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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
(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: 9,842,383 shares of common stock, $.01 par value per share, as
of July 31, 1997.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of June 30, 3
1997 (unaudited) and September 30, 1996.
Consolidated Statements of Operations 4
(unaudited) for the three and nine months
ended June 30, 1997 and 1996.
Consolidated Statements of Cash Flows 5
(unaudited) for the nine months ended June
30, 1997 and 1996.
Notes to Consolidated Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, September 30,
1997 1996
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA) (Unaudited)
Current assets:
Cash and cash equivalents $20,786 $ 9,097
Marketable securities 37,175 36,798
Accounts receivable, trade, less allowance
for doubtful accounts of $2,277 in 1997 and
$1,954 in 1996 22,784 27,030
Prepaid expenses 1,457 1,410
Other assets 724 748
Deferred income taxes 1,054 892
------- -------
Total current assets 83,980 75,975
------- -------
Property and equipment, net 5,491 4,174
Computer software costs, net 345 787
Goodwill, net 1,555 1,832
Deferred income taxes 655 675
Other assets 48 33
------- -------
Total assets $92,074 $83,476
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,350 $ 8,389
Accrued compensation 3,149 5,007
Income taxes payable 1,050 248
Deferred revenue 10,196 9,042
------- -------
Total current liabilities 21,745 22,686
------- -------
Deferred income taxes 379 168
Deferred rent 34 85
Deferred revenue 127 375
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;
issued and outstanding 9,841,693 and 9,702,579 for 1997 and 1996,
respectively 98 97
Additional paid-in capital 47,901 45,324
Retained earnings 22,093 14,538
Cumulative translation adjustment (497) 49
Net unrealized gain on marketable securities 194 154
------- -------
Total stockholders' equity 69,789 60,162
------- -------
Total liabilities and stockholders' equity $92,074 $83,476
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
(in thousands, except share and per share data)
Revenues:
Software $ 11,277 $ 10,679 $ 36,165 $ 29,489
Support and services 12,375 7,472 33,052 21,226
---------- ----------- ----------- -----------
Total revenues 23,652 18,151 69,217 50,715
---------- ----------- ----------- -----------
Cost of revenues:
Software 747 667 1,998 2,267
Support and services 6,293 3,837 17,475 10,546
---------- ----------- ----------- -----------
Total cost of revenues 7,040 4,504 19,473 12,813
ww ---------- ----------- ----------- -----------
Gross margin 16,612 13,647 49,744 37,902
Operating expenses:
Sales and marketing 8,337 5,999 23,908 16,549
Product development 2,873 1,942 8,247 5,402
General and administrative 2,129 1,986 7,088 5,376
Merger expenses -- -- -- 965
---------- ----------- ----------- -----------
Total operating expenses 13,339 9,927 39,243 28,292
---------- ----------- ----------- -----------
Income from operations 3,273 3,720 10,501 9,610
Interest income 754 424 1,702 1,280
Interest expense (2) (6) (4) (36)
Other income (expense), net (122) 69 (263) (20)
---------- ----------- ----------- -----------
Income before income taxes 3,903 4,207 11,936 10,834
Provision for income taxes 1,413 1,457 4,381 4,509
---------- ----------- ----------- -----------
Net income $ 2,490 $ 2,750 $ 7,555 $ 6,325
========== =========== =========== ===========
Net income per share $ 0.25 $ 0.27 $ 0.75 $ 0.63
---------- ----------- ----------- -----------
Weighted number of common
and common equivalent shares 9,971,731 10,055,455 10,077,804 10,041,184
---------- ----------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended Nine months ended
June 30, June 30,
1997 1996
----------------- -----------------
(in thousands)
Cash flows from operating activities:
Net income $ 7,555 $ 6,325
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,521 1,992
Loss on sale and disposal of property
and equipment 37 29
Amortization of discount on marketable securities 315 234
Deferred rent (51) (56)
Deferred taxes 54 (303)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable 4,306 (7,414)
Prepaid expenses (55) (293)
Other assets (548) (1,690)
Accounts payable (640) 660
Accrued expenses (76) (589)
Accrued compensation (1,901) (970)
Income taxes payable 813 218
Deferred revenue 1,018 1,312
-------- -------
Net cash provided by/(used in) operating activities 13,348 (545)
-------- -------
Cash flows from investing activities:
Acquisitions of businesses, net of cash -- 108
Acquisitions of property and equipment (3,049) (1,703)
Proceeds from sale of property and equipment -- 6
Additions to computer software costs (88) (1,002)
Purchase of marketable securities (102,525) (36,056)
Sale of marketable securities 101,874 36,049
-------- -------
Net cash used in investing activities (3,788) (2,598)
-------- -------
