SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 26, 1999
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International Telecommunication Data Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-21519 06-1295986
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(Commission File Number) (IRS Employer Identification No.)
225 High Ridge Road, Stamford, Connecticut 06905
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(Address of principal executive offices) (Zip Code)
(203) 329-3300
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Registrant's Telephone Number, Including Area Code
Not Applicable
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(Former Name of Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is being filed by International
Telecommunication Data Systems, Inc. ("ITDS"), a Delaware corporation, to
identify certain factors which may affect future operating results of ITDS.
These factors have been written in plain English to comply with Securities Act
Release No. 33-7497 (January 28, 1998). Certain information contained in filings
made by ITDS with the Securities and Exchange Commission may include
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Certain risks and uncertainties, including without
limitation those discussed below under the heading "Factors Affecting Future
Operating Results," as well as other factors identified from time to time may
cause ITDS' actual results to differ materially from these projected. ITDS
assumes no obligation to update these forward-looking statements.
FACTORS AFFECTING FUTURE OPERATING RESULTS
OUR BUSINESS IS HIGHLY DEPENDENT ON A LIMITED NUMBER OF SIGNIFICANT
CUSTOMERS
Our two largest customers, Nextel and Western Wireless, represented
30.2 % and 11.9 %, respectively, of our 1998 revenues. In January of 1998, we
acquired Intelicom, a subsidiary of Computer Sciences Corporation and a
provider of billing and customer care software. As a result of this
acquisition, we acquired several new customers with substantially larger
subscriber bases than our then existing customers. Some of these new
customers may represent more than 10 percent of our revenues in the future.
We have long-term contracts, ranging from two to five years, with all of our
significant customers. However, our relationships with our largest customers
have existed only since January 1998, as a result of our acquisition of
Intelicom. Any of these customers may not renew their contracts with us at
the end of the contract term. For example, in May of 1999, VoiceStream, a
subsidiary of Western Wireless, became a separate legal entity. Although we
currently have contracts with both Western Wireless and VoiceStream, Western
Wireless has notified us that it will not renew its contract, and we cannot
assure you that VoiceStream will renew its contract. VoiceStream has recently
announced it will acquire Omnipoint, another significant customer. If we lose
VoiceStream, we will also lose Omnipoint as a customer. We also have reason
to believe that Nextel is actively exloring alternative billing and customer
care solutions, and we cannot assure you that Nextel will renew its contract
with us. In addition, Southwest Company, which represented 5.9% of our 1998
revenues, ended its relationship with us in June of 1999, and Dobson, which
also represented 5.9% of our 1998 revenues, will be off our system by the end
of 1999.
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Our customers may also seek to terminate their contracts on the
basis of alleged contractual defaults or other grounds. In addition, certain
of our contracts do not require customers to make any minimum purchases. Loss
of all or a significant part of the business of any of our significant
customers would materially adversely affect our business, financial condition
and results of operations. Additionally, if a third party acquires one of our
significant customers, we could lose that customer, which could have a
material adverse effect on our business, financial condition and results of
operations.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE
Our quarterly revenues and operating results may fluctuate due to a
number of factors, including:
- - variations in the timing, size and nature of our contracts;
- - long sales cycles typically associated with large customers, which
require us to invest substantially in the conversion process prior to
payment by the customer;
- - the hiring of additional staff;
- - seasonal variations in cellular telephone subscriptions;
- - the timing of the introduction and the market acceptance of new
products or product enhancements by our competitors or us;
- - changes in our operating expenses;
- - fluctuations in economic and financial market conditions;
- - loss of customers, which affects processing and development revenue;
- - contract renegotiations, which often require us to lower the price of
the existing contract;
- - the cost to convert existing customers to XCEDE; and
- - the nature of development revenue, which often depends upon the
customer's desire and ability to develop a modification in a timely
manner.
THE SKILLED EMPLOYEES THAT WE NEED MAY BE DIFFICULT TO HIRE AND RETAIN,
AND SEVERAL KEY EMPLOYEES JOINED US ONLY RECENTLY
Our future depends substantially on the performance of our executive
officers and key employees, and upon our ability to recruit, retain and
motivate highly skilled personnel. Competition for such personnel is, and is
likely to remain, intense. We may not attract, assimilate or retain highly
skilled personnel in the future, and any inability to do so could adversely
impact our ability to manage and complete our existing projects and to
compete for new customer contracts. In addition, two members of our senior
management team joined us only recently. For example, Susan L. Yezzi joined
us in late 1997 and became our Chief Operating Officer in February of 1999.
In May of 1999, we hired Michael P. Neuscheler as our Chief Financial Officer
to replace Paul K. Kothari, who served in that capacity from February 1998 to
February 1999.
