<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
Commission File Number 0-21333
RMH TELESERVICES, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2250564
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
40 Morris Avenue, Bryn Mawr, PA 19010
(Address of principal executive offices and zip code)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check 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
---------- ----------
Indicate the number of shares outstanding of each of the Registrant's classes of
Common stock, as of the latest practicable date: 8,375,146 shares of Common
stock outstanding as of May 5, 2000.
<PAGE>
RMH Teleservices, Inc. and Subsidiaries
INDEX TO FORM 10-Q
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited))ed)
Consolidated Balance Sheets at
March 31, 2000 and September 30, 1999............................ 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999....................... 4
Consolidated Statements of Operations for the
Six Months Ended March 31, 2000 and 1999......................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 2000 and 1999......................... 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis off of
Financial Condition and Results of Operations.................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............. 19
Item 5. Other Information................................................ 19
Item 6. Exhibits and Reports on Form 8-K................................. 19
SIGNATURES................................................................. 20
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
ASSETS March 31, September 30,
------ 2000 1999
------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,326,000 $ 696,000
Accounts receivable, net of allowance
for doubtful accounts of $248,000
and $150,000, respectively 19,680,000 28,194,000
Prepaid expenses and other current
assets 3,654,000 3,248,000
------------ ------------
Total current assets 27,660,000 32,138,000
------------ ------------
INVESTMENT IN JOINT
VENTURE 227,000 378,000
------------ ------------
PROPERTY AND EQUIPMENT 13,438,000 12,301,000
Less - Accumulated depreciation and
amortization (9,078,000) (8,123,000)
------------ ------------
Net property and equipment 4,360,000 4,178,000
------------ ------------
DEFERRED INCOME TAXES 44,000 44,000
------------ ------------
OTHER ASSETS 2,989,000 2,657,000
------------ ------------
$ 35,280,000 $ 39,395,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY March 31, September 30,
-------------------- 2000 1999
------------- ---------------
CURRENT LIABILITIES:
Line of credit $ -- $ 3,700,000
Accounts payable 3,390,000 2,326,000
Income taxes payable 319,000 614,000
Accrued expenses 5,555,000 8,106,000
Deferred income taxes 861,000 861,000
------------ ------------
Total current liabilities 10,125,000 15,607,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock 49,331,000 49,288,000
Deferred compensation (138,000) (158,000)
Accumulated deficit (24,106,000) (25,342,000)
Cumulative foreign currency translation
adjustment 68,000 -
------------ ------------
Total shareholder's equity 25,155,000 23,788,000
------------ ------------
$ 35,280,000 $ 39,395,000
============ ============
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
3
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RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the Three Months Ended
March 31
---------------------------
2000 1999
----------- -----------
REVENUES $31,420,000 $17,290,000
----------- -----------
OPERATING EXPENSES:
Cost of services 24,039,000 13,144,000
Selling, general and administrative 6,025,000 3,663,000
----------- -----------
Total operating expenses 30,064,000 16,807,000
----------- -----------
Operating income 1,356,000 483,000
EQUITY IN LOSSES OF JOINT VENTURE 95,000 -
INTEREST INCOME, net - 69,000
----------- -----------
Income before income taxes 1,261,000 552,000
INCOME TAXES 473,000 207,000
----------- -----------
NET INCOME $ 788,000 $ 345,000
=========== ===========
BASIC INCOME PER COMMON SHARE $ .10 $ .04
=========== ===========
DILUTED INCOME PER COMMON SHARE $ .09 $ .04
=========== ===========
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,290,000 8,120,000
=========== ===========
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,903,000 8,272,000
=========== ===========
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
4
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RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the Six Months Ended
March 31
------------------------------
2000 1999
------------ ------------
REVENUES $ 60,093,000 $ 33,127,000
------------ ------------
OPERATING EXPENSES:
Cost of services 46,373,000 25,094,000
Selling, general and administrative 11,527,000 7,246,000
------------ ------------
Total operating expenses 57,900,000 32,340,000
------------ ------------
Operating income 2,193,000 787,000
EQUITY IN LOSSES OF JOINT VENTURE 151,000 --
INTEREST INCOME (EXPENSE), net (64,000) 176,000
------------ ------------
Income before income taxes 1,978,000 963,000
INCOME TAXES 742,000 361,000
------------ ------------
NET INCOME $ 1,236,000 $ 602,000
============ ============
BASIC INCOME PER COMMON SHARE $ .15 $ .07
============ ============
DILUTED INCOME PER COMMON SHARE $ .14 $ .07
============ ============
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,288,000 8,120,000
============ ============
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,764,000 8,267,000
============ ============
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
5
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RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31
-----------------------------------------
2000 1999
---------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,236,000 $ 602,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities - -
Issuance of Common stock options for
services rendered - 12,000
Amortization of deferred compensation 20,000 -
Depreciation and amortization 955,000 752,000
Equity in losses of joint venture 151,000 -
Changes in operating assets and liabilities -
Accounts receivable 8,514,000 (2,296,000)
Prepaid expenses and other current assets (406,000) (2,224,000)
Other assets (332,000) -
Accounts payable and accrued expenses (1,782,000) 2,525,000
----------- -----------
Net cash provided by (used in) operating activities 8,356,000 (629,000)
----------- -----------
INVESTING ACTIVITIES:
Purchases and development of property and equipment (1,137,000) (531,000)
Purchases of marketable securities - (5,089,000)
Maturities of marketable securities - 7,514,000
----------- -----------
Net cash provided by (used in) investing activities (1,137,000) 1,894,000
----------- -----------
FINANCING ACTIVITIES:
Net repayments on line of credit (3,700,000) -
Common stock options exercised 43,000 -
----------- -----------
Net cash used in financing activities (3,657,000) -
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES 68,000 -
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 3,630,000 1,265,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 696,000 4,179,000
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,326,000 $ 5,444,000
=========== ===========
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
6
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RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
- ----------------------------------------------
RMH Teleservices, Inc. and subsidiaries ("RMH" or the "Company") is a leading
provider of inbound and outbound telemarketing, inbound customer service and
e-commerce customer contact programs for major corporations on both a
business-to-business and business-to-consumer basis. Founded in 1983, the
Company is headquartered in Bryn Mawr, Pennsylvania and has 20 facilities
throughout the United States and Canada.
