysis have occurred.
Reclassifications
Certain prior-year amounts have been reclassified to
conform to the current-year presentation.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist of (in thousands):
| |
March 31,
2000
|
|
December 31,
1999
|
| Raw materials
|
$
|
9,617
|
|
$
|
9,816
|
| Work in progress
|
|
2,955
|
|
|
3,529
|
| Finished goods
|
|
2,588
|
|
|
3,291
|
| |
|
|
|
| Total
|
$
|
15,160
|
|
$
|
16,636
|
| |
|
|
|
Comprehensive Income (Loss)
Comprehensive loss is calculated as follows (in
thousands):
|
|
March 31,
2000
|
|
March 31,
1999
|
|
| Net loss
|
$
|
(2,789
|
)
|
$
|
(13,280
|
)
|
| Unrealized loss on investments, net |
|
(11,765
|
) |
|
(347
|
) |
| Accumulated translation adjustments, net
|
|
(466
|
)
|
|
(811
|
)
|
| |
|
|
|
|
| Total comprehensive
loss
|
$
|
(15,020
|
)
|
$
|
(14,438
|
)
|
| |
|
|
|
|
| Accumulated other comprehensive income (loss)
is comprised of (in thousands): |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Accumulated unrealized gains on available-for-sale
securities, net
|
$
|
38,799
|
|
$
|
47
|
|
| Accumulated translation adjustments, net
|
|
(2,702
|
)
|
|
(1,625
|
)
|
| |
|
|
|
|
| Accumulated other
comprehensive income (loss)
|
$
|
36,097
|
|
$
|
(1,578
|
)
|
| |
|
|
|
|
Interest and Other Income
Interest and other income of $6.7 million in the first
quarter of 2000 included a gain of approximately $3.7 million on the sale of
appreciated marketable equity securities.
Contingencies
The Company is from time to time involved in litigation
or claims that arise in the normal course of business. The Company does not
expect that any current litigation or claims will have a material adverse
effect on the Company's business, operating results, or financial
condition.
Per Share Information
Basic loss per share is computed using the weighted
average number of common shares outstanding during the period. Diluted loss
per share further includes the dilutive impact of stock options. Basic and
diluted loss per share for the three months ended March 31 are calculated as
follows (in thousands, except per share data):
|
|
March 31,
2000
|
|
March 31,
1999
|
|
| Net loss
|
$
|
(2,789
|
)
|
$
|
(13,280
|
)
|
| Weighted average shares outstanding
|
|
50,482
|
|
|
49,156
|
|
| Basic and Diluted loss
per share
|
$
|
(0.06
|
)
|
$
|
(0.27
|
)
|
| |
|
|
|
|
|
|
At March 31, 2000 and 1999, the Company had 10.6
million and 12.0 million common stock options outstanding, respectively,
which could potentially dilute basic earnings per share in the future. These
options were excluded from the computation of diluted earnings per share
because inclusion of these shares would have had an anti-dilutive effect, as
the Company had a net loss for these periods. Additionally, as of March 31,
2000 and 1999, there were 4.3 million shares of common stock issuable upon
conversion of debentures. The weighted average of these shares were not
included in the calculation of diluted earnings per share for the three
months ended March 31, 2000 and 1999, because this inclusion would have been
anti-dilutive.
New Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," requires that all derivatives be carried at fair
value and provides for hedging accounting when certain conditions are met.
This statement, issued in June 1998, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company does not believe
adoption of this statement will have a material impact on the Company's
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB)
No. 101 "Revenue Recognition in Financial Statements," which
summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company believes that its revenue recognition policy complies with the
provisions of SAB No. 101.
| Item 2. |
|
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations |
The following discussion should be read in conjunction
with the unaudited condensed consolidated financial statements and notes
thereto included in Part I - Item 1 of this Quarterly Report and the audited
consolidated financial statements and notes thereto and Management's
Discussion and Analysis in the Company's 1999 Annual Financial Report to
Shareholders.
Background and Acquisitions
On February 18, 2000, the Company acquired privately
held PakNetX Corporation (PakNetX), an eBusiness software provider based in
Salem, New Hampshire. The transaction will enable Aspect to integrate
multimedia-over-IP technology into its flagship customer relationship portal
software and strengthen the Company's eCRM market position. The transaction
was accounted for as a purchase and resulted in a one-time charge of
approximately $5 million related to in-process technology in the quarter
ended March 31, 2000. The Company paid approximately $45 million in cash for
all of the outstanding common and preferred shares and warrants of PakNetX.