Cash flows from financing activities:
Payments on leased equipment -- (25)
Payments on bank loan -- (450)
Proceeds from exercise of stock options 2,580 744
including related tax benefit
-------- -------
Net cash provided by financing activities 2,580 269
-------- -------
Effect of exchange rate changes on cash (451) (92)
-------- -------
Net increase (decrease) in cash and cash equivalents 11,689 (2,966)
Cash and cash equivalents, beginning of period 9,097 9,346
-------- -------
Cash and cash equivalents, end of period $ 20,786 $ 6,380
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
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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, 1997 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, 1997, 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, 1996 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. 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.
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C. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, and stock appreciation rights. SFAS No. 123 does not require
companies to change their existing accounting for employee stock options under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" (the intrinsic value method) but requires pro forma disclosures of
what net income and earnings per share would have been had the new fair value
method been used. The Company has elected to continue following present
accounting rules under APB Opinion No. 25 and will disclose all the required pro
forma information in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces APB Opinion No. 15, Earnings Per Share.
SFAS No. 128 simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. It requires dual presentation of
basic and diluted EPS by entities with complex capital structures. The Company
will adopt SFAS No. 128 per the effective date for the periods ended after
December 15, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" is effective for financial statements beginning after
December 15, 1997. SFAS No. 130 requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS No. 130 beginning in the
first quarter of the fiscal year ended September 30, 1998.
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" is effective for fiscal
years beginning after December 15, 1997. This statement will change the way
companies report annual financial statements and requires them to report
selected segment information in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Company will adopt SFAS No. 130 in the
fiscal year ended September 30, 1998.
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D. COMPUTER SOFTWARE COSTS
There were no internally developed software costs capitalized for the three
and nine months ended June 30, 1997. Internally developed software costs
capitalized for the three and nine months ended June 30, 1996 were $0 and
$634,000, respectively. Amortization expense was $106,000 and $127,000 for the
three months ended June 30, 1997 and 1996, respectively, and $360,000 and
$822,000 for the nine months ended June 30, 1997 and 1996. For the three months
ended December 31, 1995, the Company changed the estimated useful life of its
internally developed software related to the client/server version of MAXIMO
from three years to fifteen months. This change in estimate resulted in
additional amortization expense of $565,000 in the three months ended
December 31, 1995.
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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
businesses, 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 has
experienced a significant shift in the sources of its revenues as a result of
its decision to concentrate its resources on the development and marketing of
enterprise-wide asset maintenance management systems operating in a
client/server environment. Prior to 1991, the Company's revenues were derived
primarily from licenses of its project management 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 acquired Maintenance Automation Corporation ("MAC") on March 1,
1996. MAC is a developer of maintenance management software for the single-user,
PC LAN segment.
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, 1996, revenues from client/server software accounted for 89% of
software revenues, of which 93% was attributable to the client/server versions
of MAXIMO.
In fiscal 1996, the Company introduced a new suite of MAXIMO products:
MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a
new version of which was released in March 1996, is a client/server product,
which runs on Oracle7 and SYBASE platforms and is intended for the high
function, high usage segment of the maintenance management market. MAXIMO
Workgroup, released in July 1996, is also a client/server product and runs on
SQLBase and Oracle Workgroup and is intended for the mid-range segment of the
maintenance management market.
