Please click on "Read the rest of this article!" link below to read selected excerpts from the registration statement
About their position in the market and current size:
In the A/E market, as of December 2006, our products were deployed by over 80% of the top 500 A/E firms in the United States. In addition, as of May 2006, 67% of the top 100 federal information technology contractors were our customers, including nine of the top ten companies. For the year ended December 31, 2006, our total revenue increased 49% to $228.3 million, and our net income increased 75% to $15.3 million, in each case from the prior year.
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Some data about the market for Deltek’s software:
A prominent industry research firm estimates the size of the worldwide enterprise software market for project-focused organizations at $17.4 billion in 2005 and projects it to grow to $22.9 billion by 2010. We believe that spending on software and technology in this market is increasing in large part due to strong growth in the services-based economy and the fact that enterprise applications software has generally become more affordable and accessible to small- and medium-sized businesses.
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A summary of Deltek’s offerings:
Our applications portfolio is comprised of four major product families, each designed to meet the specific functionality and scalability requirements of the project-focused industries and customers we serve:
· Deltek Costpoint: Costpoint provides a comprehensive financial management solution that tracks, manages and reports on key aspects of a project: planning, estimating, proposals, budgets, expenses, indirect costs, purchasing, billing, regulatory compliance and materials management. Costpoint is designed for sophisticated, medium- and large-scale project-focused organizations such as government contractors and commercial project-focused organizations.
· Deltek Vision: Vision is an integrated solution that incorporates critical business functions, including project accounting, customer relationship management, resource management, time and expense capture and billing. Vision is designed for professional services firms of all sizes, including A/E, information technology and management consulting firms.
· Deltek GCS Premier: GCS Premier is a robust accounting and project management solution that provides a full view of project and financial information, enabling firms to respond quickly and accurately to variations in plans and profit projections. GCS Premier is designed for small and medium-sized government contractors.
· Enterprise Project Management Solutions: Our enterprise project management solutions help firms select the right projects, allocate resources across projects, mitigate risks and ultimately complete projects on time and on budget. This software is designed for professional services firms of all sizes that manage complex project portfolios
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Business Strategy section prominently states:
Growing Internationally: We intend to further expand our presence outside the United States, initially targeting countries where English is the primary business language. We believe project-focused organizations in Canada, the United Kingdom, Europe and the Asia-Pacific region are currently underserved for the products we offer.
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Some good info for Deltek trivia questions:
We were initially incorporated in the Commonwealth of Virginia in December 1983 as Contract Data Systems, Inc. We changed our name to Deltek Systems, Inc. in August 1984. In 1985, we introduced our first product, System I. In 1997, we completed an initial public offering of our common stock, and in May 2002, we became a privately held company through a going private transaction. In April 2005, we completed a recapitalization in which the New Mountain Funds acquired their interest in our company. In April 2007, we reincorporated in the State of Delaware as Deltek, Inc.
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There is also some summary financial data. Customers of tech companies frequently ask for the % of sales invested back into the products as R&D. Here is that metric calculated for Deltek's financials in the S1:
| 2004 | 2005 | 2006 |
| Revenue | 121,213 | 152,956 | 228,268 |
| R&D | 22,944 | 26,246 | 37,293 |
| %R&D | 18.9% | 17.2% | 16.3% |
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There is a strong focus on increasing alliance partners and creating a Deltek ecosystem, including in international markets:
Our international expansion plans, in particular, will require significant investment in local marketing initiatives and translation of our products and related user documentation into local languages. We may acquire businesses in foreign countries to facilitate our international growth objectives in those locations or to provide capabilities in adapting our products to local markets.
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Organic vs. acquisition fueled growth:
In 2006, we experienced license revenue growth of $29.0 million or 69% over 2005. Approximately 27% of the total $29.0 million increase was attributable to acquisitions and 73% to organic growth.
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Options granted during 2006 to employees and directors had exercise prices equal to the then fair value ranging from $7.91 to $11.48 based in part on independent valuations.
