================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
[ ] 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 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 25th FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of August 10, 2004, the Company had 47,184,683 shares of Common Stock, no par
value, outstanding.
================================================================================
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 31,119 $ 35,449
Cash - restricted 2,250 2,250
Short-term investments 3,912 --
Accounts receivable, net of allowance of $1,040 11,580 14,337
Other 2,353 2,180
--------- ---------
Total current assets 51,214 54,216
Property and equipment, net 5,441 6,564
Other 2,929 2,498
--------- ---------
Total assets $ 59,584 $ 63,278
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,463 $ 2,066
Accrued liabilities 4,464 4,879
Accrued compensation 3,624 5,275
Deferred revenues 15,211 13,351
--------- ---------
Total current liabilities 24,762 25,571
Deferred revenues 2,472 1,477
Other liabilities 1,826 2,087
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, 20,000 shares authorized, none issued
Common stock, no par value, 100,000 shares authorized, 47,251 and
47,034 shares issued and outstanding 1 1
Additional paid-in capital 105,110 105,176
Note receivable from shareholder (261) (392)
Accumulated deficit (75,587) (72,034)
Accumulated other comprehensive income 1,261 1,392
--------- ---------
Total shareholders' equity 30,524 34,143
--------- ---------
Total liabilities and shareholders' equity $ 59,584 $ 63,278
========= =========
See notes to unaudited consolidated financial statements.
2
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
Licenses $ 9,070 $ 7,394 $ 14,982 $ 12,590
Services 9,507 7,921 18,558 15,772
-------- -------- -------- --------
18,577 15,315 33,540 28,362
-------- -------- -------- --------
Cost of revenues:
Licenses 190 95 330 211
Services 2,032 1,705 3,863 3,137
-------- -------- -------- --------
2,222 1,800 4,193 3,348
-------- -------- -------- --------
Gross profit 16,355 13,515 29,347 25,014
Operating costs and expenses:
Sales and marketing 9,739 9,269 18,919 17,027
Research and development 5,396 4,567 9,972 8,802
General and administrative 2,024 1,956 3,922 3,733
Restructuring 149 -- 149 549
-------- -------- -------- --------
Operating loss (953) (2,277) (3,615) (5,097)
Other income, net 112 134 206 253
-------- -------- -------- --------
Loss before income taxes (841) (2,143) (3,409) (4,844)
Provision for income taxes 74 -- 144 --
-------- -------- -------- --------
Net loss $ (915) $ (2,143) $ (3,553) $ (4,844)
======== ======== ======== ========
Loss per common share - basic and
diluted $ (0.02) $ (0.05) $ (0.07) $ (0.10)
======== ======== ======== ========
Number of shares used to calculate per share
amounts, basic and diluted 47,432 46,371 47,380 46,305
Reconciliation of net loss to comprehensive loss:
Net loss $ (915) $ (2,143) $ (3,553) $ (4,844)
Gain (loss) from currency translation (168) 276 (131) 465
-------- -------- -------- --------
Comprehensive loss $ (1,083) $ (1,867) $ (3,684) $ (4,379)
======== ======== ======== ========
See notes to unaudited consolidated financial statements.
3
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------
2004 2003
---- ----
Cash flows from operating activities:
Net loss $ (3,553) $ (4,844)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization 1,446 1,894
Stock compensation expense 181 --
Changes in operating assets and liabilities:
Accounts receivable 2,716 3,464
Other assets (429) 817
Accounts payable (595) (739)
Accrued liabilities (2,384) (1,318)
Deferred revenues 2,857 540
-------- --------
Net cash provided by (used in) operating activities 239 (186)
-------- --------
Cash flows from investing activities
Capital expenditures (603) (688)
Purchases of short term investments (3,912) --
Reimbursement of tenant improvements 284 --
Restrictions on cash (194) --
-------- --------
Net cash used in investing activities (4,425) (688)
-------- --------
Cash flows from financing activities:
Repurchase of common stock (1,236) --
Net proceeds from sale of common stock 1,170 366
-------- --------
Net cash provided by (used in) financing activities (66) 366
Effect of exchange rate changes on cash (78) 405
-------- --------
Net decrease in cash and cash equivalents (4,330) (103)
Cash and cash equivalents at beginning of year 35,449 37,760
-------- --------
Cash and cash equivalents at end of period $ 31,119 $ 37,657
======== ========
Non-cash financing and investing activities:
Reduction of shareholder note in lieu of guaranteed bonus $ 131 $ 226
See notes to unaudited consolidated financial statements.
4
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements of BindView Development
Corporation, a Texas corporation (the "Company" or "BindView"), included herein
have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the interim periods. Certain reclassifications have been made to
the prior year's consolidated financial statements to conform with the current
year presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 2003.
2. LOSS PER SHARE
Options and warrants to purchase 11.0 million shares of common stock for
the three and six months ended June 30, 2004 and 9.0 million shares of common
stock for the three and six months ended June 30, 2003 were outstanding, but
were not included in the computation of diluted loss per share as their
inclusion would have been anti-dilutive.