In March 1997, the Company released a new SQL Server version of MAXIMO
Enterprise and MAXIMO Workgroup for the Microsoft SQL Server database. The new
SQL Server version is available for Windows NT servers, including NT 3.5.1 and
NT 4.0, supporting Windows95, Windows 95B, all Windows 3.x systems, and NT 3.5.1
and NT 4.0 clients.
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. The
Company incurred
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significant additional and unexpected costs in developing a new release of
MAXIMO ADvantage due to a delay in excess of six months in completing the new
release of this product. The delay was necessary to meet both the quality
expectations and functionality demanded by the Company. Further effecting MAXIMO
ADvantage sales was the delay in availability of a CD-Rom based multi-media
evaluation kit. This evaluation kit generally became available in December 1996.
The first significant version of MAXIMO ADvantage released since the acquisition
of MAC, version 3.4, was released in March 1997. The Company has not realized
any significant revenues from this new release despite opening a new tele-sales
operation in Atlanta in March 1997. Accordingly, expenses related to this
product are being reduced to a level commensurate with the lower revenue
expectations.
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 MAXIMO
products have increased, while those relating to the Company's P/X and mainframe
and other project management software have declined.
Revenues from licenses of P/X have declined sharply, dropping to 2% of total
license revenues in the fiscal year ended 1996. The Company no longer actively
markets its P/X product as a stand alone solution. Revenues from licenses of
mainframe and other project management software have also declined sharply,
dropping to 1% of total license revenues in the fiscal year ended 1996. The
Company no longer actively markets its mainframe and other project management
software products, although it provides technical support and other services to
their installed customer base.
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, the
Japanese yen, and the Australian and Canadian dollars, each of which has
fluctuated significantly in relation to the United 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
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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 $307,000 and $125,000
for the nine months ended June 30, 1997 and 1996, 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.
RESULTS OF OPERATIONS
Revenues.
Total revenues increased 30% to $23,652,000 from $18,151,000 for the three
months ended June 30, 1997 and 1996, respectively, and 36% to $69,217,000 from
$50,715,000 for the nine months ended June 30, 1997 and 1996, respectively. The
growth in revenues is generated from the Company's client/server versions of
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 51% to $10,024,000 or 42%
of total revenues in the three months ended June 30, 1997 from $6,653,000 or 37%
of total revenues in the three months ended June 30, 1996 and increased 46% to
$29,509,000 or 43% of total revenues in the nine months ended June 30, 1997 from
$20,281,000 or 40% of total revenues in the nine months ended June 30, 1996.
The Company's software revenues increased 6% to $11,277,000 from $10,679,000
for the three months ended June 30, 1997 and 1996, respectively, and increased
23% to $36,165,000 from $29,489,000 for the nine months ended June 30, 1997 and
1996, respectively. The Company's MAXIMO client/server software revenues
increased 15% to $10,448,000 from $9,109,000 for the three months ended June 30,
1997 and 1996, respectively, and increased 35% to $34,067,000 from $25,323,000
for the nine months ended June 30, 1997 and 1996, respectively. The Company's
MAXIMO ADvantage software revenues decreased 41% to $763,000 from $1,291,000 for
the three months ended June 30, 1997 and 1996, respectively, and decreased 47%
to $1,723,000 from $3,238,000 for the nine months ended June 30, 1997 and 1996,
respectively. The Company's P/X software revenues decreased 96% to $12,000 from
$280,000 for the three months ended June 30, 1997 and 1996, respectively, and
decreased 54% to $290,000 from $628,000 for the
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nine months ended June 30, 1997 and 1996, respectively. The increases in MAXIMO
client/server software revenues for the three and nine months ended June 30,
1997 can be attributed to increases in the average selling price, as well as,
increases in the number of licenses. In the three months ended June 30, 1996,
the Company recognized one large software license agreement of approximately
$1.8 million dollars. There were no software licenses above one million dollars
in the three months ended June 30, 1997. Software revenues as a percentage of
total revenues decreased to 48% from 59% for the three months ended June 30,
1997 and 1996, respectively, and decreased to 52% from 58% for the nine months
ended June 30, 1997 and 1996, respectively. The decreases for the three and nine
months ended June 30, 1997 are largely attributable to a decline in MAXIMO
client/server software license revenue in Europe and a shortfall in MAXIMO
ADvantage revenues. Partially offsetting the software decline in Europe is an
increase in European services revenue. European MAXIMO services revenues have
increased 89% and 108% for the three and nine months ended June 30, 1997,
respectively. European services revenues as a percentage of European revenues
were 51% and 46% for the three and nine months ended June 30, 1997,
respectively, in comparison to 41% and 32% for the three and nine months ended
June 30, 1996, respectively.
