FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15578
DAVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware No. 02-0364368
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
6 Technology Park Drive
Westford, Massachusetts 01886
(Address of principal executive offices) (Zip Code)
Telephone: (508) 952-0200
(Registrant's telephone number, including area code)
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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
-- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: Common Stock, par value $.10 per share, outstanding as of July
26, 1996: 7,204,819 shares.
DAVOX CORPORATION & SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
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Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1996
and 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
1996 December 31,
(unaudited) 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 22,592,205 $ 12,935,907
Accounts receivable, net of reserves of
$517,629 in 1996 and $665,030 in 1995 4,893,453 4,459,597
Inventories 1,612,879 1,009,029
Prepaid expenses and other current assets 130,418 52,357
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Total current assets 29,228,955 18,456,890
Property and equipment, net 2,995,299 1,865,398
Capitalized software development costs, net 83,693 380,287
Other assets, net 222,750 121,987
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$ 32,530,697 $ 20,824,562
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 66,848 $ 92,896
Accounts payable 3,690,851 2,927,172
Accrued expenses 4,073,834 3,926,054
Customer deposits 5,477,979 1,292,627
Deferred revenue 3,254,102 1,629,081
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Total current liabilities 16,563,614 9,867,830
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Long-term debt, net of current maturities 10,268 44,891
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Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 7,201,056 shares in 1996
and 6,845,789 shares in 1995 720,106 684,579
Capital in excess of par value 43,712,441 42,509,154
Accumulated deficit (28,451,586) (32,257,746)
------------------- ------------------
15,980,961 10,935,987
Less - treasury stock, 2,807 shares at cost (24,146) (24,146)
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Total stockholders' equity 15,956,815 10,911,841
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$ 32,530,697 $ 20,824,562
=================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Product revenue $8,702,957 $5,424,073 $16,304,591 $10,567,500
Service revenue 3,962,392 3,592,011 7,771,025 6,989,685
--------------- -------------- -------------- --------------
Total revenue 12,665,349 9,016,084 24,075,616 17,557,185
Cost of product revenue 2,563,644 1,617,464 4,768,079 3,336,901
Cost of service revenue 2,574,654 2,380,160 5,048,867 4,587,385
--------------- -------------- -------------- --------------
Total cost of revenue 5,138,298 3,997,624 9,816,946 7,924,286
Gross profit 7,527,051 5,018,460 14,258,670 9,632,899
Research, development and
engineering expenses 1,415,696 1,027,974 2,683,566 1,963,710
Selling, general and administrative
expenses 4,054,250 2,894,686 7,727,592 5,625,077
--------------- -------------- -------------- --------------
Total operating expenses 5,469,946 3,922,660 10,411,158 7,588,787
Income from operations 2,057,105 1,095,800 3,847,512 2,044,112
Interest income 221,609 110,395 388,092 181,832
Interest expense 3,304 5,109 6,536 10,901
--------------- -------------- -------------- --------------
Income before provision
for income taxes 2,275,410 1,201,086 4,229,068 2,215,043
Provision for income taxes 227,549 120,185 422,908 221,581
--------------- -------------- -------------- --------------
Net income $ 2,047,861 $ 1,080,901 $ 3,806,160 $ 1,993,462
=============== ============== ============== ==============
Net income per common and $0.25 $0.14 $0.47 $0.26
common equivalent share =============== ============== ============== ==============
Weighted average number of common and
common equivalent shares outstanding 8,193,504 7,659,518 8,101,267 7,554,671
=============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months
ended June 30,
---------------------------
Cash flows from operating activities: 1996 1995
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Net income $ 3,806,160 $ 1,993,462
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,224,634 1,259,232
Provision for losses on accounts receivable 34,000 151,744
Changes in current assets and liabilities -
Accounts receivable (467,856) 249,642
Inventories (603,850) 76,183
Prepaid expenses and other current assets (78,061) 100,402
Accounts payable 763,679 (431,630)
Accrued expenses 147,780 (359,098)
Customer deposits 4,185,352 823,332
Deferred revenue 1,625,021 1,312,785
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Net cash provided by operating activities 10,636,859 5,176,054
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Cash flows from investing activities:
Purchase of property and equipment, net (2,039,978) (635,349)
Increase in other assets (118,726) (1,576)
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Net cash used in investing activities (2,158,704) (636,925)
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Cash flows from financing activities:
Principal payments of long-term debt (60,671) (54,738)
Proceeds from exercise of stock options 1,199,545 252,990
Proceeds from exercise of employee stock
purchase plan 39,269 11,700
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Net cash provided by financing activities 1,178,143 209,952
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Net increase in cash and cash equivalents 9,656,298 4,749,081
Cash and cash equivalents at beginning of period 12,935,907 5,277,780
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Cash and cash equivalents at end of period $ 22,592,205 $ 10,026,861
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 6,536 $ 10,901
============ ============
Cash paid during the period for income taxes $ 114,306 $ 18,755
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
5
PART 1. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Preparation
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K, Commission File No. 0-15578 which was filed with the
Securities and Exchange Commission on February 26, 1996. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
summarize fairly the Company's financial position and results of operations.
