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 Quarterly Period Ended Commission File Number:
June 30, 2001 0-22065
RADIANT SYSTEMS, INC.
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(Exact name of registrant as specified in its charter),
Georgia 11-2749765
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3925 Brookside Parkway, Alpharetta, Georgia 30022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 576-6000
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 the registrant's shares outstanding as of August 9, 2001 was
27,941,520.
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December
31, 2000............................................................................... 3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2001 and 2000 (unaudited)..................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001
and 2000 (unaudited)................................................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)....................... 6-9
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 10-15
Item 3: Quantitative and Qualitative Disclosures About Market Risks............................ 15
Item 4: Submission of Matters to a Vote of Security Holders.................................... 16
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K....................................................... 17-18
Signatures:...................................................................................... 17
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
2001 2000
-------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 37,301 $ 49,560
Accounts receivable, net 28,602 22,302
Inventories 18,971 17,172
Other short-term assets 3,923 4,722
--------- ---------
Total current assets 88,797 93,756
Property and equipment, net 15,733 14,092
Software development costs, net 12,580 9,358
Other long-term assets 14,844 14,055
--------- ---------
$ 131,954 $ 131,261
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 13,525 $ 16,486
Client deposits and unearned revenue 7,581 6,388
Current portion of long-term debt 603 --
--------- ---------
Total current liabilities 21,709 22,874
Long-term debt, less current portion 1,384 --
--------- ---------
Total liabilities 23,093 22,874
Shareholders' equity
Common stock, no par value; 100,000,000 shares authorized;
27,798,344 and 27,647,830 shares issued and outstanding 0 0
Additional paid-in capital 115,656 116,543
Accumulated deficit (6,795) (8,156)
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Total shareholders' equity 108,861 108,387
--------- ---------
$131,954 $131,261
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the three months ended For the six months ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Revenues:
System sales $19,496 $18,956 $39,995 $40,086
Client support, maintenance and other services 16,953 11,321 30,451 22,607
------- ------- ------- -------
Total revenues 36,449 30,277 70,446 62,693
Cost of revenues:
System sales 10,797 8,596 21,293 18,585
Client support, maintenance and other services 9,585 9,458 18,568 18,170
------- ------- ------- -------
Total cost of revenues 20,382 18,054 39,861 36,755
------- ------- ------- -------
Gross profit 16,067 12,223 30,585 25,938
Operating Expenses:
Product development 2,791 2,963 5,245 5,154
Sales and marketing 5,322 3,280 10,037 6,181
Depreciation and amortization 2,456 1,802 4,780 3,407
Non-recurring charges -- -- 1,023 --
General and administrative 4,289 4,049 8,287 7,428
------- ------- ------- -------
Income from operations 1,209 129 1,213 3,768
Interest income, net 435 885 1,008 1,592
------- ------- ------- -------
Income before income tax provision and extraordinary item 1,644 1,014 2,221 5,360
Income tax provision 658 406 860 2,140
------- ------- ------- -------
Income before extraordinary item 986 608 1,361 3,220
Extraordinary item:
Gain on early extinguishment of debt, net of taxes -- -- -- 1,520
------- ------- ------- -------
Net income $ 986 $ 608 $ 1,361 $ 4,740
======= ======= ======= =======
Basic income per share:
Income before extraordinary item $ 0.04 $ 0.02 $ 0.05 $ 0.12
Extraordinary income on early extinguishment of debt -- -- -- 0.06
------- ------- ------- -------
Total basic income per share $ 0.04 $ 0.02 $ 0.05 $ 0.18
======= ======= ======= =======
Diluted income per share:
Income before extraordinary item $ 0.03 $ 0.02 $ 0.05 $ 0.11
Extraordinary income on early extinguishment of debt -- -- -- 0.05
------- ------- ------- -------
Total diluted income per share $ 0.03 $ 0.02 $ 0.05 $ 0.16
======= ======= ======= =======
Weighted average shares outstanding:
Basic 27,747 27,410 27,716 26,975
======= ======= ======= =======
Diluted 29,697 29,803 29,406 29,879
======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months ended
June 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,361 $ 4,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on early extinguishment of debt -- (1,518)
Amortization of deferred compensation 30 26
Depreciation and amortization 6,364 4,299
Imputed interest on shareholder note -- 57
Changes in assets and liabilities:
Accounts receivable (5,957) (779)
Inventories (1,644) (444)
Other assets 1,708 868
Accounts payable and accrued liabilities (4,422) (4,432)
Client deposits and deferred revenue 962 (1,603)
--------- --------
Net cash (used in) provided by operating activities (1,598) 1,214
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of acquired entities, net of cash acquired (1,700) (6,000)
Purchases of property and equipment (3,483) (7,424)
Capitalized software development costs (4,136) (2,233)
--------- --------
