1
UNITED STATES 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
(mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
- --- EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization) identification number)
20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138
Address of principal executive offices, including zip code)
(617) 661-1444
(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
----- -----
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 9,639,150 shares of common stock, $.01 par value per share, as
of July 31, 1996.
1
2
PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PAGE
- ----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of June 30, 1996 3
(unaudited) and September 30, 1995.
Consolidated Statements of Operations (unaudited) 4
for the three and nine months ended June 30, 1996
and 1995.
Consolidated Statements of Cash Flows (unaudited) 5
for the nine months ended June 30, 1996 and
1995.
Notes to Consolidated Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
2
3
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS JUNE 30, SEPTEMBER 30,
-------- -------------
1996 1995
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents $ 6,380 $ 9,346
Marketable securities 35,912 36,025
Accounts receivable, trade, less allowance
for doubtful accounts of $1,887 in 1996 and
$1,346 in 1995 22,289 14,347
Prepaid expenses 1,611 1,267
Deferred income taxes 663 452
------- -------
Total current assets 66,855 61,437
------- -------
Property and equipment, net 3,103 2,391
Computer software costs, net 882 789
Goodwill 1,616 --
Deferred income taxes 344 314
Other assets 32 29
------- -------
Total assets $72,832 $64,960
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,046 $ 5,116
Accrued compensation 2,708 3,714
Income taxes payable 808 603
Deferred revenue 8,063 6,601
Line of credit -- 325
Leased equipment obligation 2 95
------- -------
Total current liabilities 17,627 16,454
------- -------
Deferred income taxes 219 277
Deferred rent 102 158
Deferred revenue 270 469
Leased equipment obligation -- 58
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding -- --
Common stock, $.01 par value;15,350,000 authorized;
and outstanding 9,639,150 and 9,566,712 for 1996 and 1995,
respectively 96 96
Additional paid-in capital 43,470 42,725
Retained earnings 10,816 4,492
Cumulative translation adjustment 46 159
Net unrealized gain on marketable securities 186 72
------- -------
Total stockholders' equity 54,614 47,544
------- -------
Total liabilities and stockholders' equity $72,832 $64,960
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
3
4
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Software $ 10,679 $ 8,223 $ 29,489 $ 21,354
Support and services 7,472 5,410 21,226 14,183
----------- ---------- ----------- ----------
Total revenues 18,151 13,633 50,715 35,537
----------- ---------- ----------- ----------
Cost of revenues:
Software 667 589 2,267 2,237
Support and services 3,837 2,655 10,546 6,963
----------- ---------- ----------- ----------
Total cost of revenues 4,504 3,244 12,813 9,200
----------- ---------- ----------- ----------
Gross margin 13,647 10,389 37,902 26,337
Operating expenses:
Sales and marketing 5,999 4,387 16,549 11,682
Product development 1,942 1,765 5,402 4,719
General and administrative 1,986 1,824 5,376 4,159
Merger expenses -- -- 965 --
----------- ---------- ----------- ----------
Total operating expenses 9,927 7,976 28,292 20,560
----------- ---------- ----------- ----------
Income from operations 3,720 2,413 9,610 5,777
Interest income 424 237 1,280 565
Interest (expense) (6) (19) (36) (30)
Other income (expense), net 69 (156) (20) (149)
----------- ---------- ----------- ----------
Income before income taxes 4,207 2,475 10,834 6,163
Provision for income taxes 1,457 942 4,509 2,524
----------- ---------- ----------- ----------
Net income $ 2,750 $ 1,533 $ 6,325 $ 3,639
=========== ========== =========== ==========
Net income per share $ 0.27 $ 0.18 $ 0.63 $ 0.43
----------- ---------- ----------- ----------
Weighted number of common
and common equivalent shares 10,055,455 8,597,193 10,041,184 8,547,141
=========== ========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
4
5
PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 6,325 $ 3,639
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,992 1,959
Loss on sale and disposal of property
and equipment 29 22
Amortization of discount on marketable securities 234 (114)
Deferred rent (56) (30)
Deferred taxes (303) (395)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (7,414) (4,792)
Prepaid expenses (293) (588)
Other assets (1,690) 56
Accounts payable 660 175
Accrued expenses (589) (641)
Accrued compensation (970) 1,325
Income taxes payable 218 (133)
Deferred revenue 1,312 2,643
-------- --------
Net cash (used in)/provided by operating activities (545) 3,126
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash 108 --
Acquisitions of property and equipment (1,703) (1,452)
Proceeds from sale of property and equipment 6 2
Additions to computer software costs (1,002) (83)
Purchase of marketable securities (36,056) (17,479)
Sale of marketable securities 36,049 9,482
-------- --------
Net cash used in investing activities (2,598) (9,530)
-------- --------
Cash flows from financing activities:
Payments on leased equipment (25) (349)
(Payments)borrowings on bank loan (450) 244
Proceeds from issuance of common stock 744 157
-------- --------
Net cash provided by financing activities 269 52
-------- --------
Effect of exchange rate changes on cash (92) 7
-------- --------
Net decrease in cash and cash equivalents (2,966) (6,345)
Cash and cash equivalents, beginning of period 9,346 14,607
-------- --------
Cash and cash equivalents, end of period $ 6,380 $ 8,262
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
5
6
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. (PSDI) and its majority-owned
subsidiaries (collectively, the Company), as of June 30, 1996 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 1996, or for
any other future period.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1995 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 28, 1995.
