SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 28, 2003
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 000-11521 23-1701520
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
4 Country View Road, Malvern, Pennsylvania 19355
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (610) 647-5930
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Item 12. Results of Operations and Financial Condition.
On October 28, 2003, Systems & Computer Technology Corporation, a
Delaware corporation (the "Company"), issued a press release reporting earnings
for its fourth quarter and fiscal year ended September 30, 2003. The press
release also contains other financial information for the Company's fourth
quarter and fiscal year ended September 30, 2003. The press release is furnished
as Annex 1 below.
On October 28, 2003, the Company held a broadly accessible conference
call with investors to discuss the Company's results announced in the press
release. Certain information discussed during the conference call is furnished
as Annex 2 below.
The disclosures by the Company during the conference call included one
or more "non-GAAP financial measures" within the meaning of the Securities and
Exchange Commission's Regulation G. With respect to each such non-GAAP financial
measure, the table below sets forth the most directly comparable financial
measure calculated and presented in accordance with generally accepted
accounting principles ("GAAP") and provides a reconciliation of each non-GAAP
financial measure to the most directly comparable GAAP financial measure. These
non-GAAP financial measures have been presented because management uses this
information in monitoring and evaluating the Company's on-going financial
results and trends and believes that as a result, this information will be
useful to investors.
Per Share - Assuming Dilution
FY 02 FY 03
----- -----
Income (loss) per share from continuing operations $ 0.22 $ 0.52
Add Back:
---------
Asset impairment charges 0.10 0.03
Restructuring charges 0.09 0.03
Subtract:
---------
Gain on Bond Buy-back (0.02)
Proforma Income (loss) per share from cont ops - excluding non-recurring charges $ 0.41 $ 0.55 *
* Addition varies due to rounding
The information in this Form 8-K is being furnished and shall not be
deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that Section. The information in
this Form 8-K shall not be incorporated by reference into any registration
statement or other document pursuant to the Securities Act of 1933. The
disclosure in this Form 8-K of any financial information shall not constitute an
admission that such information is material.
Statements made in this Current Report on Form 8-K and during the
conference call that state the Company's or management's intentions, beliefs,
expectations, or predictions for the future, including without limitation those
relating to growth projections, improved profitability, margin percentages,
continued market leadership, impact of cost reductions, demand for SCT
solutions, and the broadening of the products the Company offers, are
forward-looking statements and are subject to a number of risks, assumptions,
and uncertainties that could cause the Company's actual results to differ
materially from those projected. Readers are cautioned that these statements are
only predictions and may differ materially from actual future events or results.
These risks, assumptions and uncertainties include, without limitation: the
ability to compete and deliver products and services cost effectively and on a
timely basis; technological shifts; economic and geopolitical conditions in the
U.S. and abroad; the ability of the Company to enter into and maintain business
relationships, including third party alliances, that enable the Company to
accomplish its integration and business development strategies; the ability to
develop and market innovative products and services offerings cost-effectively
and on a timely basis; market acceptance of new products, including without
limitation the Matrix product, and services; continued acceptance of existing
products and services; competitive and pricing pressures in the higher education
market; the mix of products and services the Company sells; maturing product
life cycles; implementation of operating cost structures that align with revenue
growth; the financial condition of our customers and alliance partners; the
ability to maintain better services utilization rates and improved services
margins; the continued ability to obtain or protect intellectual property
rights; the ability to attract and retain highly skilled personnel; and other
risks and uncertainties referenced in the Company's filings with the Securities
and Exchange Commission, including but not limited to the Company's annual
report on Form 10-K and quarterly reports on Form 10-Q. All information in this
Current Report on Form 8-K is as of October 28, 2003. The Company undertakes no
duty to update any forward-looking statement to conform the statement to actual
results or changes in the Company's expectations.
SIGNATURE
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 duly authorized.
Date: November 3, 2003 Systems & Computer Technology Corporation
By: /s/ Eric Haskell
-------------------------------------------------
Eric Haskell
Executive Vice President, Finance &
Administration, Treasurer and Chief Financial
Officer
ANNEX 1
SCT Announces Financial Results for the
Fourth Quarter and Fiscal Year 2003
License Fees and Total Revenue Break Company Records
MALVERN, Pa. -- October 28, 2003 -- SCT (Nasdaq: SCTC), the leading provider of
e-education technology solutions for higher education, today announced its
financial results for the fourth quarter and fiscal year 2003, which ended
September 30, 2003.
