-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cxhx02sxd/94oYZUrUuEw10nA4R73AYpSCzcY6WifEdHwcxhNW/4Z/HeI/ZdsZp5 sHgxc6RWCOI0J2r+QefiXw== 0000950135-98-000989.txt : 19980218 0000950135-98-000989.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950135-98-000989 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSITION SYSTEMS INC CENTRAL INDEX KEY: 0001009301 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 042887598 STATE OF INCORPORATION: MA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28182 FILM NUMBER: 98539508 BUSINESS ADDRESS: STREET 1: ONE BOSTON PLACE CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6177234222 MAIL ADDRESS: STREET 1: ONE BOSTON PLACE CITY: BOSTON STATE: MA ZIP: 02108 10-Q 1 TRANSITION SYSTEMS, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [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 _______________ COMMISSION FILE NUMBER 0-28182 TRANSITION SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2887598 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification Number) ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108 (Address of principal executive offices) (Zip Code) (617) 723-4222 (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 [ ] The number of shares outstanding of each of the issuer's classes of common stock, as of February 6, 1998. CLASS ----- COMMON STOCK, $.01 PAR VALUE 17,795,456 SHARES NON-VOTING COMMON STOCK, $.01 PAR VALUE 356,262 SHARES 2 TRANSITION SYSTEMS, INC. FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 TABLE OF CONTENTS PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 1997 (unaudited) and September 30, 1997................................. 3 Consolidated Statements of Operations for the Three Months Ended December 31, 1997 and 1996 (unaudited)................ 4 Consolidated Statements of Cash Flows for the Three Months Ended December 31, 1997 and 1996 (unaudited)....................... 5 Notes to Interim Consolidated Financial Statements................. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................10 SIGNATURES...................................................................11 2 3 TRANSITION SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1997 1997 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $58,509,000 $58,485,000 Accounts receivable, net 19,884,000 19,339,000 Other current assets 1,136,000 696,000 Deferred income taxes 853,000 853,000 ----------- ----------- Total current assets 80,382,000 79,373,000 ----------- ----------- Property and equipment, net 1,556,000 1,357,000 Capitalized software costs, net 1,411,000 1,411,000 Purchased technology, net 1,336,000 1,376,000 Intangible assets, net 291,000 302,000 Equity investment 6,000,000 6,000,000 ----------- ----------- Total assets $90,976,000 $89,819,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 622,000 $ 279,000 Accrued expenses 4,487,000 6,680,000 Income taxes payable 1,715,000 1,476,000 Deferred revenue 7,320,000 7,369,000 ----------- ----------- Total current liabilities 14,144,000 15,804,000 ----------- ----------- Deferred income taxes 496,000 496,000 ----------- ----------- Total liabilities 14,640,000 16,300,000 ----------- ----------- Commitments Stockholders' equity: Common stock 177,000 177,000 Non-voting common stock 4,000 4,000 Non-voting common stock warrant 395,000 395,000 Additional paid-in capital 47,054,000 46,717,000 Retained earnings 28,706,000 26,226,000 ----------- ----------- Total stockholders' equity 76,336,000 73,519,000 ----------- ----------- Total liabilities and stockholders' equity $90,976,000 $89,819,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 TRANSITION SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ---------------------------- DECEMBER 31, DECEMBER 31, 1997 1996 ----------- ----------- Revenues: Software and implementation $ 7,700,000 $ 5,860,000 Maintenance 3,215,000 2,626,000 ----------- ----------- Total revenues 10,915,000 8,486,000 ----------- ----------- Cost of revenues: Software and implementation 2,788,000 2,205,000 Maintenance 701,000 659,000 Research and development 1,337,000 878,000 Sales and marketing 1,829,000 1,364,000 General and administrative 881,000 981,000 --------- --------- Total operating expenses 7,536,000 6,087,000 ----------- ----------- Income from operations 3,379,000 2,399,000 Interest income 754,000 566,000 ----------- ----------- Income before income taxes 4,133,000 2,965,000 Provision for income taxes 1,653,000 1,186,000 ----------- ----------- Net income $ 2,480,000 $ 1,779,000 =========== =========== Net income per share data: Basic earnings per share $ 0.14 $ 0.10 Diluted earnings per share $ 0.12 $ 0.09 Weighted average common shares outstanding: Basic 18,091,000 17,163,000 Diluted 20,498,000 19,923,000
The accompanying notes are an integral part of the consolidated financial statements. 4 5 TRANSITION SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED ---------------------------- DECEMBER 31, DECEMBER 31, 1997 1996 ----------- ----------- Cash flows from operating activities: Net income $ 2,480,000 $ 1,779,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 406,000 384,000 Compensation charge related to options -- 39,000 Tax benefit from stock option exercises 57,000 1,201,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (545,000) 560,000 Increase in other current assets (440,000) (173,000) Increase (decrease) in accounts payable 343,000 (255,000) Decrease in accrued expenses (2,193,000) (164,000) Increase (decrease) in taxes payable 239,000 (840,000) Decrease in deferred revenue (49,000) (40,000) ----------- ----------- Net cash provided by operating activities 298,000 2,491,000 Cash flows used by investing activities: Purchases of property and equipment (379,000) (204,000) Additions to capitalized software costs (175,000) (175,000) Additions to intangible assets -- (123,000) --------- ------------ Net cash used by investing activities (554,000) (502,000) Cash flows provided by (used by) financing activities: Exercise of options 238,000 350,000 Proceeds from employee stock purchase plan 42,000 -- Other -- (8,000) ----------- ----------- Net cash provided by financing activities 280,000 342,000 Net increase in cash and cash equivalents 24,000 2,331,000 Cash and cash equivalents - beginning of period 58,485,000 51,505,000 ----------- ----------- Cash and cash equivalents - end of period $58,509,000 $53,836,000 =========== =========== Supplemental information: Income taxes paid $ 1,267,000 $ 831,000 Interest paid -- --