Net cash used in investing activities (9,319) (15,657)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of employee stock options 873 1,767
Repurchase of common stock (2,157) --
Issuance of shareholder loans, net -- --
Stock issued under employee stock purchase plan 367 878
Issuance of common stock -- 10,000
Principal payments under capital lease obligations (107) --
Principal payments under long-term debt (318) (304)
--------- --------
Net cash (used in) provided by financing activities (1,342) 12,341
--------- --------
(Decrease) increase in cash and cash equivalents (12,259) (2,102)
Cash and cash equivalents at beginning of year 49,560 53,435
--------- --------
Cash and cash equivalents at end of period $ 37,301 $ 51,333
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 35 $ --
--------- --------
Income taxes $ 90 $ --
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applicable
to interim financial statements. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of Radiant Systems, Inc. (the
"Company") management, these condensed consolidated financial statements contain
all adjustments (which comprise only normal and recurring accruals) necessary
for fair presentation of the consolidated financial condition and results of
operations for these periods. The interim results for the three and six months
ended June 30, 2001 are not necessarily indicative of the results to be expected
for the full year. These statements should be read in conjunction with the
Company's consolidated financial statements as filed in its Annual Report on
Form 10-K for the year ended December 31, 2000.
2. Net Income Per Share
Basic net income per common share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted net income per share
includes the dilutive effect of stock options.
A reconciliation of the weighted average number of common shares outstanding
assuming dilution is as follows (in thousands):
For the three months ended For the six months ended
June 30, June 30,
--------------------------- ------------------------
2001 2000 2001 2000
--------------------------- ------------------------
Average common shares outstanding 27,747 27,410 27,716 26,975
Dilutive effect of outstanding stock options 1,950 2,393 1,690 2,904
--------------------------- ------------------------
Average common shares outstanding assuming dilution 29,697 29,803 29,406 29,879
=========================== ========================
For the three and six month periods ended June 30, 2001, options to purchase
approximately 958,000 and 801,000 shares of common stock, respectively, were
excluded from the above reconciliation, as the options were antidilutive for the
periods then ended. For the three and six month periods June 30, 2000, options
to purchase approximately 237,000 and 36,000 shares of common stock,
respectively, were excluded from the above reconciliation, as the options were
antidilutive for the periods then ended.
6
3. Segment Reporting Data
The Company provides enterprise technology solutions to businesses that serve
the consumer. To date, the Company's product applications have been focused on
the convenience store, food service, entertainment and convenient automotive
service center markets, as these markets require many of the same product
features and functionality.
The Company's management evaluates the performance of the segments based on an
internal measure of contribution margin, or income and loss from operations,
before certain allocated costs of development and corporate overhead. The
Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The other nonreportable segment includes miscellaneous businesses, certain
unallocated corporate operating expenses and the elimination of intersegment
sales.
The summary of the Company's operating segments is as follows (in thousands):
For the three months ended June 30, 2001
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Petroleum/ Hospitality
Convenience And Food
Store Service Entertainment Other Consolidation
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Revenues $18,031 $9,076 $7,551 $ 1,791 $36,449
Contribution margin 4,971 966 2,189 (238) 7,888
Operating income (loss) 1,701 (415) 964 (1,041) 1,209
For the three months ended June 30, 2000
-----------------------------------------------------------------------------------------
Petroleum/ Hospitality
Convenience And Food
Store Service Entertainment Other Consolidation
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Revenues $18,150 $ 6,406 $5,721 -- $30,277
Contribution margin 7,129 (1,198) 1,392 (16) 7,307
Operating income (loss) 2,609 (2,575) 111 (16) 129
For the six months ended June 30, 2001
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Petroleum/ Hospitality
Convenience And Food
Store Service Entertainment Other Consolidation
-----------------------------------------------------------------------------------------
Revenues $34,941 $19,587 $13,875 $ 2,043 $70,446
Contribution margin 10,713 245 5,425 (1,148) 15,235
Acquisition and other
non-recurring charges -- 1,023 -- -- 1,023
Operating income (loss) 4,240 (3,395) 2,346 (1,978) 1,213
For the six months ended June 30, 2000
-----------------------------------------------------------------------------------------
Petroleum/ Hospitality
Convenience And Food
Store Service Entertainment Other Consolidation
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Revenues $34,805 $14,267 $13,621 -- $62,693
Contribution margin 12,796 (226) 4,238 (2,375) 14,433
Operating income (loss) 6,588 (2,557) 2,112 (2,375) 3,768
7
The Company distributes it's technology both within the United States and
internationally, however, to date, international sales have not been material.