3. STOCK BASED COMPENSATION
The Company accounts for all stock-based employee compensation plans under
the recognition and measurement provisions of APB Opinion 25, "Accounting for
Stock Issued to Employees," ("APB 25") and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's common shares at the date of the grant over
the amount an employee must pay to acquire the common shares. The Company
generally grants options at prices equal to the market price of common shares on
the date of the grant. However, if options are granted at a price below fair
market value, compensation expense is recorded in accordance with the provisions
of APB 25. Compensation expense may also be recognized for certain options which
are considered variable option grants. Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - an
Amendment to FAS 123," requires companies that continue to account for
stock-based compensation in accordance with APB 25 to disclose certain
information using tabular presentation as presented below. This table
illustrates the effect on net loss and loss per share as if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation (in thousands,
except per share amounts):
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Net loss as reported $ (915) $(2,143) $(3,553) $(4,844)
Add: Stock-based employee
compensation expense included in
reported net loss 125 -- 181 --
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all awards (1,510) (1,529) (2,742) (2,970)
------- ------- ------- -------
Pro forma net loss $(2,300) $(3,672) $(6,114) $(7,814)
======= ======= ======= =======
Loss per common share (basic and
diluted):
- As reported $ (0.02) $ (0.05) $ (0.07) $ (0.10)
- Pro forma $ (0.05) $ (0.08) $ (0.13) $ (0.17)
5
4. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS
The Company recorded restructuring charges totaling $0.1 million and $0.5
million in the first half of 2004 and 2003, respectively. The 2004 charge was
primarily attributable to reserves established against rent payments due from
the Company's sublease tenant which occupied its excess office space in
Arlington, VA. The $0.5 million charge in 2003 was for the Company's sales and
marketing reorganization plan.
In January 2003, the Company approved a sales and marketing reorganization
plan (the "2003 Restructuring Plan"). The cost of this plan totaled
approximately $0.5 million and consisted primarily of (i) involuntary employee
separation for approximately 20 employees (a reduction in workforce of
approximately 4 percent), (ii) closing the Company's Netherlands sales office,
and (iii) reserves for leasehold abandonment. All actions under the 2003
Restructuring Plan were completed by December 31, 2003.
In July 2002, the Company approved a restructuring plan to improve
operating efficiency and improve sales and marketing productivity (the "2002
Restructuring Plan"). The cost of this plan totaled approximately $1.9 million
and consisted primarily of (i) involuntary employee separation for approximately
30 employees (a reduction in workforce of approximately 5 percent), (ii) closing
the Company's Boston development center and certain European sales offices,
(iii) reserves for leasehold abandonment, and (iv) various non-personnel related
cuts.
The remaining accrual for the 2002 Restructuring Plan at December 31, 2003
was comprised of the estimated carrying costs for the Company's remaining excess
space in Houston, Texas. During the second quarter of 2004, the Company received
letters of intent to sublease the remaining excess space. The Company recorded a
$0.1 million adjustment to its restructuring accrual as a result of receiving
these letters of intent. The remaining accrual at June 30, 2004 is comprised of
the Company's carrying costs for the remaining space in Houston that are in
excess of anticipated sublease payments. Adjustments could be required in future
periods if there are significant changes to the terms and conditions of the
sublease arrangements.
The 2002 Restructuring Plan activity from December 31, 2003 to June 30,
2004 was as follows (in thousands):
REMAINING RESTRUCTURING REMAINING
ACCRUAL CHARGE CASH ACCRUAL
12/31/2003 ADJUSTMENTS EXPENDITURES 6/30/2004
---------- ------------- ------------ ---------
Lease commitments............... $ 1,538 $ 33 $ (256) $ 1,315
------- ------- ------- -------
$ 1,538 $ 33 $ (256) $ 1,315
======= ======= ======= =======
In 2001, the Company completed a corporate reorganization and implemented
a number of cost-cutting measures to improve operating efficiency and to
accelerate our return to profitability (the "2001 Restructuring Plan"). The cost
of this plan totaled approximately $6.6 million and consisted primarily of: (i)
involuntary employee separation expenses for approximately 160 employees (a
reduction in workforce of approximately 21 percent), (ii) downsizing or closing
of the Company's Boston and Arlington development centers and certain European
sales offices, (iii) reserves for leasehold abandonment, and (iv) various
non-personnel related costs. The restructuring costs included a $1.2 million
charge related to asset impairments of leasehold improvements, equipment and
other assets of the closed or downsized offices.
The 2001 Restructuring Plan activity from December 31, 2003 to June 30,
2004 was as follows (in thousands):
REMAINING RESTRUCTURING REMAINING
ACCRUAL CHARGE CASH ACCRUAL
12/31/2003 ADJUSTMENTS EXPENDITURES 6/30/2004
---------- ------------- ------------ ---------
Lease commitments.............. $ 453 $ 13 $(182) $ 284
----- ----- ----- ------
$ 453 $ 13 $(182) $ 284
===== ===== ===== ======
6
The remaining accrual for the 2001 Restructuring Plan consists of excess
carrying costs until the lease cancellation for the Company's two floors
abandoned as part of said Plan is effective in September of 2004.