The Company is also obligated to make up to $10 million in future payments
contingent on the achievement of certain milestones. Such payments will be
capitalized as part of the purchase price when the milestones are attained.
In addition, Aspect assumed the existing PakNetX stock option plan and
converted PakNetX stock options into options to purchase approximately
160,000 shares of Aspect Common Stock with a fair value of approximately $10
million, plus transaction costs of approximately $2 million. The historical
operations of PakNetX are not material to the financial position or results
of operations of the Company.
The total purchase price and final allocation among the
tangible and intangible assets and liabilities acquired (including purchased
in-process technology) is summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
Amortization period
(years)
|
| Total purchase price: |
|
|
|
Purchase price allocation: |
|
|
|
| |
Total cash consideration |
$
|
44,948
|
|
|
Tangible assets |
$
|
301
|
|
|
| |
Value of options assumed |
|
10,422
|
|
Intangible assets: |
|
|
|
|
| |
Transaction costs |
|
1,850
|
|
|
Developed and core technology |
|
41,466
|
|
7
|
| |
|
|
|
|
|
Assembled workforce |
|
567
|
|
4
|
| |
|
|
|
|
|
Testing tools |
|
518
|
|
4
|
| |
|
|
|
|
|
Goodwill |
|
24,018
|
|
7
|
| |
|
|
|
|
In-process technology |
|
5,018
|
|
Expensed
|
| |
|
|
|
|
Tangible liabilities |
|
(1,790
|
) |
|
| |
|
|
|
|
Deferred tax liabilities |
|
(12,878
|
) |
|
| |
|
|
|
|
|
|
|
|
| |
|
$
|
57,220
|
|
|
|
$
|
57,220
|
|
|
| |
|
|
|
|
|
|
|
|
As noted above, Aspect recorded a one-time charge of $5
million in the first quarter of 2000 for purchased in-process technology
that had not reached technological feasibility and had no alternative future
use. The purchased in-process technology related to the development of
Version 4.0 of PakNetX's integrated contact center solution that had not
reached technological feasibility and for which the successful development
was therefore uncertain. Management expects that this product will be
completed and will become available for sale in fiscal 2000. Aspect will
begin to benefit from the acquired research and development related to this
product upon shipment. Failure to reach successful completion of this
project could result in impairment of the associated capitalized intangible
assets and could require the Company to accelerate the time period over
which the intangibles are being amortized, which could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
Significant assumptions used to determine the value of
in-process technology included: (i) projected net cash flows that were
expected to result from the development effort; (ii) an estimate of
percentage complete for the project; and (iii) a discount rate of
approximately 25%. As of March 31, 2000, technological feasibility had not
been reached and no significant departures from the assumptions included in
the valuation analysis have occurred.
In September 1999, the Company changed its name from
Aspect Telecommunications Corporation to Aspect Communications Corporation
to reflect the transformation of its business from a telecommunications
equipment supplier to a provider of customer relationship portals.
Except for historical information contained herein, the
matters discussed in this report are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended; Section
21E of the Securities and Exchange Act of 1934, as amended; and the Private
Securities Litigation Reform Act of 1995; and are made under the safe-harbor
provisions thereof. Such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. See "Business Environment and Risk Factors"
discussed in the Company's 1999 Annual Financial Report to Shareholders for
the fiscal year ended December 31, 1999. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Aspect undertakes no
obligation to publicly release any revision to these forward-looking
statements that may be made to reflect events or circumstances after the
date hereof.
Results of Operations
During 1999, we initiated a transformation of our
business from a telecommunications equipment supplier to a provider of
customer relationship portals. The primary motive for the transformation was
that forecasts for the traditional market for voice applications and
equipment indicated that we could no longer sustain our historical growth
rates in that market alone. We needed to define and execute a market
strategy that would fuel our next stage of growth. This transformation
included repackaging and repricing our products and services, development
and launch of new software-based products and services, transforming our
internal processes and systems so that we could operate within a
software-centric business model, establishing key systems integration and
technology partnerships, changes in our senior management team, and
retention of key employees.
Net revenues for the first quarter of 2000 increased
48% to $148.3 million from $100.1 million for the first quarter of 1999.
International net revenues, as a percentage of total net revenues over the
periods presented, were 33% in the first quarter of 2000, compared with 32%
in the first quarter of 1999.
