1
- --------------------------------------------------------------------------------
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 SEPTEMBER 30, 1997
OR
[ ] 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 0-19538
HYPERION SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1326879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices, including zip code)
(203) 703-3000
(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 [ ]
As of November 6, 1997, there were 18,781,083 shares of the Registrant's common
stock, $.01 par value, outstanding.
- --------------------------------------------------------------------------------
2
Hyperion Software Corporation
Form 10-Q
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet --
September 30, 1997 and June 30, 1997 ................................. 2
Condensed Consolidated Statement of Income --
Three Months Ended September 30, 1997 and 1996 ....................... 3
Condensed Consolidated Statement of Cash Flows --
Three Months Ended September 30, 1997 and 1996 ....................... 4
Notes to Condensed Consolidated Financial Statements --
September 30, 1997 ................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............... 10
Item 6. Exhibits and Reports on Form 8-K .................................. 10
SIGNATURES ................................................................ 11
(C) 1997 Hyperion Software Operations Inc. All rights reserved. Hyperion,
Hyperion Software, the Hyperion Software Logo, Hyperion Admin, Hyperion Analyst,
Hyperion Assets, Hyperion Financials, Hyperion Forms, Hyperion Ledger, Hyperion
OLAP, Hyperion OnTrack, Hyperion Payables, Hyperion Pillar, Hyperion
Receivables, Hyperion Reporting, Hyperion Retrieve, Hyperion Tools, Business
Intelligence, Financial Intelligence, IMRS, LedgerLink, Micro Control and Pillar
are registered trademarks and Hyperion Analytical Ledger, Hyperion Enterprise,
Hyperion Purchasing and Build&Link are trademarks of Hyperion Software
Operations Inc., a wholly-owned subsidiary of Hyperion Software Corporation.
MARVEL COMICS, SPIDER-MAN: TM & (C) 1997 Marvel Characters, Inc. All rights
reserved. All other trademarks and company names mentioned are the property of
their respective owners.
For further information, refer to the Hyperion Software Corporation annual
report on Form 10-K for the year ended June 30, 1997.
3
Hyperion Software Corporation
Condensed Consolidated Balance Sheet
(in thousands, except for share data)
SEPTEMBER 30, JUNE 30,
1997 1997
-----------------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 71,624 $ 67,059
Accounts receivable--net of allowances
of $5,800 and $5,300 61,960 64,831
Prepaid expenses and other current assets 3,533 3,243
Deferred income taxes 4,069 3,811
-----------------------
TOTAL CURRENT ASSETS 141,186 138,944
Property and equipment--at cost, less accumulated
depreciation and amortization of $34,632 and $31,029 56,245 57,853
Product development costs--at cost, less
accumulated amortization of $7,614 and $6,796 8,383 8,526
Product distribution rights, goodwill and other
intangible assets--at cost, less accumulated
amortization of $8,595 and $7,631 10,145 11,103
Deposits and other assets 2,683 2,213
-----------------------
Total assets $218,642 $218,639
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 23,765 $ 22,746
Accrued employee compensation and benefits 11,397 19,882
Income taxes payable 8,269 8,898
Deferred revenue 45,232 44,619
Notes payable 514 563
-----------------------
TOTAL CURRENT LIABILITIES 89,177 96,708
Mortgage payable 7,733 7,823
Deferred income taxes 256 1,071
Stockholders' equity:
Preferred stock--$.01 par value;
authorized--1,000,000 shares; none issued
Common stock--$.01 par value; authorized--50,000,000
shares; issued--22,920,502 and 22,577,437 shares 229 226
Additional paid-in capital 90,863 85,706
Retained earnings 45,507 41,994
Currency translation adjustments (1,610) (1,376)
Treasury stock, at cost--4,344,599 shares (13,513) (13,513)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 121,476 113,037
-----------------------
Total liabilities and stockholders' equity $218,642 $218,639
=======================
Note: the balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
-2-
4
Hyperion Software Corporation
Condensed Consolidated Statement of Income (Unaudited)
(in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---------------------
REVENUES
Software licenses $29,266 $20,906
License renewals and services 31,638 25,081
---------------------
Total revenues 60,904 45,987
COSTS AND EXPENSES
Cost of revenues:
Software licenses 2,003 1,680
License renewals and services 19,053 14,535
Sales and marketing 19,450 14,619
Product development 8,350 7,872
General and administrative 7,087 4,281
---------------------
55,943 42,987
---------------------
OPERATING INCOME 4,961 3,000
Interest income 637 374
Interest expense (86) (83)
---------------------
INCOME BEFORE INCOME TAXES 5,512 3,291
Provision for income taxes 2,000 1,250
---------------------
NET INCOME $ 3,512 $ 2,041
=====================
EARNINGS PER SHARE
Primary $ .18 $ .11
Fully diluted $ .18 $ .11
AVERAGE NUMBER OF SHARES OUTSTANDING
Primary 19,357 17,813
Fully diluted 19,467 18,013
See accompanying notes.