5. INVESTMENTS
The Company's short-term investments include commercial paper, corporate
bonds and certificates of deposits that have original maturities of more than
three months and less than one year. These investments are intended to be held
to maturity.
6. INCOME TAXES
The Company continues to provide a full valuation allowance against its
deferred tax assets in accordance with Financial Accounting Standard No. 109,
"Accounting for Income Taxes". As in its prior assessments, the Company
considered current and previous performance and other relevant factors in
determining the sufficiency of its valuation allowance. Objective factors, such
as current and previous operating losses, were given substantially more weight
than management's outlook for future profitability. Until such time as a
consistent pattern of sufficient profitability is established, no tax benefit
will be recognized associated with the Company's pre-tax accounting losses and a
full income tax provision will not be provided on any future pre-tax accounting
income.
7. SHAREHOLDERS' EQUITY
In April 2004, the Company's Board of Directors approved a stock
repurchase program for the second quarter of 2004. The Company purchased
approximately 0.4 million shares of common stock during the quarter ended June
30, 2004, at an average price per share of $2.77. The Company retired these
repurchased shares in June 2004.
8. SUBSEQUENT EVENT
In July 2004, the Company's Board of Directors approved a stock repurchase
program for the third quarter of 2004. Under this program, management of the
Company can spend up to $2.0 million, at its discretion, for the repurchase of
the Company's common stock in the open market, subject to Securities and
Exchange Commission guidelines and restrictions set forth in Rule 10b-18.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed in the "Cautionary Statements" set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 2003. The following discussion should be read in conjunction with the
Company's consolidated financial statements included with this report and our
consolidated financial statements and related Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 2003 included in our Annual Report on Form 10-K.
OVERVIEW
See discussion under Item 1, "General" in our Annual Report on Form 10-K
for the year ended December 31, 2003 for an overview of our business.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our critical accounting policies
and estimates during the six months ended June 30, 2004 compared with those
disclosed in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the
year ended December 31, 2003.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2003
REVENUES. Revenues for the current quarter were $18.6 million compared
with $15.3 million for the second quarter of 2003. The year-over-year
improvement in revenues resulted from a stronger working sales pipeline entering
the quarter, improved sales execution and strong demand for our products.
License revenues for the second quarter of 2004 were $9.1 million, or 48.8
percent of total revenues, up from $7.4 million, or 48.3 percent of total
revenues, in the second quarter of 2003. Services revenues for the second
quarter of 2004 were $9.5 million, or 51.2 percent of total revenues, up from
$7.9 million, or 51.7 percent of total revenues, in the second quarter of 2003.
Services revenues for the second quarter of 2004 were comprised of maintenance
revenues of $7.8 million and professional services revenues of $1.7 million, up
from $7.0 million in maintenance revenues and $0.9 million in professional
services revenues in the second quarter of 2003. The increase in services
revenues was primarily due to an increase in our installed customer base and an
increased focus on selling value-added consulting services.
The average sales price for transactions in the second quarter of 2004 was
$34 thousand, compared with $26 thousand in the second quarter of 2003 and $28
thousand in the first quarter of 2004. With respect to large transactions (sales
greater than $130 thousand) we closed 25 during the current quarter having an
average sales price of approximately $301 thousand, compared with 14 in the
second quarter of 2003 having an average sales price of $349 thousand.
During the second quarter of 2004, revenues from our products for
Microsoft-based platforms totaled $13.1 million, an increase of 26.4 percent
over the second quarter of 2003. Revenues from these products accounted for
approximately 71 percent of total revenues in the second quarter of 2004, up
from 68 percent of total revenues for the second quarter of 2003. License
revenues for our Microsoft-related products for the second quarter of 2004 were
$7.9 million compared with $6.1 million in the second quarter of 2003.
Maintenance revenues for our Microsoft-related products in the second quarter of
2004 were $5.2 million compared with $4.3 million in the second quarter of 2003.
We expect revenues from our products and maintenance for Microsoft-based
platforms will continue to grow as a percentage of total revenues.
Revenues from our products for Novell-based platforms for the second
quarter of 2004 were $2.7 million,
8
or 15 percent of total revenues, compared with $2.9 million, or 19 percent of
total revenues, in second quarter of 2003. Consistent with the trend seen in
past quarters, total revenues from these products were down year-over-year,
reflecting both the maturity and our penetration of the Novell market. License
revenues for Novell-based platforms were $0.8 million in both the second quarter
of 2004 and 2003. Maintenance revenues for Novell-based platforms in the second
quarter of 2004 were $1.9 million compared with $2.1 million in the second
quarter of 2003. While we expect our Novell revenues will continue to decline in
the future, we expect the revenue decline will be modest relative to the
declines over the past two years and expect the decline will be offset by higher
revenues from our products and maintenance for other platforms.