The accompanying notes are an integral part of the consolidated financial statements. 5 6 TRANSITION SYSTEMS, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and have been prepared by the Company without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments 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, which adjustments, except those related to the Company's initial public offering in April 1996, consist only of adjustments of a normal, recurring nature. While the Company believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended September 30, 1997 which are contained in the Company's Annual Report on Form 10-K for such fiscal year. The results of operations for the three months ended December 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year ending September 30, 1998. 2. EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128 requires a dual presentation of Basic earnings per share, which is computed using the weighted average number of shares outstanding, and Diluted earnings per share, which reflects the potential dilution from assumed conversions of common shares. SFAS 128 also requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. These financial statements have been prepared and presented based on the new standard. Prior period amounts have been restated to conform to current year presentation.
For the three months ended December 31, 1997 For the three months ended December 31, 1996 Per Share Per Share Income Shares Amount Income Shares Amount -------------------------------------------- -------------------------------------------- BASIC EPS Net income $2,480,000 18,091,000 $ 0.14 $1,779,000 17,163,000 $ 0.10 ------ ------ EFFECT OF DILUTIVE SECURITIES Warrants 246,000 216,000 Common stock equivalents 2,161,000 2,544,000 ---------- ---------- DILUTED EPS Income to common stockholders and assumed conversions $2,480,000 20,498,000 $ 0.12 $1,779,000 19,923,000 $ 0.09 ---------- ---------- ------ ---------- ---------- ------
3. RECENT PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 130 requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the 6 7 balance sheet. The Company will be required to adopt SFAS 130 in the first quarter of its 1999 fiscal year, and does not believe this statement will have a material effect on the Company's financial position or results of operations. In June of 1997, the FASB issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information". SFAS 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. The Company will be required to adopt SFAS 131 during fiscal 1999, and does not believe this statement will have a material effect on the Company's financial position or results of operations. On October 27, 1997, the AICPA Accounting Standards Executive Committee issued Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition". SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition, and provides guidance on when and in what amounts revenue should be recognized for the licensing, selling, leasing, or marketing of computer software. SOP 97-2 is effective for transactions entered into in fiscal years beginning after December 15, 1997. The Company believes that its revenue recognition policies are already in compliance with SOP 97-2 and does not believe this statement will have a material effect on the Company's financial position or results of operations. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This document contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may contribute to such differences include those listed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, File No. 0-28182. The following information should be read in conjunction with the consolidated financial statements included herein and the notes thereto as well as the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. OVERVIEW The Company provides management information technology to hospitals, integrated delivery networks, physician groups and other health care organizations. The Company's product lines span the health care organization's information technology needs, providing enterprise-wide financial and clinical decision support, data integration services, disease management products and master person identifier solutions as well as a clinical data repository. The Company was founded in 1985 and has been profitable in each fiscal year since 1987. The Company has experienced a seasonal pattern in its operating results, in which the first quarter of each fiscal year typically has the lowest revenue and net income, frequently lower than the last quarter of the previous fiscal year, and the fourth quarter typically has the highest revenue and net income. While the Company has taken steps to moderate this seasonal pattern, there can be no assurance that it will be able to eliminate the seasonality of its operating results. The Company's revenues are derived from sales of software licenses and related implementation services and of software maintenance. Software and implementation revenues are accounted for using the percentage of completion method, and revenue is recognized as contract milestones are reached. Software maintenance contracts are sold separately at the time of the initial software license sale and are generally renewable annually. RESULTS OF OPERATIONS REVENUES The Company's total revenues increased 28.6% to $10.9 million for the three months ended December 31, 1997 from $8.5 million for the same period in the prior year. Software and implementation revenue increased 31.4% to $7.7 million for the three months ended December 31, 1997 from $5.9 million for the same period in the prior year. The