-3-
5
Hyperion Software Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------- --------
CASH PROVIDED BY OPERATING ACTIVITIES $ 5,581 $10,861
INVESTING ACTIVITIES
Office improvements and purchases of
furniture, equipment and software (2,310) (3,760)
Product development costs (675) (1,133)
Deposits and intangible assets (560) (147)
Business acquisitions (7,104)
---------------------
Cash used by investing activities (3,545) (12,144)
FINANCING ACTIVITIES
Principal payments on notes payable (139) (155)
Exercise of stock options by employees 2,902 419
---------------------
Cash provided by financing activities 2,763 264
Effect of exchange rate changes (234) 59
---------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,565 (960)
Cash and cash equivalents at beginning of period 67,059 42,361
---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $71,624 $41,401
=====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received), net during the period for:
Income taxes $ 1,444 $ (151)
Interest 82 75
See accompanying notes.
-4-
6
Hyperion Software Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1997
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation
have been included in the accompanying unaudited financial statements. Operating
results for the three-month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the full year ending June 30,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the company's annual report on Form 10-K for
the year ended June 30, 1997.
Earnings per share ("EPS") are calculated by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. For primary EPS, common equivalent shares are shares which would be
issuable upon the exercise of outstanding stock options, reduced by the number
of shares assumed to be purchased by the company with the proceeds obtained
therefrom at the average market price during the period. For the fully diluted
EPS calculation, shares are assumed to be purchased by the company at the higher
of the average or period-end market price and, therefore, this calculation may
include additional equivalent shares.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which changes the methodology of calculating earnings per
share. The company will adopt SFAS No. 128 in December 1997. The company does
not expect the adoption of SFAS No. 128 to have a material effect on the
earnings per share information presented.
B. CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the company.
-5-
7
Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
- --------------------------------------------------------------------------------
Founded in 1981, Hyperion Software Corporation provides software solutions for
better business understanding and improved financial performance. The company's
Internet-enabled applications support and enhance enterprise-wide processes,
including planning, budgeting, forecasting, accounting, consolidation and
business analysis. Hyperion solutions are used by large organizations worldwide.
The company derives revenues from licensing its software products and providing
related product installation, support and training services. Customers are
billed an initial fee for the software upon delivery. A license renewal fee
entitling customers to routine support and product updates is billed annually.
Hyperion licenses its products throughout the world primarily through a direct
sales force. Products also are licensed through independent distributors and
sales agents, including major accounting firms. The company includes in revenues
its net share of revenues generated by distributors. When an agent has
facilitated the sale and Hyperion is the licensor, the license revenue is
reported gross and a commission charge is reflected.
The company operates with a minimal software licensing backlog. Therefore,
quarterly revenues and operating results are quite dependent on the volume and
timing of the signing of licensing agreements and product deliveries during the
quarter, which are difficult to forecast. The company's future operating results
may fluctuate due to these and other factors, such as customer buying patterns,
the deferral and/or realization of deferred software license revenues according
to contract terms, the timing of new product introductions and product upgrade
releases, the company's hiring plans, the scheduling of sales and marketing
programs, new product development by the company or its competitors and currency
exchange rate movements. A significant portion of the company's quarterly
software licensing agreements is concluded in the last month of the fiscal
quarter, generally with a concentration of such revenues earned in the final ten
business days of that month. The company generally has realized lower revenues
in its first (September) and third (March) fiscal quarters than in the
immediately preceding quarters. Total revenues and net income were $60.9 million
and $3.5 million, respectively, for the first quarter of fiscal 1998, and $73.6
million and $5.9 million, respectively, for the fourth quarter of fiscal 1997.
The company believes that these revenue fluctuations are caused by customer
buying patterns, including traditionally slow purchase activity in the summer
months and low purchase activity in the corporate financial applications market
during the March quarter, as many potential customers are busy with their
year-end closing and financial reporting. In any case, due to the relatively
fixed nature of certain costs, including personnel and facilities expenses, a
decline or shortfall in quarterly and/or annual revenues typically results in
lower profitability or may result in losses.