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FUNDAMENTAL CHANGES IN THE TELECOMMUNICATIONS MARKET COULD REDUCE
DEMAND FOR OUR SYSTEMS
Over the last decade, the market for telecommunications services has
been characterized by rapid technological developments, evolving industry
standards, dramatic changes in the regulatory environment and frequent new
product introductions. Our success will depend upon our ability to enhance our
existing products and services and to introduce new products and services which
will respond to these market requirements as they evolve. To date, substantially
all of our revenues are attributable to wireless customers, many of whom are
expanding their product offerings in the face of competition. While we believe
that our current systems and services will also permit us to attract customers
in other segments of the telecommunications services industry, we may be unable
to do so. In addition, technologies, services or standards may be developed
which could require significant changes in our business model, development of
new products, or provision of additional services, at substantial cost. These
developments may also introduce additional competitors into the marketplace. If
the overall market for telecommunications services fails to evolve and converge
in the manner we contemplated or grows more slowly than we anticipated, or if
our products and services fail in any respect to achieve market acceptance,
there could be a material adverse effect on our business, financial condition
and results of operations.
XCEDE MAY NOT BE COMMERCIALLY SUCCESSFUL
We have devoted substantial development and marketing efforts to
complete and promote XCEDE, our newest billing and customer care product. We
have recently introduced XCEDE commercially, and it is currently running in
systems of some of our smaller customers. We cannot assure you that XCEDE
will perform in accordance with customer expectations or that we will be able
to develop the enhancements necessary to make XCEDE scalable to larger
customers such as Nextel and VoiceStream. Any unanticipated program
development on the XCEDE system could result in substantial costs to us and
could delay our commercial introduction of the product to our larger
customers. Such costs or delays could have a material adverse effect on our
business, financial condition and results of operations.
CONSOLIDATION IN OUR INDUSTRY HAS INCREASED COMPETITION
There has been a tremendous amount of business consolidation within
the wireless telecommunications industry. For example, Omnipoint and
VoiceStream recently announced their intent to merge. As a result of this
consolidation, there are fewer wireless customers requiring the services of
billing and customer care providers, which has increased the
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level of competition in the industry. In addition, these consolidated wireless
companies have strengthened their purchasing power, putting pressure on reducing
prices and challenging margin levels, and they strive to streamline their
operations as they bring multiple billing systems onto one system, reducing the
number of vendors needed. Although we have sought to address this situation by
continuing to market our products and services to new customers, entering into
contracts with terms of up to five years to protect the current price and margin
levels and working with existing customers to provide the services required to
remain competitive in the marketplace, we may lose significant customers as a
result of industry consolidation.
WE MUST CONTINUALLY ENHANCE OUR PRODUCTS TO REMAIN COMPETITIVE
We believe that our future success depends partly upon our ability
to enhance our current products and services and develop new products and
services that address the increasingly complex needs of our customers. In
addition, if a third party introduces new products or services, our existing
products and services could become obsolete or unmarketable. Two significant
factors in remaining competitive include our ability to (1) anticipate
changes in technology and (2) develop and introduce successfully new or
enhanced products incorporating such technology on a timely basis. We may be
unable to develop successfully new or enhanced products or services on a
timely basis or manage successfully transitions from one product release to
the next. Failure to introduce new enhancements on a timely basis could
materially adversely affect our business, financial condition and results of
operations, and significantly limit our ability to expand our sales
activities.
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UNDETECTED BUGS IN OUR SOFTWARE COULD ADVERSELY AFFECT THE PERFORMANCE
OF OUR SOFTWARE AND DEMAND FOR OUR PRODUCTS
Our software products could contain errors or "bugs" that we have been
unable to detect which could adversely affect their performance and reduce
demand for our products. Additionally, we regularly introduce new releases and
periodically introduce new versions of our software products. Any defects or
errors in new products or enhancements could result in adverse customer
reactions and negative publicity regarding ITDS and our products and could have
a material adverse effect on our business, operating results and financial
condition.
IF WE CANNOT COMPETE SUCCESSFULLY WITH EXISTING OR NEW COMPETITORS OUR
BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED
The market for billing, customer care and management information
systems for the telecommunications services industry is highly competitive, and
we expect this competition to increase. We compete with independent providers of
transactional systems and services, with internal billing departments of
telecommunications services providers and with the billing services of
management consulting companies. We anticipate continued growth and competition
in the telecommunications services industry and, consequently, the emergence of
new competitors into our market. Growing competition may result in price
reductions of our products, reduced revenues and gross margins and a loss of
market share.
In addition, we believe our ability to compete successfully will depend
partly on a number of factors beyond our control, including:
- the development by others of software that is competitive with
our products and services;
- the price at which others offer comparable products and
services;
- the responsiveness of our competitors to customer needs;
- the ability of our competitors to hire, retain and motivate
key personnel; and
- consolidation within the industry: as potential customers
increase in size, they require systems with larger
capabilities than those of the existing XCEDE product.
Many of our current and potential future competitors have significant
financial, technical and marketing resources and have greater name recognition
than we do. In addition, current and potential competitors have established, or
may establish, commercial relationships or joint ventures with third parties. As
a result, our competitors may adapt more quickly to new or emerging technologies
and changes in
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customer requirements and devote greater resources to promoting and selling
products than we do.