Revenues from MAXIMO client/server licenses and from related support and
services increased 47% to $21,405,000 from $14,519,000 or 90% and 80% of total
revenues for the three months ended June 30, 1997 and 1996, respectively, and
increased 57% to $62,693,000 from $39,964,000 or 91% and 79% of total revenues
for the nine months ended June 30, 1997 and 1996, respectively. Revenues from
MAXIMO ADvantage licenses and from related support and services decreased 22% to
$1,477,000 from $1,902,000 or 6% and 4% of total revenues for the three months
ended June 30, 1997 and 1996, respectively, and decreased 29% to $3,921,000 from
$5,540,000 or 6% and 11% of total revenues for the nine months ended June 30,
1997 and 1996, respectively. Revenues from licenses and related support and
services of P/X decreased 59% to $551,000 from $1,356,000 or 2% and 7% of total
revenues for the three months ended June 30, 1997 and 1996, respectively, and
decreased 50% to $1,871,000 from $3,775,000 or 3% and 7% of total revenues for
the nine months ended June 30, 1997 and 1996, respectively. The Company no
longer actively markets its P/X product as a stand alone solution.
Revenues from the Company's mainframe and other project management software
and related support and services decreased 41% to $219,000 from $374,000 for the
three months ended June 30, 1997 and 1996, respectively, and decreased 49% to
$732,000 from $1,435,000 for the nine months ended June 30, 1997 and 1996,
respectively. The Company no longer actively markets its mainframe and other
project management software products.
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Revenues from support and services increased 66% to $12,375,000 from
$7,472,000 for the three months ended June 30, 1997 and 1996, respectively, and
increased 56% to $33,052,000 from $21,226,000 for the nine months ended June 30,
1997 and 1996, respectively. Support and services revenues as a percentage of
total revenues increased to 52% from 41% for the three months ended June 30,
1997 and 1996, respectively, and 48% from 42% for the nine months ended June 30,
1997 and 1996, respectively. The increases are due primarily to consulting and
training services generated by the Company's MAXIMO Enterprise software. The
Company anticipates that services revenues will continue to be a larger portion
of total revenues than has been experienced in the past due to customers
requiring high end domain implementation expertise including customization and
integration to Enterprise Resource Planning projects. Also contributing to the
increases are sales of support contracts in connection with licenses of the
Company's MAXIMO client/server software, partially offset by declines in sales
of support contracts relating to the Company's mainframe and other project
management software.
Cost of Revenues.
The total cost of revenues increased 56% to $7,040,000 from $4,504,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 52%
to $19,473,000 from $12,813,000 for the nine months ended June 30, 1997 and
1996, respectively. The total cost of revenues as a percentage of total revenues
was 30% and 25% for the three months ended June 30, 1997 and 1996, respectively,
and 28% and 25% for the nine months ended June 30, 1997 and 1996, respectively
and can be attributed primarily to the third party consulting costs and
additional in house consultants hired in relation to increases in MAXIMO
services revenue.