4. Acquisitions
On May 9, 2001, the Company acquired all the common stock of Breeze Software
Proprietary Limited, a leading provider of software applications for retailers
in the Australian and Asia-Pacific marketplaces. The purchase price consisted of
$1.7 million in cash and assumption of net liabilities of approximately
$700,000. Total consideration, including approximately $400,000 in transaction
costs, was $2.8 million. Intangibles of approximately $2.8 million were
recorded, which are being amortized over four to ten years (See Note 7). The
Company may pay additional consideration of cash and stock if certain earnings
milestones are obtained. In connection with the acquisition, the Company entered
into employment agreements with three employees for terms expiring no later than
December 31, 2003.
On June 22, 2000, the Company consummated the acquisition of TimeCorp, Inc.
("TimeCorp"), a workforce management and planning software business operation
owned by VeriFone, Inc., a subsidiary of Hewlett-Packard, Inc. The purchase
price consisted of $6.0 million and included substantially all the assets of
TimeCorp, including software products, intellectual property and client
contracts. Intangibles of approximately $6.4 million were recorded, which are
being amortized over four to ten years (See Note 7).
5. Significant Events
On March 3, 2000, the Company entered into an agreement with America Online,
Inc. and Moviefone, Inc. (collectively "AOL"), whereby AOL agreed, among other
items, to invest $25.0 million in a to-be-formed subsidiary of the Company to
engage in consumer interactive businesses other than in the entertainment
industry (e.g., interactive fuel and dispenser business and interactive
restaurant self-ordering business), with any amount not invested by AOL to be
callable by the Company into common shares of the Company. On March 19, 2001,
the Company and AOL amended this strategic relationship. Based on the new
agreement, the Company's theater exhibition point-of-sale and management systems
solution will become AOL Moviefone's preferred offering in the cinema and
entertainment industry. In addition, the Company will support AOL Moviefone
clients operating the MARS point of sale product. Additionally, both companies
have agreed not to pursue forming a subsidiary to address potential business-to-
consumer applications over the Internet. Alternatively, AOL, as part of the
amended agreement, has agreed to fund an amount of money to enable current MARS
clients to upgrade to the Company's systems and for the Company to perform
certain professional services for AOL and certain MARS' clients.
On January 23 and 26, 2001, respectively, the Company announced the permanent
closure of its facilities in Hillsboro, Oregon and Pleasanton, California. The
decision was made to reduce costs and consolidate operations at the Company's
headquarters in Alpharetta, Georgia. The Hillsboro office had served primarily
as a sales office for the Company's small business food products, while the
Pleasanton office had served primarily as a sales office for hospitality and
food service products. The office closure costs related to these two offices are
comprised primarily of severance benefits and lease reserves. As part of the
closings, the Company terminated 25 of the 34 employees. As a result, the
Company recorded a non-recurring charge of approximately $1.0 million associated
with this action during its first quarter of 2001. During the six months ended
June 30, 2001, the Company paid or incurred approximately $600,000 in severance,
lease payments and other exit costs related to this action. Furthermore, at June
30, 2001, the Company had approximately $400,000 remaining in accrued
liabilities related to the remaining exit costs, which the Company expects to be
paid by the end of the first quarter of 2002.
8
On March 30, 2000 the Company and the former sole shareholder of RapidFire
reached an agreement whereby the Company paid to the former shareholder $200,000
and forgave a $1.5 million note receivable, and in return, was relieved in full
of its indebtedness to the shareholder. This indebtedness consisted of a
noninterest-bearing note with a lump-sum payment of $6.0 million due October 31,
2005 ($4.3 million at December 31, 1999) and was issued October 31, 1997 as part
of the Company's acquisition of RapidFire. As a result of this early
extinguishment of debt, the Company recorded an extraordinary gain of
approximately $1.5 million, net of tax, during the first quarter ended March 31,
2000.