Sales of our security focused bv-Control product line accounted for
approximately 86 percent of our license revenue in the second quarter of 2004
compared with 77 percent in the second quarter of 2003. Sales of our system
administration focused bv-Admin product line accounted for approximately 14
percent of our license revenue in the second quarter of 2004 compared with 23
percent in the second quarter of 2003. The increase in our bv-Control product
line revenues as a percentage of total revenue has increased year-over-year
primarily due to the increased demand in the market for software to assist
customers with policy compliance and vulnerability management requirements.
No customer accounted for more than 10 percent of our revenues during the
second quarter of 2004 or 2003. Revenues recognized from sales to customers
outside North America, primarily in Europe, accounted for approximately 11
percent of total revenues in the second quarter of 2004 compared with 12 percent
in the second quarter of 2003.
GROSS PROFIT. Gross profit for the current quarter totaled $16.4 million,
up 21 percent from the second quarter of 2003, due to the increase in revenues.
Gross margin for the current quarter was 88.0 percent, slightly down from 88.2
percent in the second quarter of 2003. The decline in gross margin related to
the increase in professional services revenues, which have a lower gross margin
than our license and maintenance revenues.
Gross profit generated from license revenues for the second quarter of
2004 was $8.9 million, compared with $7.3 million for the second quarter of
2003. The gross margin from license revenues for the second quarter of 2004 was
97.9 percent, compared with 98.8 percent for the second quarter of 2003.
Gross profit from services revenues for the second quarter of 2004 was
$7.5 million, compared with $6.2 million for the second quarter of 2003. Gross
margin from services revenues for the second quarter of 2004 was 78.6 percent
compared with 78.5 percent for the second quarter of 2003. While we do not track
and measure costs of performing services (i.e., technical support, professional
services) by product platform (i.e., Microsoft, Novell, etc.), we do not believe
there is a material difference in the gross margin by product line.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the second
quarter of 2004 totaled $17.3 million, up from $15.8 million for the second
quarter of 2003. Operating costs for the second quarter of 2004 included
restructuring and severance charges of approximately $0.5 million. Excluding
these charges in the second quarter of 2004, operating costs and expenses were
approximately $1.0 million, or 6.6 percent, higher in the second quarter of 2004
due to significant investments in sales and marketing since the second quarter
of 2003 and costs related to our planned expansion of our R&D operations in
India, higher wage and health care costs and expenses associated with
Sarbanes-Oxley compliance.
Sales and marketing expenses for the second quarter of 2004 were $9.7
million (52.4 percent of revenues), up from $9.3 million (60.5 percent of
revenues) for the second quarter of 2003. The increase in sales and marketing
expenses primarily related to investments in areas where we see long-term growth
opportunities, specifically our Federal, Latin American and European operations.
We also added personnel to our inside sales force and increased spending on
marketing programs to grow our working sales pipeline. We expect sales and
marketing expenses as a percentage of revenues to be lower in the second half of
2004 as a result of anticipated revenue growth.
Research and development expenses for the second quarter of 2004 were $5.4
million (29.0 percent of revenues), up from $4.6 million (29.8 percent of
revenues) for the second quarter of 2003. This increase related to our actions
taken to affect the planned expansion of our R&D operations in India to better
execute on our product strategy, as well as severance costs of approximately
$0.3 million related to management changes within R&D.
9
Primarily as a result of the expansion in India, we expect R&D expenses in 2004
will be up $2.0 to $2.5 million over 2003. We also expect that this initiative
coupled with anticipated revenue growth will result in a decrease in research
and development expenses as a percentage of revenues.
General and administrative expenses were $2.0 million in both the second
quarter of 2004 (10.9 percent of revenues) and 2003 (12.8 percent of revenues).
Direct costs associated with our efforts to comply with Sarbanes-Oxley section
404 totaled approximately $0.1 million during the second quarter of 2004. We
expect future general and administrative expenses to decrease as a percentage of
revenues as a result of our restructuring initiatives to date to improve
operating efficiencies, as well as anticipated revenue growth.
We recorded restructuring charges totaling $0.1 million in the second
quarter of 2004 primarily to establish a reserve against rent payments due from
our sublease tenant which occupied our excess office space in Arlington, VA.
In January 2003, we approved a sales and marketing reorganization plan
(the "2003 Restructuring Plan"). The cost of this plan totaled approximately
$0.5 million and consisted primarily of (i) involuntary employee separation for
approximately 20 employees (a reduction in workforce of approximately 4
percent), (ii) our Netherlands sales office, and (iii) reserves for leasehold
abandonment. All actions under the 2003 Restructuring Plan were completed by
December 31, 2003.
In July 2002, we approved a restructuring plan to improve operating
efficiency and improve sales and marketing productivity (the "2002 Restructuring
Plan"). The cost of this plan totaled approximately $1.9 million and consisted
primarily of (i) involuntary employee separation for approximately 30 employees
(a reduction in workforce of approximately 5 percent), (ii) closing our Boston
development center and certain European sales offices, (iii) reserves for
leasehold abandonment, and (iv) various non-personnel related cuts.