Cost of software revenues increased 12% to $747,000 from $667,000 for the
three months ended June 30, 1997 and 1996, respectively, and decreased 12% to
$1,998,000 from $2,267,000 for the nine months ended June 30, 1997 and 1996,
respectively. The cost of software revenues increased as a percentage of
software revenues to 7% from 6% for the three months ended June 30, 1997 and
1996, respectively, and decreased to 6% from 8% for the nine months ended June
30, 1997 and 1996. The increase as a percentage of revenues for the three months
ended June 30, 1997 is attributable to royalties paid to third party vendors and
software purchased for resale. The decrease as a percentage of software revenues
for the nine months ended June 30, 1997 is primarily attributable to a decrease
in amortization expense of internally developed software as compared to the
prior period and an increase in the revenue base for the nine months ended June
30, 1997. 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 major new
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releases of this product. This change resulted in a one-time charge of an
additional amortization expense of $565,000 for this three month period.
Cost of support and services revenues consists primarily of personnel costs
for employees and the related costs of benefits and facilities and costs for
third party consultants. Cost of support and services revenues increased by 64%
to $6,293,000 from $3,837,000 for the three months ended June 30, 1997 and 1996,
respectively, and increased by 66% to $17,475,000 from $10,546,000 for the nine
months ended June 30, 1997 and 1996, respectively. The increase for the three
months ended June 30, 1997 is attributable to costs for third party consultants
and the hire of employees to perform services. Cost of support and services as a
percentage of support and services revenues was 51% for both the three months
ended June 30, 1997 and 1996, respectively, and increased to 53% from 50% for
the nine months ended June 30, 1997 and 1996, respectively. The increase for the
nine months ended June 30, 1997 is attributable to costs for third party
consultants whose effective hourly rate is higher than that of employees
performing similar services. Third party consultants are utilized to perform
services when the Company does not have adequate internal resources to complete
services within acceptable time frames.
Sales and Marketing Expenses.
Sales and marketing expenses increased 39% to $8,337,000 from $5,999,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 44%
to $23,908,000 from $16,549,000 for the nine months ended June 30, 1997 and
1996, respectively. The increases are primarily due to increases in the number
of sales personnel, sales commissions, travel and lodging expenses attributable
to growth and expansion, and an increase in advertising costs. Sales and
marketing expenses as a percentage of total revenues were 35% and 33% for the
three months ended June 30, 1997 and 1996, and 35% and 33% for the nine months
ended June 30, 1997 and 1996, respectively. The increases as a percentage of
revenues are due primarily to increased sales and marketing staffs and an
increase in advertising costs to promote the Company's MAXIMO products, and
expense levels that were established to achieve a higher level of revenues.
Product Development Expenses.
Product development expenses increased 48% to $2,873,000 from $1,942,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 53%
to $8,247,000 from $5,402,000 for the nine months ended June 30, 1997 and 1996,
respectively. The increases are attributable to costs for third party
consultants and additional employees to work on upgrades of the MAXIMO product
and investments in future technology.
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Product development expenses increased to 12% from 11% of total revenues for
the three months ended June 30, 1997 and 1996, respectively, and increased to
12% from 11% of total revenues for the nine months ended June 30, 1997 and 1996,
respectively. Over the past two years, the Company has spent the majority of its
development dollars on the MAXIMO product line and anticipates to continue to do
so in the near future. The increases as a percentage of revenues are
attributable to the capitalization of internal software developments costs in
the prior period versus no capitalization of expenses in the current period. The
increases are also attributable to increases in the number of developers hired
and third party contractors.
General and Administrative Expenses.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
General and administrative expenses increased 7% to $2,129,000 from $1,986,000
for the three months ended June 30, 1997 and 1996, respectively, and increased
32% to $7,088,000 from $5,376,000 for the nine months ended June 30, 1997 and
1996, respectively. The increase for the three months ended June 30, 1997 is
attributable to increases in personnel to support the increase in the revenue
base offset by a decrease in the provision for bad debts. The increase for the
nine months ended June 30, 1997 is attributable to increases in the provision
for bad debt expenses, professional fees related to growth and expansion and
goodwill amortization. Also contributing to the increases for both the three and
nine months ended June 30, 1997 are increases in personnel to support the
increase in the revenue base. General and administrative expenses as a
percentage of total revenues decreased to 9% from 11% in the three months ended
June 30, 1997 and 1996, respectively, and to 10% from 11% in the nine months
ended June 30, 1997 and 1996, respectively. The decreases as a percentage of
revenues for both periods demonstrates an ability to manage a larger revenue
base without a commensurate increase in general and administrative expenses.