Total revenue for the quarter set an all-time record at $76.4 million. This
compares with $65.9 million in the fourth quarter of fiscal 2002. License fee
revenue for the quarter was a record $19.1 million. Fourth quarter fiscal 2002
license fee revenue was $12.4 million.
The Company realized income from continuing operations of $10.2 million or $0.30
per diluted share in the fourth quarter 2003, compared with income from
continuing operations of $5.2 million or $0.16 per diluted share in the fourth
quarter 2002.
Net income for the quarter was $8.8 million or $0.26 per diluted share. These
numbers compare with $1.0 million or $0.03 per diluted share for the same period
last year. During the quarter, the Company recorded net charges of $1.4 million,
on an after-tax basis, to discontinued operations.
For fiscal 2003, SCT's revenue was $269.6 million compared with $233.6 million
in 2002, resulting in income from continuing operations of $17.4 million or
$0.52 per diluted share compared with $7.5 million or $0.22 per diluted share in
2002. Fiscal 2003 income from continuing operations includes restructuring
charges of $3.2 million before taxes and gains on buy-back of bonds of $1.4
million before taxes, which net to $.03 per diluted share. Fiscal 2002 income
from continuing operations included restructuring charges and an asset
impairment charge totaling $10.3 million before taxes, or $.19 per diluted
share.
Net income for fiscal 2003 was $17.5 million or $0.52 per diluted share,
compared to a net loss for 2002 of $9.1 million or $0.27 per diluted share. Net
income for 2003 included income from discontinued operations of $122,000 and the
net loss for 2002 included a $16.6 million loss from discontinued operations.
The Company's backlog of business under contract at the end of the fiscal year
was $697 million. The professional services backlog at the end of the fiscal
year was $180 million, compared with $133 million in the prior year,
demonstrating a strong demand for SCT professional service offerings.
Software license and services contracts were signed with a number of clients
during the fourth quarter including Brown University, Colorado State University,
and Wright State University. Other fiscal 2003 clients include the University of
Notre Dame, the University of Nottingham, Pace University, Tulane University,
and Wake Forest University.
"We are delighted with our fourth quarter and year end results, which
demonstrate better than expected performance," said Mike Chamberlain, SCT
president and CEO. "Our 2003 results can be attributed to outstanding sales
performance, improved company productivity, cost reduction actions, and a strong
vote of market confidence in our corporate repositioning."
During fiscal year 2003, SCT completed the first phase of a repositioning
strategy to transform the company from an administrative solutions provider
serving several industries to the leading provider of technology solutions for
higher education. Building from its leadership position as an administrative
technologies provider, the Company plans to continue to broaden its portfolio of
products and services to serve institutions' expanding technology needs.
The acquisition of Campus Pipeline, Inc. advanced this strategy, adding
market-leading platform, portal, content management, and integration
technologies to SCT's offerings. Clients have embraced the SCT Luminis(TM)
product family as a natural extension of SCT's administrative products. This
acquisition, along with that of Newfront Software's fsaATLAS(TM) foreign
student/scholar management and SEVIS compliance product, demonstrate SCT's
commitment to solving the evolving technology challenges of education.
SCT also furthered its repositioning strategy with the launch of a new partner
program. This program is designed to facilitate vendor alliances, create product
interoperability, and provide clients with more choices, flexibility, and
convenience in assembling the right mix of technology and services for their
needs. Currently more than 40 SCT Partner Program members, including Blackboard,
Documentum, Hewlett Packard, IBM, Microsoft, Oracle, SciQuest, Sun Microsystems,
and WebCT, are working to provide new and complementary offerings created
specifically for higher education.
"We believe we are well positioned to continue asserting our market leadership,
improving our profitability, and broadening the solutions that help institutions
of higher education deliver on their educational missions," said Chamberlain.
SCT will hold a conference call on Tuesday, October 28, at 5:00 p.m. EST to
discuss these results. To participate, please call 212-346-6471 and use the
reservation number 21164192. A recording of the call will be available for
replay October 28 at 7:00 p.m. through November 4 at 7:00 p.m. To listen to the
recording, please call 1-800-633-8284 (domestic) or 1-402-977-9140
(international) and use the reservation number 21164192.
About SCT
SCT is the leading global provider of e-education technology solutions for
institutions of all sizes and levels of complexity. The Company supports more
than 1,300 client institutions worldwide with administrative and academic
solutions, portal and community solutions, content management and workflow
solutions, information access and integration solutions, and professional
services. SCT works collaboratively with clients and partners to provide the
e-Education Infrastructure that enables institutions to create the digital
campuses that fulfill their unique missions. For more information, please visit
www.sct.com.