Product revenues for the first quarter of 2000
increased 69% to $86.4 million from $51.2 million for the first quarter of
1999. The increase relates primarily to the business model transformation
previously described. Changes in average selling prices for our products across the
periods presented are not meaningful due to the change in our business
model.
Services revenues for the first quarter of 2000
increased 27% to $61.9 million from $48.9 million in the first quarter of
1999. Growth in services revenues resulted primarily from increases in
maintenance revenues as a result of the growth in our installed base.
Services revenues include fees for providing contractually agreed-upon
system service and maintenance (which typically commence twelve months from
delivery and, accordingly, are primarily affected by growth in the installed
base); installation of products; systems integration revenues; and other
support services.
Gross margin on product revenues was 66% in the first
quarter of 2000, and 65% in the first quarter of 1999. The increase in
product margins primarily reflects the decreased proportional impact of
fixed costs during the first quarter of 2000 over the first quarter of 1999
when compared with product revenues. On a forward-looking basis, the Company
expects that the following factors, among others, could have a material
impact on product gross margins: the shift in the Company's business focus
to becoming a provider of customer relationship solutions; the market
acceptance of these solutions; variations in the mix and volume of products
sold; the channels of distribution; the portion of systems revenues related
to customers purchasing multiple systems; the mix and level of third-party
product included as part of systems integration projects; the results of
recently acquired subsidiaries; and cross-licensing or royalty arrangements
with third parties.
Gross margin on services revenues was 33% in the first
quarter of 2000, and 27% in the first quarter of 1999. The increase in
services margins reflects services revenues growing while the costs
associated with providing the related services; in particular, costs
associated with consulting and systems integration services, are
stabilizing. On a forward-working basis, we anticipate that service margins
will fluctuate from period to period due to fluctuations in services
revenues (since many of the costs of providing services do not vary
proportionately with related revenues) and ongoing efforts to expand
services infrastructure.
Research and development (R&D) expenses in the
first quarter of 2000 (excluding the one-time in-process technology charge)
increased 34% to $26.2 million from $19.5 million in the first quarter of
1999. R&D expenditures reflect our ongoing efforts to remain competitive
through both new product development and expanded capabilities for existing
products. The increases across the periods presented primarily reflect
increased staffing, associated transformation and infrastructure costs, and
the impact of amortization costs associated with purchased, developed, and
core technology intangible assets. As a percentage of net revenues, R&D
expenses were 18% in the first quarter of 2000 and 19% in the first quarter
of 1999. Excluding amortization of intangible assets, R&D expenses were
$24.4 million in the first quarter of 2000, and $18.4 million in the first
quarter of 1999. We continue to believe that significant investment in R&D is
required to remain competitive, and anticipate, on a forward-looking basis,
that such expenses in 2000 will increase in absolute dollars, although such
expenses as a percentage of net revenues may fluctuate between
periods.
Selling, general and administrative (SG&A) expenses
in the first quarter of 2000 increased 11% to $50.9 million from $45.9
million in the first quarter of 1999. The increases primarily resulted from
additional amortization expenses related to the purchase of intangible
assets as a result of the acquisition of PakNetX, increased staffing, and
other costs related to the expansion of our business. SG&A expenses as a
percentage of net revenues were 34% in the first quarter of 2000 and 46% in
the first quarter of 1999. Excluding amortization of intangible assets,
SG&A expenses were $47.6 million in the first quarter of 2000 and $43.1
million in the first quarter of 1999. We anticipate, on a forward-looking basis, that SG&A
expenses will continue to increase in absolute dollars for 2000, when
compared with 1999, although such expenses as a percentage of net revenues
may fluctuate between periods.
Purchased in-process technology represents
non-recurring charges of $5 million in the first quarter of 2000, or $0.10
per diluted share, related to the acquisition of PakNetX.
Net interest and other income and expense were a net
income of $4.1 million in the first quarter of 2000, compared to $219
thousand of net interest expense in the first quarter of 1999. The increase
resulted primarily from a gain of approximately $3.7 million on the sale of
appreciated marketable equity securities, offset by interest expense
associated with the issuance of $150 million of convertible subordinated
debentures in August 1998.
The Company's effective tax rate, excluding the effect
of purchased in-process technology related to the acquisition of PakNetX,
was a provision of 48% for the first three months of 2000 compared with a
benefit of 30% for the same period of 1999. The tax rate exceeds the
statutory rate primarily due to nondeductible goodwill amortization as a
result of current and prior period acquisitions.