6. Subsequent Event
On July 26, 2001, the Company announced its purchase of certain assets from
HotelTools, Inc., an emerging provider of enterprise software solutions for the
hospitality industry including solutions to centralize all aspects of multi-
property hotel operations, including hotel management, rate management,
reservations and procurement. The transaction included the purchase of certain
intellectual property rights, fixed assets and pending patents. In addition,
approximately thirty former employees of HotelTools, Inc. joined the Company.
7. Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations" ("SFAS No.141"),
and Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 supersedes Accounting
Principles Board ("APB") Opinion No. 16 "Business Combinations", and SFAS No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
This Statement prescribes the accounting principles for business combinations
and requires that all business combinations be accounted for using the purchase
method of accounting. This Statement is effective for all business combinations
after June 30, 2001.
SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets". This Statement
prescribes the accounting practices for acquired goodwill and other intangible
assets. Under this Statement, goodwill will no longer be amortized to earnings,
but instead will be reviewed periodically (at least annually) for impairment.
The Company will adopt this Statement on January 1, 2002. Goodwill and certain
other intangible assets related to acquisitions subsequent to June 30, 2001 will
not be amortized. As of June 30, 2001 the Company had approximately $11.5
million of recorded net goodwill, which will be subject to this new Statement.
During 2001, the Company expects to record approximately $1.4 million of
goodwill amortization expense, net of taxes. The Company is currently evaluating
this new pronouncement and has not yet determined the impact on its financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Company adopted FAS 133 effective January 1, 2001. The adoption did not have a
material impact on the Company's results of operations.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Overview
The Company derives its revenues primarily from the sale of integrated systems,
including software, hardware and related support and professional services. As
discussed below, during the second quarter of 2000, the Company announced and
began offering these products pursuant to a new subscription-based pricing
model. In addition, the Company offers implementation and integration services
which are billed on a per diem basis. The Company's revenues from its various
technology solutions are, for the most part, dependent on the number of
installed sites for a client. Accordingly, while the typical sale is the result
of a long, complex process, the Company's clients usually continue installing
additional sites over an extended period of time. Revenues from software and
systems sales are recognized as products are shipped, provided that collection
is probable and no significant post shipment vendor obligations remain. Revenues
from client support, maintenance and other services are generally recognized as
the service is performed.
In 1999, the Company began developing its new generation of management systems
products -- WAVE. This product architecture is designed to combine and expand
the functionality of its Site Management Systems and Headquarter-Based
Management Systems. The Company's architecture and platforms for these products
are entirely web-based, which the Company believes will enable it to increase
the functionality while decreasing the costs of implementing and maintaining
technology solutions for retailers. Management believes that these products will
strengthen its product offerings by providing integrated, end-to-end solutions
that span from the consumer to the supply chain.
The Company intends to offer its WAVE software primarily through the application
service provider, or "ASP," delivery model. In the ASP delivery model, the
Company would remotely host applications from an off-site central server that
users can access over dedicated lines, virtual private networks or the Internet.
Additionally, the Company plans to offer the product through installations
directly in client locations as "client-hosted" systems. The Company also
intends to offer Internet solutions that will allow clients to utilize the
Internet to enhance site management and conduct business-to-business e-commerce.
In connection with its strategy to develop ASP-delivered products, in April 2000
the Company began converting certain new and existing products to a
subscription-based pricing model. Under this subscription-pricing model,
clients will pay a fixed, monthly fee for use of WAVE and the necessary hosting
services to utilize those applications and solutions. This represents a change
in the Company's historical pricing model in which clients were charged an
initial licensing fee for use of the Company's products and continuing
maintenance and support during the license period. The Company began offering
its products and services on the subscription-pricing model in the second
quarter of 2000. The Company continues to derive a majority of its revenue from
its traditional sales model of one-time software license revenues, hardware
sales and software maintenance and support fees that will be paid by existing
clients. However, as a result of the transition to the subscription-pricing
model and the decline of revenues from legacy site management and headquarters
solutions, the Company expects to see a decline in the one-time revenues from
software license fees and hardware sales, replaced over time by monthly
subscription fees. In addition, the Company expects revenue from maintenance and
support from existing clients to decline and to be replaced by subscription fees
as existing clients convert to the subscription-pricing model. Although the
Company's subscription-based revenues to date have been immaterial to total
revenues; the Company expects the percentage of revenue that is recurring in
nature to increase substantially as a result of the change to a subscription-
pricing model.