TO DATE, MOST OF OUR REVENUES ARE IN THE WIRELESS TELEPHONE INDUSTRY
We have designed our products to work with a variety of current and
future technologies. However, to date, we have generated almost all of our
revenues from sales to service providers in the wireless telephone industry. Our
revenues could decrease if the number of wireless service subscribers that our
customers serve decreases. Although the number of wireless subscribers has
increased substantially in the past, such growth may not continue. In addition,
according to industry reports, the average monthly bill per subscriber has
decreased in recent years. As a result, we may experience increased price
competition among billing service providers. Any adverse development in the
wireless telephone industry could materially affect our business, financial
condition and results of operations.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY
Our success depends in large part on our proprietary software
technology. We rely on trademark, copyright and trade secret laws, employee
and third-party non-disclosure agreements and other methods to protect our
proprietary rights. There can be no assurance that employees, consultants and
others who develop our software will not breach our agreements, that we will
have adequate remedies for any breach, or that our competitors will not
otherwise discover or independently develop our trade secrets. Our efforts to
protect our rights through trademark and copyright laws may not prevent
others from developing and designing products or technology similar to or
competitive with those we develop. Resorting to legal proceedings to enforce
our intellectual rights could be burdensome and expensive and could involve a
high degree of risk.
Our future success will depend in part on our continued ability to
obtain and use licensed technology that is important to certain features of our
products. The inability to continue to obtain or use such technology could have
a material adverse effect on our business, financial condition and operating
results.
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CLAIMS BY OTHERS THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD
HARM OUR BUSINESS
The computer technology industry is characterized by frequent and
substantial intellectual property litigation. To date, we have not received
any notices from third parties alleging infringement claims. However, third
parties may in the future claim that our current or future products or
technologies infringe their proprietary rights. Any infringement claim could
cause us to incur substantial costs defending against the claim, even if the
claim is invalid, and could distract our management from our business. A
party making an infringement claim could secure a judgment that requires us
to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our products. Any of
these events could seriously harm our business.
THE GOVERNMENT REGULATES OUR EXISTING AND POTENTIAL CUSTOMERS
Although our business is currently not subject to government
regulation, our existing and potential customers are subject to extensive
regulation. Changes in regulation which adversely affect our current and
potential customers could materially affect our business, financial condition
and results of operations.
"YEAR 2000 ISSUES" MAY DISRUPT OUR OPERATIONS
The year 2000 computer issue creates a variety of risks for us. The
year 2000 computer problem refers to the potential for system and processing
failures of date-related data as a result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date represented as
"00" as the year 1900 rather than the year 2000. Unless corrected, this, as well
as other date-related processing issues, may result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
total failure of mass systems that depend on computers such as electricity,
telephone networks and banking systems.
We have established a Year 2000 task force. Through September 30,
1999, we have incurred approximately $4.2 million in costs for becoming Year
2000 ready. Although we do not expect the cost to have a material adverse
effect on our business or results of operations, we might incur significant
unanticipated costs in relation to our readiness obligations.
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We have provided many of our customers with Year 2000 upgrades and
replacements of our software. However, there can be no assurance that our
customers will accept and install these upgrades and replacements in a timely
manner. The customers for whom we did not provide upgrades have assured us
they will stop running on our system by the end of this year; however, we
cannot assure you this will occur. In addition, we rely on third parties for
our infrastructure, operating systems, human resources, financial and
supporting billing and customer care software, some of which are not yet Year
2000 compliant. Although we are in the process of obtaining assurances from
third parties that their systems are or will be by Year 2000 compliant in a
timely manner, failure of third parties to provide Year 2000 compliant
software products could have a material adverse effect on our financial
condition and results of operations.
THE MARKET PRICE OF OUR SHARES OF COMMON STOCK MAY FLUCTUATE WIDELY
Our shares of common stock have been listed on the Nasdaq National
Market since October 1996. The market price of our shares of common stock could
fluctuate greatly in response to:
- quarterly fluctuations in operating results;
- announcements of technological innovations or new products by
us or our competitors;
- introduction of new products or new pricing policies by us or
our competitors;
- trends in the telecommunications industry;
- changes in financial estimates by securities analysts; and
- fluctuations in economic and financial market conditions.
In addition, the stock market experiences significant price and volume
fluctuations that have particularly affected the market price of equity
securities of many high technology companies. Often such fluctuations have been
unrelated to the operating performance of the specific companies. In the past,
following periods of volatility in the market price of a company's securities,
stockholders have instituted class action litigation against the company that
issued the stock. If any of our stockholders brought such a lawsuit against us,
we could incur substantial costs in our defense. Additionally, the lawsuit could
divert management's attention and resources, which would materially adversely
affect our business, financial condition and results of operations.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: October 26, 1999 INTERNATIONAL
TELECOMMUNICATION DATA
SYSTEMS, INC.
By: /s/ Peter L. Masanotti
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Peter L. Masanotti
Executive Vice President