The remaining accrual for the 2002 Restructuring Plan at December 31, 2003
was comprised of the estimated carrying costs for our remaining excess space in
Houston, Texas. During the second quarter of 2004, we received letters of intent
to sublease the remaining excess space. We recorded a $0.1 million adjustment to
our restructuring accrual as a result of receiving these letters of intent. The
remaining accrual at June 30, 2004 is comprised of our carrying costs for the
remaining space that are in excess of anticipated sublease payments. Adjustments
could be required in future periods if there are significant changes to the
terms and conditions of the sublease arrangements.
The 2002 Restructuring Plan activity from December 31, 2003 to June 30,
2004 was as follows (in thousands):
REMAINING RESTRUCTURING REMAINING
ACCRUAL CHARGE CASH ACCRUAL
12/31/2003 ADJUSTMENTS EXPENDITURES 6/30/2004
---------- ------------- ------------ ---------
Lease commitments...... $ 1,538 $ 33 $ (256) $ 1,315
------- ------- ------- -------
$ 1,538 $ 33 $ (256) $ 1,315
======= ======= ======= =======
In 2001, we completed a corporate reorganization and implemented a number
of cost-cutting measures to improve operating efficiency and to accelerate our
return to profitability (the "2001 Restructuring Plan"). The cost of this plan
totaled approximately $6.6 million and consisted primarily of: (i) involuntary
employee separation expenses for approximately 160 employees (a reduction in
workforce of approximately 21 percent), (ii) downsizing or closing of our Boston
and Arlington development centers and certain European sales offices, (iii)
reserves for leasehold abandonment, and (iv) various non-personnel related
costs. The restructuring costs included a $1.2 million charge related to asset
impairments of leasehold improvements, equipment and other assets of the closed
or downsized offices.
The 2001 Restructuring Plan activity from December 31, 2003 to June 30,
2004 was as follows (in thousands):
10
REMAINING RESTRUCTURING REMAINING
ACCRUAL CHARGE CASH ACCRUAL
12/31/2003 ADJUSTMENTS EXPENDITURES 6/30/2004
---------- ------------- ------------ ---------
Lease commitments .............. $ 453 $ 13 $(182) $ 284
----- ----- ----- -----
$ 453 $ 13 $(182) $ 284
===== ===== ===== =====
The remaining accrual for the 2001 Restructuring Plan consists of excess
carrying costs until the lease cancellation for our two floors abandoned as part
of said Plan is effective in September of 2004.
PROVISION FOR INCOME TAXES. We did not record an income tax provision or
benefit for our domestic operations in either the second quarter of 2004 or
2003, as we continue to provide a full valuation allowance against our deferred
tax assets in accordance with Financial Accounting Standards No. 109,
"Accounting for Income Taxes". As in our prior assessments, we considered
current and previous performance and other relevant factors in determining the
sufficiency of our valuation allowance. Objective factors, such as current and
previous operating losses, were given substantially more weight than our outlook
for future profitability. Until such time as a consistent pattern of sufficient
profitability is established, no tax benefit will be recognized associated with
the Company's pre-tax accounting losses and a full income tax provision will not
be provided on any future pre-tax accounting income. A provision of $0.1 million
was recorded for taxes related to our foreign operations during the second
quarter of 2004.
NET LOSS. Due to the factors described above, net loss for the quarter
ended June 30, 2004 was $0.9 million compared with $2.1 million for the quarter
ended June 30, 2003.
OUTLOOK. We expect full-year 2004 revenues will be in line with our
previously announced estimate of $75 million to $80 million. We expect full-year
2004 net income of $1.0 million ($0.02 per share) to $3.0 million ($0.06 per
share). Our estimate for net income has been revised to reflect restructuring
and severance charges of approximately $0.5 million, which were incurred in the
second quarter of 2004. For the third quarter of 2004, we estimate revenues will
range between $18.0 million and $21.0 million and our net results will range
between a net loss of $0.6 million ($0.01 per share) and net income of $1.4
million ($0.03 per share).
We believe that our ability to achieve the high end of our revenue and net
income range for 2004 depends on a number of factors, including higher closure
rates on large transactions in the sales pipeline and continued overall
improvement in sales effectiveness.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003
REVENUES. Revenues for the first six months of 2004 were $33.5 million
compared with $28.4 million for the first six months of 2003. The year-over-year
improvement in revenues resulted from a stronger working sales pipeline entering
the year, improved sales execution and strong demand for our products. License
revenues for the first half of 2004 were $15.0 million, or 44.7 percent of total
revenues, up from $12.6 million, or 44.4 percent of total revenues, in the first
half of 2003. Services revenues for the first half of 2004 were $18.6 million,
or 55.3 percent of total revenues, up from $15.8 million, or 55.6 percent of
total revenues, in the first half of 2003. Services revenues for the first half
of 2004 were comprised of maintenance revenues of $15.3 million and professional
services revenues of $3.3 million, up from $13.9 million in maintenance revenues
and $1.9 million in professional services revenues in the first half of 2003.