The consolidated financial statements of the Company for all periods
prior to March 31, 1996 included in this report include the results and balances
of an acquisition accounted for as pooling-of-interests.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with
maturities of three months or less at the time of acquisition to be cash
equivalents. As of June 30, 1996 and September 30, 1995, the Company's cash
equivalents were comprised
6
7
primarily of money market funds, which are stated at cost, which approximates
market.
C. MARKETABLE SECURITIES
Marketable equity and debt securities available for current operations are
classified in the balance sheet as current assets. Dividend and interest income,
including amortization of premium and discount arising at acquisition, are
included in income. The Company's marketable securities are classified as
available-for-sale and are stated at their fair market value. The fair market
value of marketable securities was determined based on quoted market prices.
Unrealized gains and losses on securities classified as available-for-sale are
reported as a separate component of stockholders' equity. The unrealized holding
gains for the three and nine months ended June 30, 1996 were $88,000 and
$285,000, respectively. The unrealized holding losses for the three and nine
months ended June 30, 1996 were $128,000 and $171,000. As of June 30, 1996, all
marketable securities were classified as current assets.
D. COMPUTER SOFTWARE COSTS
There were no internally developed software costs capitalized for the three
months ended June 30, 1996 and 1995, respectively. Internally developed software
costs capitalized were $634,000 and $0 for the nine months ended June 30, 1996
and 1995, respectively. Amortization expense was $127,000 and $108,000 for the
three months ended June 30, 1996 and 1995, respectively, and $822,000 and
$1,012,000 for the nine months ended June 30, 1996 and 1995, respectively. For
the three months ended December 31, 1995, the Company changed the estimated
useful life of its internally developed software related to MAXIMO from three
years to fifteen months. This change in estimate resulted in additional
amortization expense of $565,000. For the three months ended December 31, 1994,
the Company accelerated the amortization expense of its internally developed
software related to its P/X product, which resulted in $514,000 of additional
expense.
E. ACQUISITIONS
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000
(3,414,000 SEK). In addition, the Company
7
8
will pay the seller an earnout based on revenue target achievement for the
fiscal year ended September 30, 1996. The transaction was accounted for using
the purchase method of accounting. The resulting goodwill is being amortized on
a straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information.
On March 1, 1996, the Company acquired certain assets and assumed specific
liabilities of the IHS department of debis Systemhaus Standard Software -
Produkte GmbH for the sum of $646,000 (946,000 DM). In addition, the Company
will pay an earnout based on revenue target achievement for the twelve months
ended December 31, 1996. The transaction was accounted for using the purchase
method of accounting. The resulting goodwill is being amortized on a
straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information.
On March 1, 1996, the Company acquired all of the outstanding common stock
of Maintenance Automation Corporation ("MAC"), a developer of PC-based
maintenance management software, in exchange for the issuance of 368,946 shares
of common stock. The transaction has been accounted for as a
pooling-of-interests. Costs of the merger were $965,000. This acquisition was
deemed to be immaterial for presentation of pro forma information. The Company's
consolidated financial statements for all years prior to the acquisition will be
restated to include MAC. MAC's fiscal year for financial reporting purposes was
changed from December 31 to September 30 for the period ended September 30,
1995. MAC's results of operations for the nine-month period ended September 30,
1995 and twelve-months ended December 31, 1994 and 1993 will be included in the
Company's 1995, 1994 and 1993 results, respectively. Accordingly, MAC's
operations for the months ended October through and including December 1994 will
not be included in the Company's September 30, 1995 results. Revenues and net
income for MAC for October through and including December 1994 were $1,083,000
and $78,300, respectively, and will be included in the Company's September 30,
1994 results.