###
Statements made in this press release that state the Company's or management's
intentions, beliefs, expectations, or predictions for the future, including
without limitation those relating to growth projections, improved profitability,
continued market leadership, impact of cost reductions, demand for SCT
solutions, and the broadening of the products the Company offers, are
forward-looking statements and are subject to a number of risks, assumptions,
and uncertainties that could cause the Company's actual results to differ
materially from those projected. Readers are cautioned that these statements are
only predictions and may differ materially from actual future events or results.
These risks, assumptions and uncertainties include, without limitation: the
ability to compete and deliver products and services cost effectively and on a
timely basis; technological shifts; economic and geopolitical conditions in the
U.S. and abroad; the ability of the Company to enter into and maintain business
relationships, including third party alliances, that enable the Company to
accomplish its integration and business development strategies; the ability to
develop and market innovative products and services offerings cost-effectively
and on a timely basis; market acceptance of new products and services; continued
acceptance of existing products and services; competitive and pricing pressures
in the higher education market; the mix of products and services the Company
sells; maturing product life cycles; implementation of operating cost structures
that align with revenue growth; the financial condition of our customers and
alliance partners; the ability to maintain better services utilization rates and
improved services margins; the continued ability to obtain or protect
intellectual property rights; the ability to attract and retain highly skilled
personnel; and other risks and uncertainties referenced in the Company's filings
with the Securities and Exchange Commission, including but not limited to the
Company's annual report on Form 10-K and quarterly reports on Form 10-Q. All
information in this release is as of October 28, 2003. The Company undertakes no
duty to update any forward-looking statement to conform the statement to actual
results or changes in the Company's expectations.
SCT, SCT Luminis, SCT fsaATLAS, and the SCT logo are either registered
trademarks or trademarks of Systems & Computer Technology Corporation. All other
product and company names referenced herein are used for identification purposes
only and may be trademarks of their respective owners.
Contacts:
SCT Media Relations SCT Investor Relations
Laura Kvinge Eric Haskell
801.257.4158 610.578.5175
lkvinge@sct.com ehaskell@sct.com
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Year Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues:
Software sales $ 19,113 $ 12,419 $ 50,228 $ 36,259
Maintenance and enhancements 25,426 21,094 97,834 82,265
Software services 23,502 23,976 88,465 81,765
Outsourcing services 8,337 8,393 33,112 33,268
--------- --------- --------- ---------
Total revenues 76,378 65,882 269,639 233,557
Expenses:
Cost of software sales and
maintenance and enhancements 17,777 14,218 73,974 54,483
Cost of software services 16,046 16,688 68,042 64,123
Cost of outsourcing services 5,817 6,173 23,998 25,961
Selling, general, and administrative 19,764 19,773 73,073 65,395
Asset impairment charges - - - 5,425
Retirement and restructuring charge - - 3,190 4,874
--------- --------- --------- ---------
Total expenses 59,404 56,852 242,277 220,260
Operating Income 16,974 9,030 27,362 13,297
Other income 925 750 4,135 3,981
Other expense (468) (1,046) (1,948) (4,203)
--------- --------- --------- ---------
Income from continuing operations before income taxes 17,431 8,734 29,549 13,075
Provision for income taxes 7,204 3,494 12,169 5,590
--------- --------- --------- ---------
Income from continuing operations 10,227 5,240 17,380 7,485
Discontinued operations:
Income (loss) from discontinued operations, adjusted
for applicable provision (benefit) for income taxes of
$385, $878, $1,913 and ($967), respectively (280) (1,646) (2,486) (6,939)
(Loss) gain on sale of discontinued operations, net of income tax provision
(benefit) of $(1,370), ($1,196), $2,400 and ($4,651), respectively (1,120) (2,564) 2,608 (9,621)
--------- --------- --------- ---------
(Loss) income from discontinued operations (1,400) (4,210) 122 (16,560)
--------- --------- --------- ---------
Net income (loss) $ 8,827 $ 1,030 $ 17,502 ($ 9,075)
========= ========= ========= =========
Income from continuing operations
per common share $ 0.30 $ 0.16 $ 0.52 $ 0.23
========= ========= ========= =========
per share -- assuming dilution $ 0.30 $ 0.16 $ 0.52 $ 0.22
========= ========= ========= =========
(Loss) income from discontinued operations
per common share ($ 0.04) ($ 0.13) $ 0.00 ($ 0.50)
========= ========= ========= =========
per share -- assuming dilution ($ 0.04) ($ 0.13) $ 0.00 ($ 0.49)
========= ========= ========= =========
Net income (loss)
per common share $ 0.26 $ 0.03 $ 0.52 ($ 0.27)
========= ========= ========= =========
per share -- assuming dilution $ 0.26 $ 0.03 $ 0.52 ($ 0.27)
========= ========= ========= =========
Common shares and equivalents outstanding:
Average common shares 33,826 33,438 33,653 33,240
Average common shares -- assuming dilution 35,228 33,512 33,727 33,608