The results of operations for the six month period ended June 30, 1996 may
not be indicative of the results that may be expected for the full fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements at June 30, 1996
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
3. Inventories
Inventories are stated at the lower of the first-in, first-out (FIFO)
cost or market and consist of the following:
June 30, December 31,
1996 1995
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Raw materials and
subassemblies..... $ 84,726 $ 52,032
Work-in-process.... 796,926 641,430
Finished goods..... 731,227 315,567
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$1,612,879 $1,009,029
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6
PART I. FINANCIAL INFORMATION (continued)
DAVOX CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Inventories (continued)
Subassemblies, work-in-process and finished goods inventories include
material and subcontract labor. Internal labor and overhead are not
significant and are charged to operations in the period incurred.
4. Capitalization of Software Development Costs
A change occurred in the Company's development cycle, such that the
period between the attainment of technological feasibility and the first
commercial shipment of a software enhancement has shortened, and the level of
capitalizable costs incurred are no longer material. Accordingly, during the
three months and six months ended June 30, 1996, there were no software
development costs capitalized. Approximately $148,000 and $297,000 of
capitalized software development costs were amortized to expense during the
three months and six months ended June 30, 1996, respectively.
5. Provision for Income Taxes
The Company has available significant net operating loss
carryforwards. However, for the three months and six months ended June 30,
1996, the Company provided for federal alternative minimum tax and for
certain state income taxes in those states which do not allow for net
operating loss carryforwards.
6. Net Income Per Share
Net income per share was computed based on the weighted average number
of common and common equivalent shares (stock options and warrants)
outstanding during the period.
7
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1996 and 1995
Total revenue for the second quarter of 1996 increased approximately
$3.6 million, or 40.5% compared to the same period in 1995, while total revenue
for the first six months of 1996 increased approximately $6.5 million, or 37.1%
compared to the same period in 1995.
Product revenue increased approximately $3.3 million, or 60.5% to $8.7
million in the second quarter of 1996 as compared to the same period in 1995.
Product revenue for the first six months of 1996 increased approximately $5.7
million, or 54.3% to $16.3 million as compared to the same period in 1995. The
increase was caused by continued increasing demand for the Unison call center
management system, especially the telemarketing and collections outbound
capabilities.
Cost of product revenue increased approximately $946,000, or 58.5% to
$2.6 million for the second quarter of 1996, but as a percentage of product
revenue decreased 0.4% as compared to the second quarter of 1995. Cost of
product revenue for the first six months of 1996 increased approximately $1.4
million, or 42.9% to $4.8 million, but as a percentage of product revenue,
decreased 2.3% as compared to the same period in 1995. This decrease as a
percentage of product revenue was mainly attributable to the increased volume of
product shipments relative to fixed costs, and a higher margin product mix.
Service revenue increased approximately $370,000, or 10.3% to $4.0
million for the second quarter of 1996 as compared to the second quarter of
1995, while service revenue for the first six months of 1996 increased
approximately $781,000, or 11.2% to $7.8 million as compared to the same period
in 1995. These increases are due to increased installation revenue related to
the increased volume of product shipments and an increase in maintenance
revenues related to the growth in the number of the Company's customers.
Cost of service revenue increased approximately $194,000, or 8.2% to
$2.6 million for the second quarter of 1996, but as a percentage of service
revenue decreased by 1.3% as compared to the second quarter of 1995. Cost of
service revenue for the first six months of 1996 increased approximately
$461,000, or 10.1% to $5.0 million, but as a percentage of service revenue
decreased by 0.7% as compared to the same period in 1995.
Research, development and engineering expenses increased approximately
$388,000, or 37.7% to $1.4 million for the second quarter of 1996 as compared to
the same period in 1995. Research, development and engineering expenses for the
first six months of 1996 increased approximately $720,000, or 36.7% to $2.7
million as compared to the same period in 1995. These increases were primarily
attributable to higher payroll and related expenses in 1996 resulting from
headcount increases. As a percentage of total revenues, research, development
8
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
and engineering expenses decreased from 11.4% for the second quarter of 1995 to
11.2% for the second quarter of 1996, while research, development and
engineering expenses as a percentage of total revenues for the first six months
of 1996 remained unchanged as compared to the same period in 1995.