increase in software and implementation revenue was due primarily to increased penetration of the Company's expanded product lines to the existing customer base as well as sales made to new customers. Maintenance revenue increased 22.4% to $3.2 million for the three months ended December 31, 1997 from $2.6 million for the same period in the prior year reflecting the growth in the Company's installed base. COST OF REVENUES Cost of software and implementation revenues consists primarily of the cost of third-party software that is resold by the Company or included in the Company's products, personnel costs, the cost of related benefits, travel and living expenses, costs of materials and other costs related to the installation and implementation of the Company's products, and amortization of capitalized software development costs. Cost of maintenance revenues consists primarily of maintenance fees payable by the Company associated with the third-party software included in the Company's products and personnel costs incurred in providing maintenance and technical support services to the Company's customers. 8 9 Cost of software and implementation revenues increased 26.4% to $2.8 million for the three months ended December 31, 1997 from $2.2 million for the same period in the prior year. The increase in spending was primarily due to a net increase of twenty-two people in the Company's implementation staff. As a percentage of software and implementation revenues, cost of software and implementation revenues decreased to 36.2% for the three months ended December 31, 1997 from 37.6% for the same period in the prior year. The decrease as a percentage of revenue is a result of increased productivity of the Company's implementation staff. Cost of maintenance revenue increased 6.4% to $0.7 million for the three months ended December 31, 1997 from $0.6 million for the same period in the prior year. The increase in spending was primarily due to increased maintenance fees payable to third party software suppliers. As a percentage of maintenance revenue, cost of maintenance revenue decreased to 21.8% for the three months ended December 31, 1997 from 25.1% for the same period in the prior year. As a percent of revenue, cost of maintenance revenue decreased due to the maturation of the Company's products, reducing support needs. RESEARCH AND DEVELOPMENT Research and development expense increased 52.3% to $1.3 million for the three months ended December 31, 1997 from $0.9 million for the same period in the prior year. As a percentage of total revenues, research and development increased to 12.2% for the three months ended December 31, 1997 from 10.3% for the same period in the prior year. The increase was primarily due to a net increase of twelve people in the Company's research and development staff and increased professional consulting service fees to support new product development. SALES AND MARKETING Sales and marketing expense increased 34.1% to $1.8 million for the three months ended December 31, 1997 from $1.4 million for the same period in the prior year. As a percentage of total revenues, sales and marketing expense increased to 16.7% for the three months ended December 31, 1997 from 16.1% for the same period in the prior year. The increase was primarily associated with the growth of the sales and marketing organization to support the Company's expanding product line. GENERAL AND ADMINISTRATIVE General and administrative expense decreased 10.2% to $.9 million for the three months ended December 31, 1997 from $1.0 million for the same period in the prior year. As a percentage of total revenues, general and administrative expense decreased to 8.1% for the three months ended December 31, 1997 from 11.6% for the same period in the prior year. The decrease in spending is primarily due to a decrease in professional service expenses during the quarter. INTEREST INCOME (EXPENSE) Interest income increased 33.2% to $0.8 million for the three months ended December 31, 1997 from $0.6 million for the same period in the prior year. The increase in interest income is primarily due to a higher average cash balance for the period. PROVISION FOR INCOME TAXES The Company's effective income tax rate remained constant at 40% for the three months ended December 31, 1997 and 1996. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents balance remained constant at $58.5 million at December 31, 1997 and September 30, 1997. The Company believes that available funds, cash generated from operations and its unused line of credit of $15 million will be sufficient to finance the Company's operations and planned capital expenditures for at least the next twelve months. There can be no assurance, however, that the Company will not require additional financing during that time or thereafter. 9 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS EXHIBIT NUMBER DESCRIPTION *3.2 Amended and Restated Articles of Organization *3.4 Amended and Restated By-Laws *3.5 Articles of Amendment to the Articles of Organization, as filed with the Secretary of State of the Commonwealth of Massachusetts on April 3, 1996. *4.1 Specimen Certificate for Common Stock 27.1 Financial Data Schedule * Incorporated herein by reference to the similarly-numbered exhibit included in the Company's registration statement on Form S-1, File No. 333-01758. (b) REPORTS ON FORM 8-K None. 10 11 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. Transition Systems, Inc. (Registrant) Dated: February 13, 1998 /s/ Robert F. Raco ------------------------------------------ Robert F. Raco President, Chief Executive Officer and (principal executive officer) Dated: February 13, 1998 /s/ Paula J. Malzone ------------------------------------------ Paula J. Malzone Chief Financial Officer and Treasurer (principal financial and accounting officer) 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 58,509 0 20,059 175 0 80,382 5,347 3,791 90,976 14,144 0 0 0 177 76,159 90,976 0 10,915 0 3,489 0 37 0 4,133 1,653 2,480 0 0 0 2,480 .14 .12
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