The increase in services revenues was primarily due to an increase in our
installed customer base and an increased focus on selling value-added consulting
services.
With respect to large transactions (sales greater than $130 thousand) we
closed 44 during the first half of 2004 having an average sales price of $316
thousand, compared with 30 during the first half of 2003 having an average sales
price of $278 thousand.
During the first half of 2004, revenues from our products for
Microsoft-based platforms totaled $23.3 million, an increase of 22 percent over
the first half of 2003. Revenues from these products accounted for approximately
69 percent of total revenues in the first half of 2004, up from 67 percent of
total revenues for the first half of 2003. License revenues for our
Microsoft-related products for the first half of 2004 were $13.0 million
compared with $10.6 million in the first half of 2003. Maintenance revenues for
our Microsoft-related products in the first half of 2004 were $10.2 million
compared with $8.5 million in the first half of 2003. We expect revenues from
our products and
11
maintenance for Microsoft-based platforms will continue to grow as a percentage
of total revenues.
Revenues from our products for Novell-based platforms for the first half
of 2004 were $5.2 million, or 16 percent of total revenues, compared with $5.6
million, or 20 percent of total revenues, in the first half of 2003. Consistent
with the trend seen in past quarters, total revenues from these products were
down year-over-year, reflecting both the maturity and our penetration of the
Novell market. Licenses revenues for Novell-based platforms were $1.5 million in
the first half of 2004 and $1.3 million in the first half of 2003. Maintenance
revenues for Novell-based platforms in the first half of 2004 were $3.7 million
compared with $4.3 million in the first half of 2003. While we expect our Novell
revenues will continue to decline in the future, we expect the revenue decline
will be modest relative to the declines over the past two years and expect the
decline will be offset by higher revenues from our products and maintenance for
other platforms.
Sales of our security focused bv-Control product line accounted for
approximately 85 percent of our license revenue in the first half of 2004
compared with 77 percent in the first half of 2003. Sales of our system
administration focused bv-Admin product line accounted for approximately 15
percent of our license revenue in the first half of 2004 compared with 23
percent in the first half of 2003. The increase in our bv-Control product line
revenues as a percentage of total revenue has increased year-over-year primarily
due to the increased demand in the market for software to assist customers with
policy compliance and vulnerability management requirements.
No customer accounted for more than 10 percent of our revenues during the
first half of 2004 or 2003. Revenues recognized from sales to customers outside
North America, primarily in Europe, accounted for approximately 11 percent of
total revenues in both the first half of 2004 and 2003.
GROSS PROFIT. Gross profit for the first half of 2004 totaled $29.3
million, up 17 percent from the first half of 2003 due to the increase in
revenues. Gross margin for the first half of 2004 was 87.5 percent, slightly
down from 88.2 percent in the first half of 2003. The decline in gross margin
related to the increase in professional services revenues, which have a lower
gross margin than our license and maintenance revenues.
Gross profit generated from license revenues for the first half of 2004
was $14.7 million, compared with $12.4 million for the first half of 2003. The
gross margin from license revenues for the first half of 2004 was 97.8 percent,
compared with 98.3 percent for the first half of 2003.
Gross profit from services revenues for the first half of 2004 was $14.7
million, compared with $12.6 million for the first half of 2003. Gross margin
from services revenues for the first half of 2004 was 79.2 percent compared with
80.1 percent for the first half of 2003. The decline in gross margin reflected
higher personnel costs associated with our technical-support and
professional-services units. While we do not track and measure costs of
performing services (technical support, professional services) by product
platform (i.e., Microsoft, Novell, etc.), we do not believe there is a material
difference in the gross margin by product line.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the first
half of 2004 totaled $33.0 million, up from $30.1 million for the first half of
2003. The increase in operating costs year-over-year is primarily attributable
to significant investments in sales and marketing since the first half of 2003
and costs related to our planned expansion of our R&D operations in India,
higher wage and health care costs and expenses associated with Sarbanes-Oxley
compliance.
Sales and marketing expenses for the first half of 2004 were $18.9 million
(56.4 percent of revenues), up from $17.0 million (60.0 percent of revenues) for
the first half of 2003. The increase in sales and marketing expenses primarily
related to investments in areas where we see long-term growth opportunities,
specifically our Federal, Latin American and European operations. We also added
personnel to our inside sales force and increased spending on marketing programs
to grow our working sales pipeline. We expect sales and marketing expenses as a
percentage of revenues to be lower for the remainder of 2004 as a result of
anticipated revenue growth.
Research and development expenses for the first half of 2004 were $10.0
million (29.7 percent of revenues), up from $8.8 million (31.0 percent of
revenues) for the first half of 2003. This increase related to our actions taken
to affect the planned expansion of our R&D operations in India to better execute
on our product strategy, as well as severance costs of approximately $0.3
million related to management changes within R&D.