8
9
The following is certain unaudited financial information for PSDI and MAC
for the period before the combination was consummated that are included in the
current combined net income:
(in thousands)
Three months Three months Nine months Nine months
REVENUE: ended ended ended ended
- -------- ----- ----- ----- -----
6/30/96 6/30/95 6/30/96 06/30/95
------- ------- ------- --------
PSDI $16,249 $12,127 $45,175 $32,964
MAC $ 1,902 $ 1,506 $ 5,540 $ 2,573
------- ------- ------- -------
Combined $18,151 $13,633 $50,715 $35,537
------- ------- ------- -------
NET INCOME:
- -----------
PSDI $ 2,481 $ 1,692 $ 6,932 $ 4,072
MAC 269 $ (159) $ (607) $ (433)
------- ------- ------- -------
Combined $ 2,750 $ 1,533 $ 6,325 $ 3,639
------- ------- ------- -------
F. INCOME PER SHARE
Income per share is computed for each period based upon the weighted
average number of common shares outstanding and dilutive common stock
equivalents (using the treasury stock method). For purposes of this calculation,
stock options are considered common stock equivalents in the periods in which
they have a dilutive effect. Fully diluted and primary income per share data are
the same for each period presented.
G. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes was as follows:
Nine months ended
June 30,
---------------------
1996 1995
---- ----
(in thousands)
- --------------
Interest $ 36 $ 30
Income taxes 4,393 3,176
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General.
The Company develops, markets and supports applications software used by
business, government and other organizations to improve the productivity of
facilities, plants and production equipment. The Company's revenues are derived
primarily from two sources: software licenses and fees for services, including
support contracts and training and consulting services. The Company experienced
a significant shift in the sources of its revenues as a result of its decision
in 1989 to concentrate its resources on the development and marketing of
enterprise-wide asset maintenance management systems operating in a
client/server environment. The Company acquired Maintenance Automation
Corporation ("MAC") on March 1, 1996. MAC is a developer of PC-based maintenance
management software. Prior to 1991, the Company's revenues were derived
primarily from licenses of its mainframe and other software (consisting of
character-based software designed to run on mainframe, minicomputers and
personal computers), and, to a lesser extent, from sales of computer hardware.
The Company released MAXIMO, its first client/server product, in 1991, and
released P/X, its second client/server product, in 1992. In fiscal year ended
September 30, 1991, revenues from client/server software constituted 11.4% of
software revenues. By the fiscal year ended September 30, 1995, revenues from
client/server software accounted for 98.6% of software revenues, of which 92.7%
was attributable to MAXIMO. In the quarter ended March 31, 1996, the Company
released a new version of MAXIMO. MAXIMO runs on SQLBase, Oracle and Sybase
platforms and is intended for the high function, high usage segment of the
maintenance management market. The product acquired as a result of the
acquisition of MAC on March 1, 1996, MAXIMO ADvantage, is intended for the
lower-end maintenance market. MAXIMO ADvantage supports Microsoft Access for the
single user, PC LAN segment.
Revenues from mainframe and other software have declined sharply, dropping
to 1.4% of software revenues in the fiscal year ended 1995. The Company no
longer actively markets its mainframe
10
11
and other software products, although it provides technical support and other
services to its installed customer base.
Revenues from licenses of P/X grew from $1,148,000 in fiscal year 1992 to
$3,219,000 in fiscal year 1993 and $3,604,000 in fiscal year 1994. However, P/X
has not achieved market acceptance, and revenues from P/X software licenses
declined to $1,622,000 in fiscal year 1995. The Company released a new version
of P/X in July 1995. This release has not received the market acceptance that
the Company had anticipated for this product.
The sources of the Company's revenues from support and services have also
shifted since the introduction of the Company's new generation of client/server
products. Revenues from support and services relating to the Company's
client/server products have increased, while those relating to the Company's
mainframe and other software have declined.