This change in the Company's product strategy to develop and offer ASP-delivered
and Internet solutions and the transition to a subscription-pricing model
involve certain risks and assumptions. There can be no
10
assurance that the Company will successfully implement these changes in its
organization, product strategy or pricing model or that the changes will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
On April 1, 2000 the Company effected a 3-for-2 stock split. All historical
share data and weighted average shares have been restated to account for this
split.
Results of Operations
Three and six months ended June 30, 2001 compared to three and six months ended
June 30, 2000
System Sales. The Company derives the majority of its revenues from sales and
licensing fees of its headquarters-based, back office management, and point of
sale solutions. System sales increased 2.8% to $19.5 million for the quarter
ended June 30, 2001 (the "second quarter 2001"), compared to $19.0 million for
the quarter ended June 30, 2000 (the "second quarter 2000"). This increase was
primarily the result of increased sales to new and existing clients, offset by
the Company's strategy to begin converting certain new and existing products and
clients to the subscription-pricing model during the second quarter 2000.
System sales remained relatively flat for the six months ended June 30, 2001
(the "fiscal period 2001"), decreasing 0.2% to $40.0 million compared to $40.1
for the six months ended June 30, 2000 (the "fiscal period 2000"). This decrease
was primarily the result of the Company's strategy to begin converting certain
new and existing products and clients to the subscription-pricing model, as well
as declining sales of the Company's legacy back-office and headquarters products
in advance of the Company's general release of its WAVE software scheduled for
early 2002.
Client Support, Maintenance and Other Services. The Company also derives
revenues from client support, maintenance and other services. Client support,
maintenance and other services increased 49.7% to $17.0 million for the second
quarter 2001, compared to $11.3 million for the second quarter 2000 and
increased 34.7% to $30.5 million for the fiscal period 2001, compared to $22.6
million for the fiscal period 2000. These increases were due to increased client
demand for professional services such as training, custom software development,
project management and implementation services and from an increased installed
base within existing markets.
Cost of System Sales. Cost of system sales consists primarily of hardware and
peripherals for site-based systems and labor. These costs are expensed as
products are shipped. Cost of system sales increased 25.6% to $10.8 million for
the second quarter 2001, compared to $8.6 million for the second quarter 2000.
Cost of system sales increased 14.6% to $21.3 million for the fiscal period 2001
from $18.6 million for the fiscal period 2000. Cost of system sales as a
percentage of system sales increased to 55.4% for the second quarter 2001 from
45.3% for the second quarter 2000, and to 53.2% during fiscal period 2001 from
46.4% for fiscal period 2000. These increases were due primarily to lower
hardware margins and changes in product sales mix in both the second quarter
2001 and fiscal period 2001. Additionally, amortization of capitalized software
development costs was approximately $637,000 and $452,000 for the second quarter
2001 and 2000, respectively, and approximately $1.2 million and $922,000 for
fiscal periods 2001 and 2000, respectively.
Cost of Client Support, Maintenance and Other Services. Cost of client support,
maintenance and other services consists primarily of personnel and other costs
associated with the Company's services operations. Cost of client support,
maintenance and other services increased 1.3% to $9.6 million for the second
quarter 2001 from $9.5 million for the second quarter 2000 and increased 2.2% to
$18.6 million for fiscal period 2001 from $18.2 million for fiscal period 2000.
These increases were due primarily to the Company's expansion of its
professional service offerings and the related increase in wages associated with
this effort. Cost of client support, maintenance and other services as a
percentage of client support, maintenance and other services revenues decreased
to 56.5% for the second quarter 2001 from 83.5% for the second quarter 2000 and
to 61.0% for fiscal period 2001 from 80.4% for fiscal period 2000 due to
increased efficiencies and staff utilization as well as the creation of a new
Client Management Services
11
group on January 1, 2001. In order to provide clients improved service as well
as provide more leverage to its sales people, certain resources previously
included in costs of client support, maintenance and other services were
reallocated to a new account management and client logistics function within the
sales and marketing group. As a result of this change in their responsibility,
approximately 44 people, or approximately $1.0 million and $2.0 million of
expense are included in sales and marketing expenses for the second quarter 2001
and fiscal period 2001, respectively.