12
Primarily as a result of the expansion in India, we expect R&D expenses in 2004
will be up $2.0 to $2.5 million over 2003. We also expect that this initiative
coupled with anticipated revenue growth will result in a decrease in research
and development expenses as a percentage of revenues.
General and administrative expenses were $3.9 million in the first half of
2004 (11.7 percent of revenues), up from $3.7 million (13.2 percent of revenues)
for the first half of 2003. Direct costs associated with our efforts to comply
with Sarbanes-Oxley section 404 totaled approximately $0.1 million during the
first half of 2004. We expect future general and administrative expenses to
decrease as a percentage of revenues as a result of our restructuring
initiatives to date to improve operating efficiencies, as well as anticipated
revenue growth.
Restructuring costs were $0.1 million for the first half of 2004 and $0.5
million for the first half of 2003 (See detailed discussion of these costs
above).
PROVISION FOR INCOME TAXES. We did not record an income tax provision for
our domestic operations in either the first half of 2004 or 2003, as we continue
to provide a full valuation allowance against our deferred tax assets in
accordance with Financial Accounting Standards No. 109, "Accounting for Income
Taxes". As in our prior assessments, we considered current and previous
performance and other relevant factors in determining the sufficiency of our
valuation allowance. Objective factors, such as current and previous operating
losses, were given substantially more weight than our outlook for future
profitability. Until such time as a consistent pattern of sufficient
profitability is established, no tax benefit will be recognized associated with
the Company's pre-tax accounting losses and a full income tax provision will not
be provided on any future pre-tax accounting income. A provision of $0.1 million
was recorded for taxes related to our foreign operations during the first half
of 2004.
NET LOSS. Due to the factors described above, net loss for the first half
of 2004 was $3.6 million compared with $4.8 million for the first half of 2003.
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements have principally related to working capital needs
and capital expenditures. These requirements have been met through a combination
of issuances of securities and internally generated funds.
We had cash, cash equivalents and short-term investments of $35.0 million
at June 30, 2004 compared with $35.4 million at December 31, 2003.
Cash flows provided by (used in) operating activities were $0.2 million in
the first six months of 2004 compared with $(0.2) million in the first six
months of 2003. The increase in cash provided by operating activities in 2004
was due to an increase of cash collections on deferred revenues of approximately
$2.3 million compared with the first six months of 2003.
Cash flows used in investing activities were $4.4 million in the first six
months of 2004 compared with $0.7 million in the first six months of 2003. The
increase in cash used in investing activities was primarily due to the purchase
of $3.9 million in short-term investments during the first six months of 2004.
Capital expenditures for the first six months of 2004 were $0.6 million compared
with $0.7 million for the first six months of 2003.
Cash flows provided by (used in) financing activities were $(0.1) million
in the first six months of 2004 compared with $0.4 million in the first six
months of 2003. During the first six months of 2004, we generated proceeds of
approximately $1.1 million from the issuance of common stock through our
Employee Stock Purchase Plan and employee stock option exercises. We also used
$1.2 million in cash to repurchase 0.4 million shares of our common stock. The
$0.4 million in cash provided by financing activities during the first six
months of 2003 was primarily from issuances of common stock under our Employee
Stock Purchase Plan.
We conduct operations in leased facilities under operating leases expiring
at various dates through 2011. The contractual obligations under these lease
commitments were comprised of the following as of June 30, 2004:
13
REMAINDER OF
CONTRACTUAL OBLIGATION TOTAL 2004 2005 - 2007 2008 - 2009 2010 - 2011
- ----------------------------- -------- ------------ ----------- ----------- -----------
Operating leases ........... $ 23,448 $ 2,576 $ 11,372 $ 7,101 $ 2,399
Sub-leasing arrangements*... (109) (109) -- -- --
-------- -------- -------- -------- --------
$ 23,339 $ 2,467 $ 11,372 $ 7,101 $ 2,399
======== ======== ======== ======== ========
* We have sub-leased portions of these facilities under operating leases.
Anticipated cash receipts from these executed sub-lease arrangements have been
taken into account when deriving expected cash outflow on operating lease
commitments in the preceding table. The above tables do not reflect estimated
cash receipts for our sub-lease space in which we have received letters of
intent.
Our expected principal cash requirements for the remainder of 2004 are:
(i) capital expenditures between $2.0 and $2.5 million, primarily for computer
and software equipment, (ii) working capital requirements, (iii) net payments on
operating leases of approximately $2.5 million, and (iv) stock repurchases of up
to $2.0 million. We believe there is sufficient cash on hand to meet these cash
requirements, as well as our cash requirements for the foreseeable future.