The Company experienced an increase in the average selling price of its
MAXIMO client/server software licenses during fiscal 1995. The Company
attributes this increase in part to its introduction during fiscal year 1994 of
a version of MAXIMO for use with the ORACLE database management system. This
version of MAXIMO has a higher entry price and is typically implemented in
configurations involving a larger number of users, for whom additional license
fees are paid. Larger software license contracts, if any, may have a significant
impact on revenues for any quarter and could therefore result in significant
fluctuations in quarterly revenues and operating results.
The Company's revenues attributable to its operations outside the United
States are a significant portion of revenues. The Company expects that
international revenues will continue to be a significant percentage of total
revenues. As the percentage of the Company's total revenues which are derived
from international operations and are conducted in foreign currencies grows,
changes in the values of these foreign currencies relative to the United States
dollar will affect the Company's results of operations, and may contribute to
fluctuations in the Company's results of operations. The functional currencies
of the Company's international subsidiaries include the pound sterling, the
French franc, the German deutschemark, the Dutch guilder, the Swedish krona, and
the Australian and Canadian dollars, each of which has fluctuated significantly
in relation to the United
11
12
States dollar. In addition, the Company is exposed to potential losses as a
result of transactions giving rise to accounts receivable in currencies other
than the United States dollar or the functional currencies of its international
subsidiaries. When the value of a foreign currency in which the accounts
receivable of the Company are denominated changes between the date the account
receivable is accrued and the date on which it is settled, the resulting gain or
loss is recorded as a foreign currency transaction adjustment. The Company
recorded foreign currency transaction losses of $125,000 and $64,000 for the
nine months ended June 30, 1996 and 1995, respectively. The Company may in the
future undertake currency hedging, although there can be no assurance that
hedging transactions, if entered into, would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations.
To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
Business Combinations.
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000
(3,414,000 SEK). In addition, the Company will pay the seller an earnout based
on revenue target achievement for the fiscal year ended September 30, 1996. The
transaction was accounted for using the purchase method of accounting. The
resulting goodwill is being amortized on a straight-line basis over 5 years.
This acquisition was deemed to be immaterial for presentation of pro forma
information purposes.
On March 1, 1996, the Company acquired certain assets and assumed specific
liabilities of the IHS department of debis Systemhaus - Standard Software -
Produkte GmbH for the sum of $646,000 (946,000 DM). In addition, the Company
will pay an earnout based on revenue target achievement for the twelve months
ended December 31, 1996. The transaction was accounted for using the purchase
method of accounting. The resulting goodwill is being amortized on a
straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information purposes.
12
13
On March 1, 1996, the Company acquired all of the outstanding common stock
of MAC in exchange for the issuance of 368,946 shares of common stock. MAC
provides the Company an existing telesales channel which can target industries
supplemental to those currently targeted by the Company's existing direct sales
channel, such as real estate management, hotels and small education and medical
facilities. MAC's existing product, CHIEF ADvantage has been renamed MAXIMO
ADvantage. The transaction has been accounted for as a pooling-of-interests.
Costs of the merger were $965,000. The consolidated financial statements of the
Company for all periods presented include the results and balances of this
acquisition.
RESULTS OF OPERATIONS
Revenues.
Total revenues increased 33.1% to $18,151,000 from $13,633,000 for the
three months ended June 30, 1996 and 1995, respectively, and 42.7% to
$50,715,000 from $35,537,000 for the nine months ended June 30, 1996 and 1995,
respectively. The nine months prior year comparative revenues include only six
months of MAXIMO ADvantage revenues, as MAC's fiscal year was changed to
coincide with the Company's. The growth in revenues is generated from the
Company's MAXIMO software and related support and services. A significant
portion of the Company's total revenues are derived from operations outside the
United States. Revenues generated outside the United States increased 44.2% to
$6,653,000 or 36.7% of total revenues for the three months ended June 30, 1996
from $4,615,000 or 33.9% of total revenues for the three months ended June 30,
1995 and increased 43.0% to $20,281,000 or 40.0% of total revenues for the nine
months ended June 30, 1996 from $14,180,000 or 39.9% of total revenues for the
nine months ended June 30, 1995.