Other Income/Expense.
Interest income for the three months ended June 30, 1997 and 1996 was
$754,000 and $424,000, respectively, and $1,702,000 and $1,280,000 for the nine
months ended June 30, 1997 and 1996. 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 36% and 35% for the three months ended
June 30, 1997 and 1996, respectively and 37% and 42% for the nine months ended
June 30, 1997 and 1996,
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respectively. The decrease for the nine months ended June 30, 1997 is
attributable to tax-exempt income, research and development credits and
utilization of a Foreign Sales Corporation. Also, in during the nine months
ended June 30, 1996, the effective rate was high due to merger expenses of
$965,000, which are not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $20,786,000 and working capital of $62,235,000. The Company's
favorable cash position is attributable to an increased effort in accounts
receivable collections and a significant improvement in the days sales
outstanding. The days sales outstanding is likely to increase due to economic
climate, exchange rate fluctuations, components of revenues and geographic
sources of revenues. Cash provided by operations for the nine months ended
June 30, 1997 was $13,348,000 generated by income earned for the period,
depreciation and amortization, and receivables collected for the period, offset
by the payout of fiscal 1996 employee bonuses. Cash used in investing
activities totaled $3,788,000 and was primarily used for the purchase of
computer equipment, office furniture and leasehold improvements. Cash provided
by financing activities was $2,580,000 and is attributable to exercises of
employee stock options.
The Company's principal commitments as of June 30, 1997 consisted primarily
of an office lease for its headquarters. The Company leases its facilities under
non-cancelable operating lease agreements which expire at various dates through
February 2007. The Company will be relocating its corporate headquarters in
November 1997. The Company expects to spend $2.5 million dollars for
construction and buildout in connection with the relocation. It also plans to
spend approximately $1 million on furniture, fixtures and equipment.
The Company elected not to renew its $5,000,000 unsecured line of credit
with Chase Manhattan Bank, N.A., which expired on March 31, 1997. The Company
believes that its current liquidity and cash flows expected to be generated by
operations will be sufficient to meet its cash needs for working capital,
capital expenditures and market expansion through at least June 30, 1998.
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
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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.
FACTORS AFFECTING FUTURE PERFORMANCE
Further information on factors that could affect the Company's business and
financial results are included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
Forward-looking statements of the Company are subject to the risk that
assumptions made by management of the Company concerning future general economic
conditions such as recession, inflation, interest rates, tax rates, consumer
spending and credit and other future conditions having an impact on software
markets and the Company's business may prove to be incorrect. Adverse changes in
such future economic conditions could have an adverse effect on the Company's
business.
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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, as amended (included
as Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996,) and incorporated
herein by reference)
10.1 Amended and Restated 1994 Incentive and NonQualified Stock
Option Plan, as amended, as approved by the stockholders of
the Company by written consent dated April 15, 1994.
11.1 Statement re computation of per share earnings
27. Financial Data Schedule
(b) Reports filed on Form 8-K
The Company filed no current reports on Form 8-K during the
three months ended June 30, 1997.
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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, 1997 By: /s/ Paul D. Birch
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Paul D. Birch
Authorized Officer
Executive Vice President Finance &
Administration,Chief Financial
Officer and Treasurer
(Principal Financial Officer)
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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, as amended included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996,) and incorporated
herein by reference)
10.1 Amended and Restated 1994 Incentive and NonQualified Stock
Option Plan, as amended, as approved by the stockholders of
the Company by written consent dated April 15, 1994.
11.1 Statement re computation of per share earnings
27 Financial Data Schedule