STOCK REPURCHASE PROGRAM
In July 2004, our Board of Directors approved a stock repurchase program
for the third quarter of 2004. Under this program, management may spend up to
$2.0 million, at its discretion, for the repurchase of our common stock in the
open market, subject to Securities and Exchange Commission guidelines and
restrictions set forth in Rule 10b-18.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 2003. See the
Company's Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
The management of the Company, including the Chief Executive Officer and
the Chief Financial Officer, have conducted an evaluation of the effectiveness
of the Company's disclosure controls and procedures pursuant to Rule 13a-14
under the Securities Exchange Act of 1934 as of June 30, 2004 (the "Evaluation
Date"). Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective in ensuring that all material
information relating to the Company, including our consolidated subsidiaries,
required to be filed in this quarterly report has been made known to them in a
timely manner. There have been no significant changes made in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date. There have been no significant
changes made during the fiscal quarter ending June 30, 2004 in the Company's
internal controls over financial reporting or in other factors that could
significantly affect internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
<Table>
<Caption>
Total Number of
Shares Purchased as Maximum Dollar Value
part of Publicly that can still be
Total Number of Average Price Paid Announced Plans or Spent Under the
Period Shares Purchased per Share Programs Program
------ ---------------- ------------------- ------------------- --------------------
April 1, 2004 to April 30, 2004
May 1, 2004 to May 31, 2004 445,534 $2.77 445,534 $0.00
June 1, 2004 to June 30, 2004
</Table>
**The Company announced on April 29, 2004 that its Board of Directors had
approved a stock repurchase program. The Company could spend up to $2.5 million
during the second quarter of 2004 under this program.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At an annual meeting of stockholders on May 27, 2004, the stockholders took the
following actions, described in more detail in the definitive proxy statement
filed April 14, 2004, by votes as indicated below:
ABSTAIN / BROKER
MATTER FOR AGAINST WITHHELD NON-VOTES
- ------ --- ------- -------- ---------
Reelection of
Eric J. Pulaski
to Board of Directors 42,276,397 0 1,731,412 0
14
Reelection of
Peter T. Dameris
to Board of Directors 41,868,053 0 2,139,756 0
Amendment to Non-Employee
Director Stock Option Plan 13,892,209 12,782,848 132,184 17,200,568
Continuing in their terms of office as directors after the meeting were Richard
A. Hosley II, Edward L. Pierce, Robert D. Repass, and Armand S. Shapiro.
ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's future financial
position, revenue and expense projections, business strategy, planned products,
products under development, markets, budgets and plans and objectives of
management for future operations, are forward-looking statements. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we cannot assure you that those expectations will prove to have been
correct. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in statements set forth under
"Cautionary Statements" in our Annual Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed with this Quarterly Report.
Exhibits designated by the symbol * are filed with this Quarterly
Report on Form 10-Q. All exhibits not so designated are incorporated by
reference to a prior filing as indicated.
Exhibits designated by the symbol + are management contracts or
compensatory plans or arrangements that are required to be filed with this
report.
Exhibit 10.1+* Executive Employment Agreement entered into effective
April 13, 2004, between the Company and Arshad Matin
Exhibit 10.2+ Form of Change of Control Agreement entered into
effective April 13, 2004 between the Company and Arshad
Matin (incorporated by reference to the Exhibit 10.15 to
BindView's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001)
Exhibit 10.3+ Form of Indemnification Agreement entered into effective
April 13, 2004 between the Company and Arshad Matin
(incorporated by reference to the Exhibit 10.16 to
BindView's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001)
Exhibit 10.4+* 1998 Non-Employee Director Incentive Plan, as amended
September 2, 2003, approved by shareholders May 27, 2004
Exhibit 31.1* Certification of the Company's Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 31.2* Certification of the Company's Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
15
Exhibit 32.1* Certifications of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2* Certifications of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
In a Current Report on Form 8-K dated April 29, 2004, the Company reported
it had issued a press release announcing financial results for the quarter ended
March 31, 2004.
16
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.
BINDVIEW DEVELOPMENT CORPORATION
August 13, 2004 By: /s/ KEVIN P. COHN
-----------------------------------
Kevin P. Cohn
Vice President, Controller and Chief Accounting
Officer (Principal Accounting Officer)
17
INDEX TO EXHIBITS
Exhibits designated by the symbol * are filed with this Quarterly Report
on Form 10-Q. All exhibits not so designated are incorporated by reference to a
prior filing as indicated.
Exhibits designated by the symbol + are management contracts or
compensatory plans or arrangements that are required to be filed with this
report.
Exhibit 10.1+* Executive Employment Agreement entered into effective
April 13, 2004, between the Company and Arshad Matin
Exhibit 10.2+ Form of Change of Control Agreement entered into
effective April 13, 2004 between the Company and Arshad
Matin (incorporated by reference to the Exhibit 10.15 to
BindView's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001)
Exhibit 10.3+ Form of Indemnification Agreement entered into effective
April 13, 2004 between the Company and Arshad Matin
(incorporated by reference to the Exhibit 10.16 to
BindView's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001)
Exhibit 10.4+* 1998 Non-Employee Director Incentive Plan, as amended
September 2, 2003, approved by shareholders May 27, 2004
Exhibit 31.1* Certification of the Company's Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 31.2* Certification of the Company's Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1* Certifications of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2* Certifications of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
18