The Company's software revenues increased 29.9% to $10,679,000 from
$8,223,000 for the three months ended June 30, 1996 and 1995, respectively, and
increased 38.1% to $29,489,000 from $21,354,000 for the nine months ended June
30, 1996 and 1995, respectively. The Company's MAXIMO software revenues
increased 32.6% to $10,399,000 from $7,841,000 for the three months ended June
30, 1996 and 1995, respectively, and increased 42.3% to $28,561,000 from
$20,067,000 for the nine months ended June 30, 1996 and 1995, respectively. The
Company's P/X software revenues increased 139.3% to $280,000 from $117,000 for
the three
13
14
months ended June 30, 1996 and 1995, respectively, and decreased 31.6% to
$628,000 from $918,000 for the nine months ended June 30, 1996 and 1995,
respectively. The increase in P/X software revenues for the three months ended
June 30, 1996 may not be indicative of future growth trends. The increase in
total software revenues for the three and nine months ended June 30, 1996 can be
attributed primarily to the increases in the number of licenses sold. Also,
during the three months ended June 30, 1996, the Company recognized one large
software license agreement that exceeded one million dollars. Comparatively, in
the three months ended June 30, 1995, the Company concluded two large software
license agreements that exceeded one million dollars each. During the nine
months ended June 30, 1995, the Company recognized four large software license
agreements that exceeded one million dollars each. In comparison, while the
Company only recognized one sale of this magnitude during the comparable nine
months ended June 30, 1996, it recognized $630,000 of software license revenue
under one of those prior agreements. In addition, the Company's subsidiary,
Maintenance Automation Corporation, renegotiated its Value Added Resellers
Agreement with its largest distributor, which resulted in the recognition of
$542,000 of software revenue in the three months ended June 30, 1996. Software
revenues as a percentage of total revenues decreased to 58.9% from 60.3% for the
three months ended June 30, 1996 and 1995, respectively, and decreased to 58.1%
from 60.1% for the nine months ended June 30, 1996 and 1995, respectively.
Revenues from licenses of MAXIMO and from related support and services increased
42.3% to $16,391,000 from $11,516,000 or 90.3% and 84.5% of total revenues for
the three months ended June 30, 1996 and 1995, respectively, and increased 54.9%
to $45,343,000 from $29,279,000 or 89.4% and 82.4% of total revenues for the
nine months ended June 30, 1996 and 1995, respectively. Revenues from licenses
of P/X and from related support and services increased 27.8% to $1,356,000 from
$1,061,000 or 7.5% and 7.8% of total revenues for the three months ended June
30, 1996 and 1995, respectively, and 4.1% to $3,775,000 from $3,626,000 or 7.4%
and 10.2% of total revenues for the nine months ended June 30, 1996 and 1995,
respectively.
Revenues from the Company's mainframe and other software and related
support and services decreased 64.6% to $374,000 from $1,056,000 for the three
months ended June 30, 1996 and 1995, respectively, and 44.3% to $1,435,000 from
$2,578,000 for the nine months ended June 30, 1996 and 1995, respectively. The
14
15
Company no longer actively markets its mainframe and other software products.
Revenues from support and services increased 38.1% to $7,472,000 from
$5,410,000 for the three months ended June 30, 1996 and 1995, respectively, and
increased 49.7% to $21,226,000 from $14,183,000 for the nine months ended June
30, 1996 and 1995, respectively. The increases are due primarily to increased
sales of support contracts and use of the Company's training and consulting
services in connection with licenses of the Company's MAXIMO software, partially
offset by declines in sales of support contracts and services relating to the
Company's mainframe and other software.
Cost of Revenues.
The total cost of revenues increased 38.8% to $4,504,000 from $3,244,000
for the three months ended June 30, 1996 and 1995, respectively, and 39.3% to
$12,813,000 from $9,200,000 for the nine months ended June 30, 1996 and 1995,
respectively. The nine months prior year comparative cost of revenues include
only six months of MAXIMO ADvantage expenses, as MAC's fiscal year was changed
to coincide with the Company's. The total cost of revenues as a percentage of
total revenues was 24.8% and 23.8% for the three months ended June 30, 1996 and
1995, respectively, and 25.3% and 25.9% for the nine months ended June 30, 1996
and 1995, respectively.
Cost of software revenues increased 13.2% to $667,000 from $589,000 for the
three months ended June 30, 1996 and 1995, respectively, and 1.3% to $2,267,000
from $2,237,000 for the nine months ended June 30, 1996 and 1995, respectively .