Selling, general and administrative (SG&A) expenses increased by
approximately $1,160,000, or 40.1% to $4.1 million for the second quarter of
1996 as compared to the same period in 1995. SG&A expenses for the first six
months of 1996 increased by approximately $2,100,000, or 37.4% to $7.7 million
as compared to the same period in 1995. These increases were primarily
attributable to direct and indirect selling expenses related to the increased
revenues, and increased payroll and related expenses in 1996 resulting from
headcount increases. As a percentage of total revenues, SG&A expenses decreased
from 32.1% for the second quarter of 1995 to 32.0% for the second quarter of
1996, while SG&A expenses as a percentage of total revenues increased slightly
from 32.0% for the first six months of 1995 to 32.1% for the first six months of
1996 .
Interest income in 1996 was derived primarily from money market investments.
Interest income increased 100.7% and 113.4% in the second quarter and first six
months of 1996, respectively, compared to the same periods in 1995. The
increases reflect the higher average cash balances in 1996 compared to 1995.
Interest expense in 1996 was attributable to capital lease
obligations. Interest expense decreased 35.3% and 40.0% in the second quarter
and first six months of 1996, respectively, as compared to the same periods in
1995. The decreases reflect an overall decrease in the outstanding balances of
the capital lease obligations.
RESTRUCTURING
In response to lower revenues, the Company implemented a restructuring
program in the second quarter of 1994. In total, the restructuring cost was
approximately $3,379,000, of which approximately $40,000 of related costs have
yet to be paid as of June 30, 1996. These costs are expected to be completely
paid off in the fourth quarter of 1997. There were no non-cash adjustments to
the accrual during the quarter ended June 30, 1996.
9
PART I. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal sources of liquidity were
its cash and cash equivalent balances of approximately $22,592,000. As of the
end of fiscal year 1995, the Company's cash and cash equivalent balances were
approximately $12,936,000. The increase was due primarily to the collection of
deferred annual maintenance contracts, an increase in customer deposits, the
favorable operating results, and proceeds from exercises of stock options. In
addition, the Company has an agreement for a secured working capital line of
credit with a bank for up to $2,000,000 based on eligible receivables, as
defined. There were no outstanding balances under the line of credit as of June
30, 1996.
At June 30, 1996, the working capital of the Company increased to approximately
$12,665,000 from approximately $8,589,000 as of December 31, 1995. The increase
was primarily attributable to the net income of approximately $3,806,000 for the
first six months of 1996. Total assets during the same period increased to
approximately $32,531,000 from approximately $20,825,000. The increase was
primarily due to the cash provided by operations and increases in inventory and
property and equipment.
Management believes, based on its current operating plan, that the
Company's existing cash and cash equivalents, cash generated from operations,
and amounts available under its secured working capital line of credit will be
sufficient to meet the Company's cash requirements for the foreseeable future.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements
made by its employees or information included in its filings with the Securities
and Exchange Commission (including this Form 10-Q) may contain statements which
are not historical facts, so-called "forward-looking statements," which involve
risk and uncertainties. The Company's actual future results may differ
significantly from those stated in any forward-looking statements.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could have a materially adverse affect on revenues
and profitability, including, but not limited to: the timing of customer orders,
the ability to introduce new products on a timely basis, introduction of
products and technologies by the Company's competitors, and market acceptance of
the Company's and its competitors' products. As a result of the foregoing and
other factors, the Company may experience material fluctuations in future
operating results on a quarterly or annual basis which could materially and
adversely affect its business, financial condition, operating results and stock
price.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes since the Company's Annual Report on
Form 10-K for the period ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security-Holders
The annual meeting of security-holders of the Company was held on
April 18, 1996. The following persons were elected as directors:
Total Votes Total Votes
Nominee for Nominee Withheld for Nominee
- --------------------------- ----------------------------- --------------------
Alphonse M. Lucchese 5,948,011 274,500
Michael D. Kaufman 5,948,011 274,500
Walter J. Levison 5,948,011 274,500
R. Scott Asen 5,948,011 274,500
An amendment to the 1986 Stock Plan of the Company, to increase the
number of shares authorized for issuance pursuant to the 1986 plan by
350,000 to 2,464,286 shares, was approved, with 4,109,039 shares
voting in favor, 594,954 shares voting against and 16,928 shares
abstaining.
The election of the firm of Arthur Andersen, LLP as auditors for the
fiscal year ending December 31, 1996 was approved, with 6,216,190
voting in favor, 1,865 shares voting against and 4,456 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
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27 Article 5 - Summary Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
11
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.
DAVOX CORPORATION
Date: August 1, 1996 By: /s/ Alphonse M. Lucchese
------------------------
Alphonse M. Lucchese
President, Chief
Executive Officer and
Chairman (Principal
Executive Officer)
Date: August 1, 1996 By: /s/ John J. Connolly
--------------------
John J. Connolly
Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer)
12