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A discussion of internal control weaknesses:
A number of material weaknesses and deficiencies identified were exacerbated by inadequately trained staff and limited resources, particularly in the financial close and reporting area. As of March 2007, and through our own assessment of our internal controls over financial reporting, we believe we have the following material weaknesses:
Financial Close and Reporting
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| Lack of formal financial policies and procedures |
We did not have formally documented and communicated policies and procedures in areas that have an affect on our financial statements, such as the recording of time and expenses, journal entry review and approval and the preparation and review of balance sheet reconciliations.
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| Inadequate account reconciliation and analysis process |
We did not have adequate review procedures and monitoring controls to ensure the timely and accurate completion of balance sheet reconciliations and other critical accounting analyses, thereby adversely impacting our ability to produce accurate financial statements in a timely manner.
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| Lack of spreadsheet controls |
We relied on a large number of spreadsheets and reports to prepare our financial statements. We did not have adequate procedures and controls regarding the accuracy and completeness of, and access to, these spreadsheets and reports.
Revenue
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| Inadequate controls around accuracy of billing and revenue recognition |
We did not have adequate controls or monitoring procedures related to the accuracy of maintenance and consulting services invoices and related revenue recognition. These processes were manual and sometimes were performed by individuals recently hired by us.
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| Inadequate documentation and review of software revenue recognition decisions |
Software revenue recognition decisions were not adequately documented and reviewed. As a result, material adjustments were not identified in a timely manner by management but were identified by our independent registered public accounting firm in connection with their audit of our financial statements.
Information Technology
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| Inadequate systems access and change management controls |
Our information technology environment had design and operating effectiveness deficiencies. Due to informal policies and procedures over the granting and modification of user access, we had excessive or inappropriate access rights to, and insufficient segregation of duties within, our financial system. Many user accounts on the financial system had access rights that were not commensurate with the user’s job requirements. We also had inadequate procedures and controls over systems change management and program development.
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As part of the actions being taken to improve these controls:
Revenue
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| We are in the process of implementing a new software and maintenance billing system that will reduce our reliance on manual processes and spreadsheets for maintenance billing and revenue recognition. |
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Some detail on R&D expenses:
Research and development expenses increased 14% to $26.2 million from 2004 to 2005 and 42% to $37.3 million from 2005 to 2006. The increase in 2005 was primarily driven by increased investment levels for our Costpoint Web initiative and by costs to deliver our new release of Vision. The increase in 2006 was due to significant hiring to deliver additional product features and functionality requested by our larger customers. This increased investment was across all of our product lines.
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R&D employees:
As of December 31, 2006, we had approximately 350 employees in research and development, of which approximately 230 were in the United States and approximately 120 were in Manila, Philippines. In addition, there are approximately 55 software and product developers in Bangalore, India trained on our products and available on an outsourced basis
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Competitive landscape:
The global enterprise applications market for project-focused organizations is competitive and fragmented. When competing for large enterprise customers with over 1,000 employees, we face the greatest competition from large, well-capitalized competitors such as Oracle, SAP and Lawson Software. These companies have recently refocused their marketing and sales efforts to the middle market, in which we have a substantial market position. These vendors seek to influence customers’ purchase decisions by emphasizing their more comprehensive horizontal product portfolios, greater global presence and more sophisticated multi-national product capabilities. In addition, these vendors commonly bundle their ERP solutions with a broader set of software applications including, middleware and database applications and often significantly discount their individual solutions as part of a potentially larger sale.
When competing for middle-market customers, which range in size from 100 to 1,000 employees, we often compete with vendors such as Epicor, Lawson Software and Primavera. Mid-market customers are typically searching for industry specific functionality, ease of deployment and a lower total cost of ownership with the ability to add functionality over time as their businesses continue to grow. When competing in the small business segment, which consists of organizations with fewer than 100 employees, we face fewer competitors, including JAMIS, BST Global and Microsoft. Customers in the small business segment typically are searching for solutions which provide out-of-the-box functionality that help them automate all of their business processes and improve operational efficiency.
Although some of our competitors are larger organizations, have greater marketing resources and offer a broader range of applications and infrastructure, we believe that we compete effectively on the basis of our superior value proposition, built-in compliance functionality, domain expertise, leading market position and highly referenceable customer base.
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No longer divided internally into segments based on product offerings:
The Company operates as one reportable segment as the Company’s principal business activity relates to selling project-based software solutions and implementation services. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company based upon software license revenues, consulting services and maintenance revenues.
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