Except for the historical information contained in this report on Form 10-Q, the
matters discussed herein are forward-looking statements that involve risks and
uncertainties. Actual events and the company's future results may vary
significantly based on a number of factors, including those discussed in the
preceding paragraph; whether the accounting products contemplated to be jointly
developed by Baan and Hyperion are developed in a timely fashion and are
accepted by the market (for further details of the strategic alliance with The
Baan Company, see the Hyperion annual report on Form 10-K for the year ended
June 30, 1997, Note B of the financial statements); whether the proposed
coordination of sales prospects between the companies works in practice and
results in increased revenues for the company; whether the strategic advantages
and synergies contemplated to be gained by the parties are actually able to be
realized; and the impact of competitive products and pricing. Any
forward-looking statements should be considered in light of these factors as
well as other risks as detailed in the company's annual report on Form 10-K for
the year ended June 30, 1997. Further, readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
-6-
8
Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
REVENUES
First Quarter Ended
September 30, 1997 CHANGE 1996
- ----------------------------------------------------------------------
(dollars in thousands)
Software licenses $29,266 40.0% $20,906
Percentage of total revenues 48.1% 45.5%
- ----------------------------------------------------------------------
License renewals and services $31,638 26.1% $25,081
Percentage of total revenues 51.9% 54.5%
- ----------------------------------------------------------------------
Software license revenues rose primarily as a result of an increase in the
number of licenses sold (unit volume) versus, for example, price increases. In
particular, revenue growth was led by demand for the company's enterprise
financial management and budgeting products.
The increase in license renewal and service revenue is mainly attributable to
the year-to-year growth of the company's installed customer base.
Revenues generated from markets outside the United States for the quarters ended
September 30, 1997 and 1996 were $22.4 million and $15 million, or 36.8% and
32.7% of total revenues, respectively. Revenue growth was particularly strong in
Canada, Germany, Southeast Asia and the United Kingdom.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2, "Software Revenue Recognition" ("SOP"), which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The company believes that the
requirements of this SOP, which supersede the revenue recognition guidance of
SOP 91-1, do not differ significantly from its revenue recognition practices and
policy requirements. Accordingly, adoption of the SOP is not expected to
materially impact the company's results of operations.
COST OF REVENUES
First Quarter Ended
September 30, 1997 CHANGE 1996
- ---------------------------------------------------------------------
(dollars in thousands)
Software licenses $ 2,003 19.2% $ 1,680
Gross profit percentage 93.2% 92.0%
- ---------------------------------------------------------------------
License renewals and services $19,053 31.1% $14,535
Gross profit percentage 39.8% 42.0%
- ---------------------------------------------------------------------
Cost of software license revenues consists primarily of the cost of product
packaging and documentation materials, amortization of capitalized software
costs, amortization of certain intangible assets related to business
acquisitions, and royalty expenses. The amortization of capitalized software
costs begins upon the general release of the software to customers. The increase
in the cost of software license revenues principally reflects an increase in
royalty fees related to the increase in the number of software licenses sold.
The increase in the cost of license renewal and service revenues was due
primarily to additional staffing expense for both installation and ongoing
support services.
-7-
9
Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
OPERATING EXPENSES
First Quarter Ended
September 30, 1997 CHANGE 1996
- ---------------------------------------------------------------------
(dollars in thousands)
Sales and marketing $19,450 33.0% $14,619
Percentage of total revenues 31.9% 31.8%
- ---------------------------------------------------------------------
Product development $ 8,350 6.1% $ 7,872
Percentage of total revenues 13.7% 17.1%
- ---------------------------------------------------------------------
General and administrative $ 7,087 65.5% $ 4,281
Percentage of total revenues 11.6% 9.3%
- ---------------------------------------------------------------------
The increase in sales and marketing expenses is primarily due to a net increase
in sales-marketing personnel and, to a lesser extent, an increase in commission
costs directly associated with the significant increase in software license
revenues.
The increase in product development expenses reflects additional third-party
development costs associated with research and development activities. In the
quarters ended September 30, 1997 and 1996, the company capitalized $.7 million
and $1.1 million of software development costs, respectively, in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." The amounts
capitalized primarily relate to the company's development of enterprise-wide
financial reporting and analysis solutions for client/server environments and
represented 7.5% and 12.6% of total product development expenditures.