Product Development Expenses. Product development expenses consist primarily of
wages and materials expended on product development efforts. Product
development expenses decreased 5.8% to $2.8 million for the second quarter 2001,
compared to $3.0 million for the second quarter 2000. This decrease was due to
higher capitalization of software costs associated with the Company's
development of its WAVE and Lighthouse generation of products over the same
period a year ago. In the second quarter 2001, the Company capitalized software
development costs of $2.1 million, or 42.4% of its total product development
costs, compared to $1.2 million or 29.4% during the second quarter 2000. Product
development expenses remained flat at $5.2 million for fiscal period 2001 and
fiscal period 2000. Although the Company's total product development spending
increased during the fiscal period 2001, this increase was offset by higher
capitalization of software costs associated with the Company's development of
its WAVE and Lighthouse generation of products. For fiscal period 2001, the
Company capitalized software development costs of $4.1 million, or 44.0% of its
total product development costs, compared to $2.2 million or 30.2% for the
fiscal period 2000. Product development expenses as a percentage of total
revenues decreased to 7.7% during the second quarter 2001 from 9.8% during the
second quarter 2000 and to 7.4% for the fiscal period 2001 from 8.2% for the
fiscal period 2000 as revenues increased at a pace higher than product
development expenses.
Sales and Marketing Expenses. Sales and marketing expenses increased 62.3% to
$5.3 million during the second quarter 2001, compared to $3.3 million in the
second quarter 2000 and increased 62.4% to $10.0 million during fiscal period
2001, compared to $6.2 million for fiscal period 2000. These increases were
associated primarily to the creation of the new Client Management Services group
on January 1, 2001 and associated costs previously included in cost of client
support, maintenance and other services as noted above. As a result of this
change in their responsibility, approximately 44 people, or approximately $1.0
million and $2.0 million of expense are included in sales and marketing expenses
for the second quarter and fiscal period 2001, respectively. Additionally, the
Company's continued expansion of its sales activities, including new hires and
increased commission expense, attributed to these increases. Sales and marketing
expenses as a percentage of total revenues were 14.6% and 10.8% for the second
quarter 2001 and 2000, respectively, and were 14.2% and 9.9% for fiscal period
2001 and 2000, respectively as sales and marketing expenses increased during
these periods at a pace higher than revenues.
Depreciation and Amortization. Depreciation and amortization expenses increased
36.3% to $2.5 million for the second quarter 2001, compared to $1.8 million for
the second quarter 2000 and increased 40.3% to $4.8 million for fiscal period
2001, compared to $3.4 million for fiscal period 2000. The increases resulted
from an increase in computer equipment, leasehold improvements and other assets
required to support an increased number of employees and locations. Depreciation
and amortization as a percentage of total revenues was 6.7% and 6.0% for the
second quarter 2001 and 2000, respectively, and 6.8% and 5.4% for fiscal periods
2001 and 2000, respectively. These increases were primarily due to associated
personnel support costs increasing at a pace higher than revenues.
Non-recurring charges. On January 23 and 26, 2001, respectively, the Company
announced the permanent closure of its facilities in Hillsboro, Oregon and
Pleasanton, California. The decision was made to reduce costs and consolidate
operations at the Company's headquarters in Alpharetta, Georgia. The Hillsboro
office had served primarily as a sales office for the Company's small business
food products, while the Pleasanton office had served primarily as a sales
office for hospitality and food service products. The office closure costs
related to these two offices are comprised primarily of severance benefits and
lease reserves. As part of the closings, the Company terminated 25 of the 34
12
employees at these facilities. As a result, the Company recorded a non-
recurring charge of approximately $1.0 million associated with this action
during the first quarter 2001. During the six months ended June 30, 2001, the
Company paid or incurred approximately $600,000 in severance, lease payments and
other exit costs related to this action. Furthermore, at June 30, 2001, the
Company had approximately $400,000 remaining in accrued liabilities related to
the remaining exit costs, which the Company expects to pay by the end of the
first quarter of 2002.
General and Administrative Expenses. General and administrative expenses
increased 5.9% to $4.3 million for the second quarter 2001, compared to $4.0
million for the second quarter 2000 and increased 11.6% to $8.3 million for
fiscal period 2001, compared to $7.4 million for fiscal period 2000. The
increases were due primarily to personnel increases needed to support additional
revenues, as well as to support the Company's move to the subscription-pricing
model. General and administrative expenses as a percentage of total revenues
were 11.8% and 13.4% for the second quarter 2001 and 2000, respectively, as
total revenues grew at a pace faster than these expenses. General and
administrative expenses as a percentage of total revenues remained flat at 11.8%
for fiscal periods 2001 and 2000.