Liquidity and Capital Resources
At March 31, 2000, the principal source of liquidity
consisted of cash, cash equivalents, short-term investments, and marketable
equity securities totaling $301.0 million, which represented 44% of total
assets. The primary sources of cash during the first quarter of 2000 were
$8.9 million from operating activities, net short-term sales of short-term
investments of $10.7 million, and proceeds from the issuance of common stock
under various stock plans of $24.5 million. The primary uses of cash during
the first quarter of 2000 were $44.9 million cash paid to acquire PakNetX,
and $7.9 million for the purchase of property and equipment, primarily the
purchase of computer software and hardware. We currently anticipate higher
spending levels for property and equipment throughout 2000, primarily
related to expansion of our facilities.
As of March 31, 2000, the fair market value of our
marketable equity securities was $68 million. These securities are available
for sale at Aspect's discretion and are subject to market prices, which have
historically fluctuated significantly. At March 31, 2000, outstanding
borrowings totaled $166 million.
On a forward-looking basis, cash, cash equivalents,
short-term investments, marketable equity securities, and anticipated cash
flow from operations will be sufficient to meet presently anticipated cash
requirements during at least the next twelve months.
Year 2000 and Proximate Dates
The information provided below constitutes a "Year
2000 Readiness Disclosure" for purposes of the Year 2000 Readiness
Disclosure Act.
Many computer systems were expected to experience
problems handling dates around the year 2000 (Y2K). We expect that most
Y2K-related problems would have become evident by the first quarter of 2000.
We have experienced minor isolated disruptions to date that were quickly and
easily remedied. Therefore, we believe that our mitigation activities
outlined in prior public disclosures were successful in limiting problems
around January 1, 2000 and February 29, 2000. Some exposure continues to
exist as follows:
- Within our supply chain if disruptions occur at suppliers that we are
not aware of and affect their ability to supply us products as needed; and,
- With our customers if disruptions occur that affect their buying
patterns.
On a forward-looking basis, based upon the success of
our efforts to mitigate problems to date, we believe that actions taken to
date are sufficient to mitigate likely disruptions, and, therefore, we are
not actively pursuing any significant additional Y2K remediation efforts
other than those required to address specific known or potential
issues.
The total costs of our Y2K compliance efforts are
estimated to be approximately $10 million, substantially all of which has
been spent to date. Y2K costs included consultant fees, internal hardware
and software upgrade or replacement costs, and internal resources dedicated
to identifiable Y2K efforts. Some of these costs represent the acceleration
of costs that would have been incurred in the normal course of business in
different periods.
| Item 3. |
|
Quantitative and Qualitative Disclosures About
Financial Market Risk |
Reference is made to the information appearing under
the caption "Quantitative and Qualitative Disclosures About Financial
Market Risk" of the Registrant's 1999 Annual Financial Report to
Shareholders which information is hereby incorporated by reference. There
were no material changes in the Company's exposure to financial market risk
during the three months ended March 31, 2000.
Part II: Other Information
| Item 6. |
|
Exhibits and Reports on Form 8-K |
A. Exhibits
| Exhibit 10.75 |
Employment Agreement between the Registrant and Gary
L. Smith, Chief Operating Officer, dated February 16, 2000.
|
|
| |
|
|
| Exhibit 10.76 |
Termination agreement between the Registrant and
William H. Delevati, dated April 3, 2000. |
|
| |
|
|
| Exhibit 10.77 |
Termination agreement between the Registrant and
Barry Wright, dated April 4, 2000. |
|
| |
|
|
| Exhibit 10.78 |
Employment Agreement between the Registrant and James
R. Carreker, Chairman, dated April 25, 2000. |
|
| |
|
|
| Exhibit 10.79 |
Employment Agreement between the Registrant and
Beatriz V. Infante, President and Chief Executive Officer, dated April 26,
2000. |
|
| |
|
|
| Exhibit 27 |
Financial Data Schedule |
|
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, the Registrant has caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
| |
|
Aspect Communications Corporation
|
| |
|
|
|
(Registrant) |
| |
|
|
| Date: May 15, 2000
|
|
By |
|
/s/ Kevin T. Parker
|
| |
|
|
|
|
| |
|
Kevin T. Parker |
| |
|
Chief Financial and Accounting Officer (Principal
Financial and Accounting Officer) |