The cost of software revenues decreased as a percentage of software revenues to
6.2% from 7.2% for the three months ended June 30, 1996 and 1995, respectively,
and 7.7% from 10.5% for the nine months ended June 30, 1996 and 1995. The
decreases as a percentage of revenues are primarily attributable to an increase
in the revenue base and a decrease in amortization expense of internally
developed software. In the three months ended December 31, 1995, the Company
changed the estimated useful life of its MAXIMO Enterprise product from three
years to fifteen months to accurately reflect the lifecycles for new releases of
this product. This change resulted in additional amortization expense of
$565,000. For the three months ended December 31, 1994, the Company accelerated
the amortization expense of its internally
15
16
developed software related to its P/X product, which resulted in $514,000 of
additional expense.
Cost of support and services consists primarily of personnel costs for
employees and the related costs of benefits and facilities. Cost of support and
services revenues increased by 44.5% to $3,837,000 from $2,655,000 for the three
months ended June 30, 1996 and 1995, respectively, and increased by 51.5% to
$10,546,000 from $6,963,000 for the nine months ended June 30, 1996 and 1995,
respectively. Cost of support and services increased as a percentage of support
and services revenues to 51.4% from 49.1% for the three months ended June 30,
1996 and 1995, respectively, and to 49.7% from 49.1% for the nine months ended
June 30, 1996 and 1995, respectively. The increases as a percent of revenues for
the three and nine months ended June 30, 1996, are attributable to the costs of
consultants contracted with to perform services for the Company as a result of
the increases in the number of licenses sold and the timing of hiring permanent
employees.
Sales and Marketing Expenses.
Sales and marketing expenses increased 36.7% to $5,999,000 from $4,387,000
for the three months ended June 30, 1996 and 1995, respectively, and increased
41.7% to $16,549,000 from $11,682,000 for the nine months ended June 30, 1996
and 1995, respectively. The nine months prior year comparative sales and
marketing expenses include only six months of MAC's expenses, as its fiscal year
was changed to coincide with the Company's. The increases are primarily due to
increases in the number of sales personnel, sales commissions, travel and
lodging expenses, and an increase in advertising costs. Sales and marketing
expenses as a percentage of total revenues increased to 33.1% from 32.2% for the
three months ended June 30, 1996 and 1995, respectively, and decreased to 32.6%
from 32.9% for the nine months ended June 30, 1996 and 1995, respectively. The
increase as a percentage of revenue for the three months ended June 30, 1996,
are due primarily to increases in the sales commission base earned in direct
proportion with the increase in the revenue base.
Product Development Expenses.
Product development expenses increased 10.0% to $1,942,000 from $1,765,000
for the three months ended June 30, 1996 and
16
17
1995, respectively, and 14.5% to $5,402,000 from $4,719,000 for the nine months
ended June 30, 1996 and 1995, respectively. The nine months prior year
comparative product development expenses include only six months of MAC's
expenses, as its fiscal year was changed to coincide with the Company's. The
increase for the nine months ended June 30, 1996 is primarily due to the
engagement of additional employees and third party consultants who worked on the
new release of MAXIMO during the first six months of the current fiscal year,
offset by the capitalization of the software costs related to the product, as no
software costs were capitalized for the comparative nine month period.
Product development expenses decreased to 10.0% from 12.9% of total
revenues for the three months ended June 30, 1996 and 1995, respectively, and
decreased to 10.7% from 13.3% of total revenues for the nine months ended June
30, 1996 and 1995, respectively. The Company spends virtually all of its
development dollars on the MAXIMO product line. The decreases as a percentage of
revenues for the three months ended June 30, 1996 are attributable to the delays
in planned hires of new development staff. The decreases as a percentage of
revenues for the nine months ended June 30, 1996 are attributable to
capitalization of internal software developments costs in the current period
versus no capitalization of expenses in the comparative period and the delays in
planned hires of new development staff and the increases in revenues.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
General and administrative expenses increased 8.9% to $1,986,000 from $1,824,000
for the three months ended June 30, 1996 and 1995, respectively, and increased
29.3% to $5,376,000 from $4,159,000 for the nine months ended June 30, 1996 and
1995, respectively. The nine months prior year comparative general and
administrative expenses include only six months of MAC's expenses, as its fiscal
year was changed to coincide with the Company's. The increase is primarily due
to an increase in the provision for bad debt expenses in proportion to the
increase in receivables. Also contributing to the increase are the expenses
related to professional fees in connection with growth and transactions of the
Company, including goodwill amortization, as well as, increases in insurance
premiums resulting from the second public offering in July 1995. General and
administrative expenses as a percentage of total revenues decreased to 10.9%
from 13.4% in the three months ended June 30,
17
18
1996 and 1995, respectively, and to 10.6% from 11.7% in the nine months ended
June 30, 1996 and 1995, respectively. The decreases as a percentage of revenues
is attributable to economies resulting from the merger of the Company with
Maintenance Automation Corporation, salary reductions of MAC executives during
the three months ended March 31, 1996, and the ability of the Company to manage
a larger revenue base without commensurate increases in general and
administrative expenses.
