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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
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COMMISSION FILE NUMBER 0-19538
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 February 2, 1998, there were 18,976,436 shares of the Registrant's common
stock, $.01 par value, outstanding.
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Hyperion Software Corporation
Form 10-Q
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -- December 31, 1997 and June 30, 1997....................2
Condensed Consolidated Statement of Income -- Three Months Ended
December 31, 1997 and 1996; Six Months Ended December 31, 1997 and 1996......................3
Condensed Consolidated Statement of Cash Flows --
Six Months Ended December 31, 1997 and 1996..................................................4
Notes to Condensed Consolidated Financial Statements -- December 31, 1997......................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................................................11
SIGNATURES.......................................................................................12
(C) 1998 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, HyperionReady, Build&Link, Business Analytics and Listen to
your business are trademarks of Hyperion Software Operations Inc., a
wholly-owned subsidiary of Hyperion Software Corporation. MARVEL COMICS,
SPIDER-MAN: TM & (C) 1998 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.
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Hyperion Software Corporation
Condensed Consolidated Balance Sheet
(in thousands, except for share data)
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 89,773 $ 67,059
Accounts receivable--net of allowances of $6,100 and $5,300 67,057 64,831
Prepaid expenses and other current assets 3,172 3,243
Deferred income taxes 5,359 3,811
-------- --------
TOTAL CURRENT ASSETS 165,361 138,944
Property and equipment--at cost, less accumulated depreciation
and amortization of $38,239 and $31,029 54,623 57,853
Product development costs--at cost, less accumulated
amortization of $8,641 and $6,796 8,056 8,526
Product distribution rights, goodwill and other intangible assets--
at cost, less accumulated amortization of $9,469 and $7,631 9,354 11,103
Deposits and other assets 3,682 2,213
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Total assets $241,076 $218,639
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 27,517 $ 22,746
Accrued employee compensation and benefits 16,378 19,882
Income taxes payable 9,193 8,898
Deferred revenue 47,003 44,619
Notes payable 509 563
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TOTAL CURRENT LIABILITIES 100,600 96,708
Mortgage payable 7,598 7,823
Deferred income taxes 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--23,299,854 and 22,577,437 shares 233 226
Additional paid-in capital 98,230 85,706
Retained earnings 49,835 41,994
Currency translation adjustments (1,907) (1,376)
Treasury stock, at cost--4,344,599 shares (13,513) (13,513)
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TOTAL STOCKHOLDERS' EQUITY 132,878 113,037
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Total liabilities and stockholders' equity $241,076 $218,639
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Note: the balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
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Hyperion Software Corporation
Condensed Consolidated Statement of Income (Unaudited)
(in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------- ------- -------- -------
REVENUES
Software licenses $33,851 $25,372 $ 63,117 $46,278
License renewals and services 35,379 27,324 67,017 52,405
------- ------- -------- -------
Total revenues 69,230 52,696 130,134 98,683
COSTS AND EXPENSES
Cost of revenues:
Software licenses 2,409 1,685 4,412 3,365
License renewals and services 21,703 16,302 40,756 30,837
Sales and marketing 22,607 17,779 42,057 32,398
Product development 9,180 8,031 17,530 15,903
General and administrative 7,159 4,928 14,246 9,209
------- ------- -------- -------
63,058 48,725 119,001 91,712
------- ------- -------- -------
OPERATING INCOME 6,172 3,971 11,133 6,971
Interest income 744 381 1,381 755
Interest expense (104) (91) (190) (174)
------- ------- -------- -------
INCOME BEFORE INCOME TAXES 6,812 4,261 12,324 7,552
Provision for income taxes 2,500 1,625 4,500 2,875
------- ------- -------- -------
NET INCOME $ 4,312 $ 2,636 $ 7,824 $ 4,677
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EARNINGS PER SHARE
Basic $ .23 $ .15 $ .42 $ .27
Diluted $ .22 $ .14 $ .40 $ .26
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 18,789 17,240 18,602 17,150
Diluted 19,792 18,509 19,574 18,161
See accompanying notes.
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Hyperion Software Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
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CASH PROVIDED BY OPERATING ACTIVITIES $23,355 $20,305
INVESTING ACTIVITIES
Office improvements and purchases of furniture,
equipment and software (4,802) (8,150)
Product development costs (1,375) (2,167)
Deposits and intangible assets (897) (1,122)
Business acquisitions (7,104)
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Cash used by investing activities (7,074) (18,543)
FINANCING ACTIVITIES
Principal payments on notes payable (279) (316)
Exercise of stock options by employees 7,243 3,147
------- -------
Cash provided by financing activities 6,964 2,831
Effect of exchange rate changes (531) 450
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 22,714 5,043
Cash and cash equivalents at beginning of period 67,059 42,361
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $89,773 $47,404
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 2,486 $ 872
Interest 162 158
See accompanying notes.
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Hyperion Software Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 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 and six-month periods ended December 31, 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.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented and where necessary restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share ("EPS") (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
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Numerator:
Net income $ 4,312 $ 2,636 $ 7,824 $ 4,677
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Denominator:
Denominator for basic EPS - weighted-average shares 18,789 17,240 18,602 17,150
Effect of dilutive securities:
Stock option rights 1,003 1,269 972 1,011
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Denominator for diluted EPS - adjusted weighted-average
shares and assumed conversions
19,792 18,509 19,574 18,161
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Basic earnings per share $ .23 $ .15 $ .42 $ .27
Diluted earnings per share $ .22 $ .14 $ .40 $ .26
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.
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Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
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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, 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 $69.2 million
and $4.3 million, respectively, for the second quarter of fiscal 1998, and $60.9
million and $3.5 million, respectively, for the first quarter of fiscal 1998.