Interest Income, Net. Net interest income decreased 50.1% to $435,000 for the
second quarter 2001, compared to $885,000 for the second quarter 2000. For
fiscal period 2001, net interest income decreased 36.7% to $1.0 million,
compared to net interest income of $1.6 million for fiscal period 2000. The
Company's interest income is derived from the investment of its cash and cash
equivalents. The decreases in net interest income resulted primarily from a
decrease in cash and cash equivalents from an average cash balance of $54.5
million during the second quarter 2000 and $52.4 million during the fiscal
period 2000 to an average cash balance of $41.8 million during the second
quarter 2001 and $43.4 million during the fiscal period 2001. Additionally, the
Company's weighted average interest rates it receives on cash balances declined
in 2001 over 2000. See "--Liquidity and Capital Resources" and "--Item 3.
Quantitative and Qualitative Disclosures About Market Risks."
Income Tax Provision. The Company recorded a tax provision of 40.0% in both
the second quarter 2001 and the second quarter 2000. The Company recorded a tax
provision of 38.7% for fiscal period 2001 and 40.0% in fiscal period 2000.
Extraordinary Item. On March 30, 2000, the Company and the former sole
shareholder of RapidFire reached an agreement whereby the Company paid to the
former shareholder $200,000 and forgave a $1.5 million note receivable, and in
return, was relieved in full of its indebtedness to the shareholder. This
indebtedness consisted of a noninterest-bearing note with a lump-sum payment of
$6.0 million due October 31, 2005 and was issued October 31, 1997 as part of the
Company's acquisition of RapidFire. As a result of this early extinguishment of
debt, the Company recorded an extraordinary gain of approximately $1.5 million,
net of tax, during the first quarter 2000. No such item was recorded during
fiscal 2001.
Net Income. Net income for the second quarter ended June 30, 2001, was $1.0
million, or $0.03 per diluted share, an increase of $400,000, or $0.01 per
diluted share, compared to net income of $600,000, or $0.02 per diluted share,
for the same period in 2000. Net income for the six months ended June 30, 2001,
was $1.4 million, or $0.05 per diluted share, a decrease of $1.8 million, or
$0.06 per diluted share, over net income before extraordinary item of $3.2
million, or $0.11 per diluted share, for the same period last year.
Liquidity and Capital Resources
As of June 30, 2001, the Company had $37.3 million in cash and cash equivalents
and working capital of $67.1 million.
13
Cash used in operating activities in fiscal period 2001 was $1.6 million
compared to cash provided by operating activities of $1.2 million in fiscal
period 2000. In fiscal period 2001, cash used in operating activities consisted
primarily of net income of $1.4 million during the period, offset by increased
accounts receivable, and inventory, as well as decreased accounts payable and
accrued liabilities due to timing of certain vendor payments. Additionally,
client deposits and unearned revenues increased during fiscal period 2001 as the
Company received cash from clients in advance of delivered products and/or
services. In fiscal period 2000, cash provided by operating activities
consisted primarily of net income of $4.7 million during the period, offset by
increased accounts receivable, inventory and other assets, as well as decreased
accounts payable and accrued liabilities due to timing of certain vendor
payments. Additionally, client deposits and unearned revenues decreased during
the fiscal period 2000 as the Company delivered products and/or services
previously paid for by clients.
Cash used in investing activities during fiscal period 2001 and 2000 was $9.3
million and $15.7 million, respectively. The uses of cash in investing
activities during fiscal period 2001 consisted primarily of the of the
acquisition of Breeze Software Pty Ltd for $1.7 million, as more fully
described in Note 4 of the condensed consolidated financial statements, as well
as purchases of property and equipment of $3.5 million and capitalized software
costs of $4.1 million. The uses of cash in investing activities for fiscal
period 2000 consisted primarily of the acquisition of TimeCorp, Inc. for $6.0
million, as more fully described in Note 4 of the condensed consolidated
financial statements, and purchases of property and equipment for $7.4 million
and capitalized software costs of $2.2 million.
Cash of $1.3 million was used in financing activities during fiscal period 2001
due primarily to the Company's purchase of common stock pursuant to its stock
repurchase program for approximately $2.2 million, offset by cash received from
the exercise of employee stock options as well as cash received from stock
issued under the Company's employee stock purchase plan. Cash of $12.3 million
was provided by financing activities during fiscal period 2000 due primarily to
cash received from AOL's purchase of $10.0 million of the Company's stock at a
price of $10 per share, as more fully described in Note 5 of the condensed
consolidated financial statements and from the exercise of employee stock
options of $1.8 million.
In May 2000, the Board of Directors of the Company authorized a stock repurchase
program pursuant to which the Company is authorized to repurchase up to 1.0
million shares of common stock of the Company over the next twelve months.