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Sept. 30, Sept. 30,
2003 2002
-------- --------
Cash & short-term investments $124,812 $133,574
Receivables 79,132 74,103
Prepaid expenses & other assets 29,576 37,483
Property & equipment 25,452 27,265
Capitalized software 2,239 4,427
Goodwill 46,486 28,784
Intangible assets 19,651 10,689
Other assets & deferred charges 22,082 18,949
Net assets of discontinued operations - 28,869
-------- --------
TOTAL ASSETS $349,430 $364,143
======== ========
Current liabilities $ 70,412 $ 67,937
Long-term debt 31,990 74,723
Other long-term liabilities 6,056 2,912
Stockholders' equity 240,972 218,571
-------- --------
TOTAL LIABILITIES & EQUITY $349,430 $364,143
======== ========
ANNEX 2
Certain Information Discussed During October 28, 2003 Conference Call
I. Excerpts of Prepared Remarks by Eric Haskell during the Conference
Call:
As Mike mentioned, our profit from continuing operations was 30 cents. It was
from continuing operations because we had some charges for discontinued
operations. That compares to 16 cents in last year's quarter and 14 cents in the
third quarter of this year. Bonds were dilutive in the quarter. In the third
quarter of this year, we had a restructuring charge of 3 cents. So, on a
comparable non-GAAP basis, we did 17 cents in the third quarter and 30 cents
this quarter. The charges for discontinued operations were about $2.4 million
pretax and $1.4 million after-tax. The two major items were a $3.1 million
additional reserve for offices that we vacated when we sold our government
business that have not yet been subleased. We also retained certain intellectual
property when we sold our manufacturing business which we were able to sell this
quarter for a million dollars. Net income for the quarter was $8.8 million
compared to $1 million in prior year. For the year, our diluted earnings per
share from continuing operations was 52 cents compared to 22 cents last year and
the annual share counts that we used in our EPS calculations was 33.7 million.
On a non-GAAP basis for the year, our EPS was -- and this is before
restructuring charges and bond redemption gains, was 55 cents and that compares
to 41 cents last year, and last year what I've excluded is asset impairment
charges and restructuring charges.
Historically we had included interest and other revenue in total revenue. We
have changed this so that revenues only include revenue related to operations.
Interest and other revenue will now be netted with interest expense and included
below operating income. So, all calculations based upon revenues have been
adjusted. The revenues for the quarter were $76.4 million which was $10.5
million higher than prior year quarter, and that was driven both by organic
growth in our Banner product and growth connected with the acquisition of Campus
Pipeline which happened in the first quarter of this year. Compared to the third
quarter, revenues grew about $9 million, principally due to Banner which is our
largest product.
We have re-classified the amortization of purchased software from SG&A to cost
of software for each quarter of the current year and I'll be quoting those
numbers. Amortization in 2003 is approximately $2.4 million versus $500,000 in
2002. The SG&A as a percent of revenue was 26 percent down from last year's 30
percent, relatively flat from Q3. The reasons for the decline from last year is
due to continuing cost control measures that we've taken and as I said, SG&A is
relatively flat from last quarter, although it's increased in absolute dollars
principally due to commissions and year-end bonus accruals.
To repeat what I said a moment ago, we've re-classified amortization of
purchased software from SG&A to cost of software, so that would also affect our
cost of software. In the fourth quarter, our margin percentage was 60 percent
and we measured cost of software against license fees and maintenance. The
margin in the fourth quarter of 2002 was 57.6 percent. The margin improved and
really reflects the increased license fees and maintenance as well as the cost
actions we took in the third quarter. Compared to the third quarter of 2003, the
margins are way up also. The margin for the third quarter of 2003 was 49 percent
and that's just due almost entirely to the much higher license fees.
We had told you that we expected services margins to be in the mid 20s. We did
27 percent last quarter. This quarter, we did 31.7 percent. Now, we do have a
history of good things happening as we do our year end reviews. So, we cannot
predict that we could consistently do over the mid 20s that we've done in the
past. Our tax rate for the quarter and the year was 41 percent. Our receivables
have shown some continued improvement. I predicted that we would get them under
a 100 days and they ended up at 99 days, which we're pretty happy about. That
compares to last year's fourth quarter at 105 days. So, we continued to work
hard on receivables and see the fruits of our labors. Our cash balance increased
by $48 million from the end of Q3 to the end of Q4. $10 million of that was due
to collection of a note that we took in connection with the sale of utilities
and that was satisfied in early September. The other $38 million largely came
from net income, lower accounts receivable and higher deferred revenue where we
were collecting money.