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.
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Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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. Additionally, the
company has determined that it will need to modify or replace portions of its
internal business information systems so that the systems will function properly
with respect to dates in the year 2000 and beyond. The company has also
initiated discussions with its significant vendors, service providers and large
customers to evaluate Year 2000 issues, if any, relating to the interaction of
their systems with the company's internal systems. The company anticipates that
it will successfully address Year 2000 issues and modifications to its internal
business information systems by the end of fiscal 1999. The cost of the
company's Year 2000 efforts is not expected to be material to the company's
financial position. While the company believes its planning efforts are adequate
to address its Year 2000 concerns, there can be no assurance that there will not
be a delay in, or increase costs associated with, implementation of changes to
address any such issues, which could have a material adverse effect on the
company and its future results of operations. 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.
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Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS
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REVENUES
Second Quarter Ended Six Months Ended
December 31, 1997 CHANGE 1996 1997 CHANGE 1996
- ----------------------------- ------------------------------ ------------------------------
(dollars in thousands)
Software licenses $33,851 33.4% $25,372 $63,117 36.4% $46,278
Percentage of total revenues 48.9% 48.1% 48.5% 46.9%
- ----------------------------- ------------------------------ ------------------------------
License renewals and services $35,379 29.5% $27,324 $67,017 27.9% $52,405
Percentage of total revenues 51.1% 51.9% 51.5% 53.1%
- ----------------------------- ------------------------------ ------------------------------
Software license revenues rose primarily as a result of an increase in the
number of licenses sold (unit volume) versus, for example, price increases.
Sales of the company's financial management, budgeting, and business analysis
products each grew more than 30% for both the quarter and the half year.
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 first half of
fiscal 1998 and 1997 were $48.7 million and $34.9 million, or 37.4% and 35.4% 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
Second Quarter Ended Six Months Ended
December 31, 1997 CHANGE 1996 1997 CHANGE 1996
- ----------------------------- ------------------------------ ------------------------------
(dollars in thousands)
Software licenses $ 2,409 43.0% $ 1,685 $ 4,412 31.1% $ 3,365
Gross profit percentage 92.9% 93.4% 93.0% 92.7%
- ----------------------------- ------------------------------ ------------------------------
License renewals and services $21,703 33.1% $16,302 $40,756 32.2% $30,837
Gross profit percentage 38.7% 40.3% 39.2% 41.2%
- ----------------------------- ------------------------------ ------------------------------
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.
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Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
OPERATING EXPENSES
Second Quarter Ended Six Months Ended
December 31, 1997 CHANGE 1996 1997 CHANGE 1996
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(dollars in thousands)
Sales and marketing $22,607 27.2% $17,779 $42,057 29.8% $32,398
Percentage of total revenues 32.7% 33.7% 32.3% 32.8%
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Product development $ 9,180 14.3% $ 8,031 $17,530 10.2% $15,903
Percentage of total revenues 13.3% 15.2% 13.5% 16.1%
- ----------------------------- ------------------------------ ------------------------------
General and administrative $ 7,159 45.3% $ 4,928 $14,246 54.7% $ 9,209
Percentage of total revenues 10.3% 9.4% 10.9% 9.3%
- ----------------------------- ------------------------------ ------------------------------
The increase in sales and marketing expenses is primarily due to a net increase
in sales-marketing personnel and an increase in commission costs directly
associated with the significant increase in software license revenues.
The increase in product development expenses reflects additional personnel and
third-party development costs associated with research and development
activities. In the first half of fiscal 1998 and 1997, the company capitalized
$1.4 million and $2.2 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 management and analysis solutions for client/server
environments and represented 7.3% and 12% 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 grew due to the increase from operations in cash available for
investment.
PROVISION FOR INCOME TAXES
The company's effective income tax rate for the first half, 36.5%, reflects the
company's expectations for the full year ending June 30, 1998.
NET INCOME
As a result of the above factors, net income for the three and six-month periods
ended December 31, 1997 increased to $4.3 million or by 63.6% from $2.6 million
and $7.8 million or by 67.3% from $4.7 million, respectively, for the
corresponding periods of 1996.
To date, the overall impact of inflation on the company has not been material.
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Hyperion Software Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
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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 six months ended December 31, 1997, the company generated
positive cash flow from operations of $28.9 million, $34.1 million, $47.1
million and $23.4 million, respectively.
Cash used by investing activities amounted to $7.1 million for the first half of
fiscal 1998, including $4.8 million primarily for purchases of computer
equipment and software, and $2.3 million for deposit and intangible asset costs.
Financing activities in the first half of fiscal 1998, including stock options
exercised by employees and payments of indebtedness, generated cash of $7
million. In connection with the stock options exercised by certain of its
employees (for a total of 722,417 common shares), the company recognized (as a
credit to additional paid-in capital) an income tax benefit of $5.1 million for
the six months ended December 31, 1997.
As of December 31, 1997, the company had cash and cash equivalents of $89.8
million and working capital of $64.8 million, no long-term debt other than the
mortgage loan (currently at an interest rate of 3.7%) 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.
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Hyperion Software Corporation
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein: 10.1 - Employment Agreement with James
A. Perakis, dated November 1, 1997.
The company did not file any reports on Form 8-K during the three months ended
December 31, 1997.
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Hyperion Software Corporation
Form 10-Q
for the three-month period ended December 31, 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 2/10/98
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Michael A. Manto Date
Vice President and Corporate Controller
/s/ Lucy Rae Ricciardi 2/10/98
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Lucy Rae Ricciardi Date
Senior Vice President and Chief Financial Officer
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