During 2000, the Company repurchased and subsequently retired approximately
90,000 shares at prices ranging from $18.25 to $19.94 per share, for total
consideration of approximately $1.8 million. During the six months ended June
30, 2001, the Company repurchased and subsequently retired approximately 135,000
shares at prices ranging from $11.25 to $18.67 per share, for total
consideration of approximately $2.2 million. As of July 31, 2001, the Company
had repurchased in the open market an aggregate of approximately 225,000 shares
of its common stock for a total of $3.9 million, under this repurchase plan.
On June 30, 2001 the Company and Tricon Global Restaurants, Inc. ("Tricon")
signed a contract evidencing a multi-year arrangement to implement WAVE
exclusively in Tricon's company-owned restaurants around the world. Tricon's
franchisees will also be able to subscribe to WAVE under the same terms as the
company-owned restaurants. As part of this agreement, the Company agreed to
purchase from Tricon its source code and object code for certain back office
software previously developed by Tricon for $16.4 million payable in specified
annual installments through December 31, 2003. Costs associated with the
purchase of this asset, as well as cash received by the Company, will be
deferred and recognized over the five-year subscription term of the arrangement
beginning upon installation of the WAVE software at each site.
14
Forward-Looking Statements
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. These statements appear in a
number of places in this Annual Report and include all statements that are not
statements of historical fact regarding intent, belief or current expectations
of the Company, its directors or its officers with respect to, among other
things: (i) the Company's financing plans; (ii) trends affecting the Company's
financial condition or results of operations; (iii) the Company's growth
strategy and operating strategy (including the development of its products and
services); and (iv) the declaration and payment of dividends. The words "may,"
"would," "could," "will," "expect," "estimate," "anticipate," "believe,"
"intend," "plans," and similar expressions and variations thereof are intended
to identify forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, many of which are beyond the Company's ability to
control. Actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. Among the key risks,
assumptions and factors that may affect operating results, performance and
financial condition are the Company's reliance on a small number of customers
for a larger portion of its revenues, fluctuations in its quarterly results,
ability to continue and manage its growth, liquidity and other capital resources
issues, competition and the other factors discussed in detail in the Company's
Form 10-K (as amended) filed with the Securities and Exchange Commission,
including the "Risk Factors" therein.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
- --------------------------------------------------------------------
The Company's financial instruments that are subject to market risks are its
cash and cash equivalents. During the second quarter 2001 and fiscal period
2001, the weighted average interest rate on its cash balances was approximately
4.51% and 5.22%, respectively. A 10.0% decrease in this rate would have impacted
interest income by approximately $57,000 and $104,000, respectively, during
second quarter 2001 and fiscal period 2001.
15
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
The Company held its 2001 Annual Meeting of Shareholders on June 22, 2001. Of
the 27,287,771 shares of common stock outstanding and entitled to vote at the
meeting, 26,287,771 shares were represented at the meeting in person or by
proxy. The following matters were voted upon:
1. The election to the Board of Directors of the Company of two persons named
as nominees for director in the Proxy Statement of the Company, to serve
as Class I directors of the Company for a term expiring at the 2004 annual
meeting of shareholders of the Company.
The voting results were as follows:
Nominee For Withheld/Against
------- --- ----------------
James S. Balloun 25,744,647 543,124
John H. Heyman 21,998,377 4,289,394
The terms of office of the following directors continued after the meeting: Evan
O. Grossman, Erez Goren and Alon Goren.
16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits.
The following exhibit is filed with this Report:
27.1 Asset Purchase and License Agreement dated June 30, 2001 by
and between Radiant Systems, Inc. and Tricon Restaurant Services
Group. **
** Confidential treatment has been requested for certain
confidential portions of this exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. In
accordance with this rule, these confidential portions have
been omitted from this exhibit and filed separately with the
Securities and Exchange Commission.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADIANT SYSTEMS, INC
Dated: August 13, 2001 By: /s/ John H. Heyman
-------------------- -----------------------------------------
John H. Heyman, Executive
Vice President and Chief Financial
Officer (Duly authorized officer and
principal financial officer)
17
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.1 Asset Purchase and License Agreement dated June 30, 2001 by and
between Radiant Systems, Inc. and Tricon Restaurant Services
Group. **
** Confidential treatment has been requested for certain
confidential portions of this exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. In
accordance with this rule, these confidential portions have been
omitted from this exhibit and filed separately with the
Securities and Exchange Commission.
18