For the year, we had some major things happen in our cash balance which I won't
try to repeat here, I'll just take the ones that are over $25 million and net
income was a positive $17.5 million. We sold utilities for $34.5 million. We
bought back bonds for $42.7 million. The net is that cash went down by $8.8
million for the year. Our fixed asset additions were $837,000, disposals were
$38,000 and depreciation was $2,157,000. No software was capitalized in the
quarter and in the year and the amortization was $546,000, the same as it was
last quarter. And finally, our total expenditures for R&D were $10.4 million,
down from $10.9 million at the end of the third quarter.
II. Excerpts of Prepared Remarks by Michael Chamberlain during the
Conference Call:
Before I open the call for questions, I'd like to mention a few other items of
interest:
o As I mentioned in the investor conference call we hosted earlier
this month, the excellent license fee results were driven primarily
by Banner and Luminis sales.
o We added 13 new name clients during the quarter and over 40 during
the fiscal year.
o We are seeing a trend in Banner sales over the past several quarters
toward larger schools and therefore larger average license fees.
o Our competitive win rates continue to be very satisfying.
In summary, I believe that we are beginning to see the full impact of our new
strategy. Our continued focus on reducing cost, improving productivity and
increasing efficiency is paying off. And while we had an outstanding quarter
with record license fees, we don't have enough data to say that the sluggish
market conditions are behind us. And so, we'll keep the cost constraints in
place until we have evidence that a broad based recovery is underway.
With that, we'll open the call for any questions.
III. Excerpts of Certain Information Discussed During the Question and
Answer Period of the Conference Call, not included in the Prepared Remarks:
We've consistently said our first half is worse than our second half.
We expect to see some modest growth in the first half over the first half of
last year and whether that happens in the first quarter or the second quarter,
we're not smart enough to predict. We would expect revenue to grow by 10 percent
on an annualized basis and it is key to make that measurement on an annual basis
as opposed to on a quarter by quarter basis. As we've said before, we are
disappointed that we have not achieved our original plan for the Matrix product,
which is targeted at the larger schools and in particular, ones who are looking
for a fair amount of customization. We're continuing to invest in it from a
developmental perspective and we will be encouraging the sales organization to
sell it so we can get a larger reference base which is key to any new product.
We are working on a way to make it more attractive for our sales force to sell.
None of our existing clients have all of the system installed. We expect that it
will get on track in the upcoming fiscal year and that it will play an
increasingly important role in our future.
The primary driver of our conservative outlook is that we have reviewed
the pipeline and it would be indicative of something in the $10-11 million range
for license fees. Having said that, in the fourth quarter we had the good
fortune to close a much higher percentage of active pipeline than we have
historically closed. So it's not impossible, but from managing the cost side we
don't want to bet against the historical pipeline to business closed ratio
without more evidence that there is a change in that ratio. The low-end of the
market is suffering more than the medium-to-large end of the market
The first quarter is the most difficult quarter in the services
business because of three major things. The higher education industry's biggest
conference, the Thanksgiving Holiday week and the last two weeks of December
including the Christmas Holiday all fall in the first quarter and institutions
are not prepared to accept training and consulting during these periods. Yet the
costs remain. We've spent a lot of management energy and focus on improving the
overall productivity and efficiency of the services organization and we think
what we're seeing in terms of the margin improvements is largely a result of
that effort. However, we think it would be unwise to look at the trend of margin
improvements - the first quarter was 11 percent and second quarter was 22
percent, third quarter was 27 and fourth quarter was 32 - and expect that trend
to continue. We're looking at margins in the mid 20s - 25-26 percent on an
annualized basis - for the upcoming fiscal year, and again annualized is the key
word because of differences in our ability to deploy the billable resources in
various quarters. We do customarily have fourth quarter adjustments. Last year,
the margin was also north of 30 percent in the fourth quarter and since we now
have more confidence in our services organization we think we can begin to clean
those things up on a more timely basis and not be as conservative and that's one
of our objectives for next year. The fourth quarter adjustments did not impact
the margin in the outsourcing business.
We would expect backlog to increase in both services and maintenance as
a result of the license fees attained in the fourth quarter. The cost profile is
also slightly better than we had originally expected.