Other Income/Expense.
Interest income for the three months ended June 30, 1996 and 1995 was
$424,000 and $237,000, respectively, and $1,280,000 and $565,000 for the nine
months ended June 30, 1996 and 1995. The increases are due to interest earned on
certain cash equivalents and marketable securities.
Provision for Income Taxes.
The Company's effective tax rate was 34.6% and 38.1% for the three months
ended June 30, 1996 and 1995, respectively and 41.6% and 41.0% for the nine
months ended June 30, 1996 and 1995, respectively. The decrease in the effective
tax rate for the three months ended June 30, 1996 can be attributed to the
implementation of a Foreign Sales Corporation (FSC).
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents of
approximately $6,380,000 and working capital of $49,228,000. Cash used by
operations for the nine months ended June 30, 1996 was $545,000 and is
attributable to the funding of accounts receivables, the payout of fiscal 1995
employee bonuses and the acquisition costs in connection with the purchase of
our Swedish and German distributors, offset by income earned for the period.
Cash used in investing activities totaled $2,598,000, primarily for the purchase
of computer equipment, office equipment and capitalization of internal software
costs. Cash provided by financing activities was $269,000 and is attributable
employee stock option exercises, offset by the repayment of MAC's equipment
loans and amounts borrowed on their line of credit.
18
19
The Company's principal commitments as of June 30, 1996 consisted primarily
of an office lease for its headquarters and leases of motor vehicles. The
Company's subsidiaries have financed certain capital asset purchases at interest
rates ranging from 9.5% to 15.0%. The Company leases its facilities and certain
equipment under non-cancelable operating lease agreements which expire at
various dates through March 1999.
In March 1996, the Company extended its $5,000,000 unsecured line of credit
with Chase Manhattan Bank, N.A., which will expire on March 31, 1997. The
Company believes that its current cash balances combined with cash flow from
operations and credit available under its bank line of credit will be sufficient
to meet its working capital and capital expenditure requirements through at
least June 30, 1997
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY
The Company generally ships its products upon receipt of orders and
maintains no significant backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
quarterly operating results. In addition, the Company's revenues and operating
results have fluctuated historically, due to the number and timing of product
introductions and enhancements, the budgeting and purchasing cycles of customers
and the timing of large orders, the timing of product shipments and the timing
of marketing and product development expenditures. Large software license
contracts, if any, may have a significant impact on revenues for any quarter and
could therefore result in significant fluctuations in quarterly revenues and
operating results. The Company's revenues and income from operations typically
grow at a lower rate or decline in the first quarter of each fiscal year. In
addition, revenues are typically higher in the fourth quarter than in other
quarters of the year reflecting the Company's fiscal year end and a sales
commission policy that bases rewards on achievement of annual quotas. As a
result of these factors, the Company has experienced, and may in the future
experience, significant period-to-period fluctuations in revenues and operating
results.
19
20
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Instruments Defining the Rights of
Security-Holders
3.1 Amended and Restated Articles of Organization
of the Company (included as Exhibit 3.3 to
the Company's Registration Statement on Form
S-1, Registration No. 33-76420, and
incorporated herein by reference)
3.2 Restated By-Laws of the Company (included as
Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein by
reference)
11.1 Statement re computation of per share
earnings
27. Financial Data Schedule
(b) Reports filed on Form 8-K
(1) The Company filed a current report on Form
8-K on April 17, 1996.
Item 5. Other Events - Information concerning
the combined financial results of the Company
and its subsidiary Maintenance Automation
Corporation for the quarter ended March 31,
1996.
20
21
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.
PROJECT SOFTWARE & DEVELOPMENT, INC.
------------------------------------
Date: August 13, 1996 By: /s/ Paul D. Birch
--------------- -----------------
Paul D. Birch
Authorized Officer
Vice President Finance &
Administration, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
21
22
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
3.1 Amended and Restated Articles of
Organization of the Company (included
as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein
by reference)
3.2 Restated By-Laws of the Company (included
as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein by reference)
11.1 Statement re computation of per share
earnings
27 Financial Data Schedule