Capitalized software costs are amortized over the estimated economic life of the
product, but generally not more than four years.
The increase in general and administrative expenses resulted, for the most part,
from increases in personnel and professional services costs incurred to support
the growth of the company's overall operations, as well as estimated costs
associated with additional support required by certain accounting product
customers.
INTEREST INCOME
Interest income increased from $.4 million to $.6 million due to the increase
from operations in cash available for investment.
PROVISION FOR INCOME TAXES
The company's effective income tax rate decreased from 38% to 36.3%. The tax
rate for the current period reflects the company's expectations for the full
year ending June 30, 1998. The rate reduction is mainly attributable to the
recent tax law change that will yield the company additional benefits with
respect to export sales.
NET INCOME
As a result of the above factors, net income for the three-month period ended
September 30, 1997 increased to $3.5 million, or by 72.1%, from $2 million for
the corresponding period of 1996.
To date, the overall impact of inflation on the company has not been material.
-8-
10
Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
To date, the company has financed its business principally through positive cash
flow from operations and sales of its common stock. For fiscal years 1995, 1996
and 1997, and for the three months ended September 30, 1997, the company
generated positive cash flow from operations of $28.9 million, $34.1 million,
$47.1 million and $5.6 million, respectively.
Cash used by investing activities amounted to $3.5 million for the three months
ended September 30, 1997, including $2.3 million primarily for purchases of
computer equipment and software and $1.2 million for deposit and intangible
asset costs.
Financing activities in the quarter ended September 30, 1997, including stock
options exercised by employees and payments of indebtedness, generated cash of
$2.8 million. In connection with the stock options exercised by certain of its
employees (for a total of 343,065 common shares), the company recognized (as a
credit to additional paid-in capital) an income tax benefit of $2.3 million for
the three months ended September 30, 1997.
As of September 30, 1997, the company had cash and cash equivalents of $71.6
million and working capital of $52 million, no long-term debt other than the
mortgage loan (currently at an interest rate of 3.9%) for the Stamford,
Connecticut office and research facility, and its ratio of current assets to
current liabilities was 1.6 to 1. Cash equivalents are comprised primarily of
investment-grade U.S. state and political subdivision obligations with varying
terms of three months or less. The company has long-term credit availability of
$25 million under a revolving credit facility. The company anticipates capital
expenditures of approximately $35 million for its 1998 fiscal year. The company
intends to continue to review potential acquisitions and business alliances that
it believes would enhance its growth and profitability.
From time to time, in the normal course of business, various claims are made
against the company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the company.
The company believes that funds generated from operations, existing cash
balances and its available credit facility will be sufficient to finance the
company's operations for at least the next two years.
-9-
11
Hyperion Software Corporation
Part II. Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's Annual Meeting of Stockholders held on November 12, 1997, the
following proposals were adopted by the margins indicated:
1. To elect two members to the board of directors to serve for a three-year
term as Class I Directors.
Number of Shares
For Withheld
-------------------------
James A. Perakis 15,539,081 284,265
Gary G. Greenfield 15,538,981 284,365
Marco Arese Lucini, Harry S. Gruner, Aldo Papone and Robert W. Thomson
continue to serve as directors of the company.
2. To consider and act upon amendments to the company's 1991 Stock Plan such
that (i) the number of shares of Common Stock authorized for issuance under
the plan are increased from 4 million to 7 million shares, (ii) awards of
stock purchase and option rights resulting from the increase in available
shares will be made at exercise prices equal to at least 85 percent of the
fair market value of the company's Common Stock at the time of grant, and
(iii) awards of stock are no longer permitted.
For 10,390,397
Against 2,623,224
Abstain 14,924
Non-votes 2,794,801
3. To ratify the selection of the firm of Ernst & Young LLP as independent
auditors for the fiscal year ending June 30, 1998.
For 15,812,341
Against 3,795
Abstain 7,210
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein: (11) Statement Re: Computation of
Earnings Per Share.
The company did not file any reports on Form 8-K during the three months ended
September 30, 1997.
-10-
12
Hyperion Software Corporation
Form 10-Q
for the three-month period ended September 30, 1997
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.
Hyperion Software Corporation
/s/ Michael A. Manto 11/13/97
-------------------------------------------------
Michael A. Manto Date
Vice President and Corporate Controller
/s/ Lucy Rae Ricciardi 11/13/97
-------------------------------------------------
Lucy Rae Ricciardi Date
Senior Vice President and Chief Financial Officer
-11-