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows of
the Company. Operating results for the three and six month periods ended March
31, 2000 and 1999 are not necessarily indicative of the results that may be
expected for the full fiscal year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
The Company has provided basic and diluted income per share pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 requires dual presentation of basic and diluted earnings
per share. According to SFAS No. 128, basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution from
the exercise or conversion of securities into Common stock, such as stock
options and warrants.
7
<PAGE>
The following is a reconciliation of the numerators and denominators of the
basic and diluted income per share computations:
<TABLE>
<CAPTION>
For the Three Months Ended March 31
-----------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------ ------------------------------------------------
Income Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $788,000 8,290,000 $.10 $345,000 8,120,000 $.04
==== ====
Effect of dilutive
securities:
Stock warrants --- --- --- 142,000
Stock options --- 550,000 --- 10,000
Restricted stock --- 63,000 --- ---
-------- --------- -------- ---------
Diluted income per
Common share:
Net income and
Assumed conversion
of dilutive securities $788,000 8,903,000 $.09 $345,000 8,272,000 $.04
======== ========= ==== ======== ========= ====
<CAPTION>
For the Six Months Ended March 31
------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------ -------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $1,236,000 8,288,000 $.15 $602,000 8,120,000 $.07
==== ====
Effect of dilutive
securities:
Stock warrants --- --- --- 142,000
Stock options --- 420,000 --- 5,000
Restricted stock --- 56,000 --- ---
-------- --------- -------- ---------
Diluted income per
Common share:
Net income and assumed
conversion of dilutive
securities $1,236,000 8,764,000 $.14 $602,000 8,267,000 $.07
========== ========= ==== ======== ========= ===
</TABLE>
Options to purchase approximately 2,000 and 680,000 shares of Common stock with
an average exercise price of $12.50 and $3.23 were outstanding during the three
months ended March 31, 2000 and 1999, respectively, but were not included in the
computation of diluted income per Common share because the exercise prices of
the options were greater than the average market price of the
8
<PAGE>
Common shares during the periods. Options to purchase approximately 16,000 and
750,000 shares of Common stock with an average exercise price of $6.67 and $3.12
were outstanding during the six months ended March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted income per
Common share because the exercise prices of the options were greater than the
average market price of the Common shares during the respective periods. The
options, which are to expire at various times through December 2009, were still
outstanding as of March 31, 2000.
NOTE 3 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
- ---------------------------------------------------------
The Company is dependent on several large customers for a significant portion of
its revenues. Three customers accounted for 62.5% and 64.7% of revenues for the
three and six months ended March 31, 2000, respectively, and 86.1% and 88.8% of
revenues for the three and six months ended March 31, 1999, respectively. The
loss of one or more of these customers could have a materially adverse effect on
the Company's business.
Concentration of credit risk is limited to accounts receivable and is subject to
the financial conditions of the Company's customers. The Company does not
require collateral or other securities to support customer receivables. The
Company's customers with the two largest outstanding balances had amounts owing
of approximately $4.6 million and $4.3 million, respectively, at March 31, 2000.
The third, fourth and fifth largest of the Company's customers are engaged in
transactions with each other and represent a single credit risk to the Company.
At March 31, 2000, the accounts receivable from the customers that represent a
single credit risk were $ 5,417,000.
NOTE 4 - COMPREHENSIVE INCOME:
- ------------------------------
The Company's comprehensive income includes net income and gains and losses from
foreign currency translation adjustments.
The Company's total comprehensive income, net of tax, is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31 March 31
---------------------------------- ---------------------------------------
2000 1999 2000 1999
---------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net income $ 788,000 $ 345,000 $ 1,236,000 $ 602,000
Foreign currency translation
adjustment 68,000 -- 68,000 --
-------------- ------------- ---------------- ---------------
Comprehensive income $ 856,000 $ 345,000 $ 1,304,000 $ 602,000
============== ============== ================ ===============
</TABLE>
9
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NOTE 5 - CUSTOMER CONTRACT:
- ---------------------------
In August 1999, the Company entered into a contract with a new customer to
provide in-bound teleservices over a four-year period. In connection with the
execution of this contract, the Company made a $2,000,000 payment to the
customer during the three months ended September 30, 1999, and an additional
$1,000,000 payment in the three months ended December 31, 1999. The payments are
refundable on a pro-rata basis over the contract term if the agreement is
terminated. The payments are included in other noncurrent assets in the
accompanying consolidated balance sheets, and are being amortized to cost of
services over the contract term. In addition, the Company is obligated to spend
$800,000 for the development of a voice response unit application to be used in
providing certain services to the customer of which $175,000 was incurred in the
three months ended March 31, 2000. The balance of $625,000 of development costs
will be incurred during the remaining six months of the year ending September
30, 2000 and the Company can recover such costs through billings to the customer
based on usage of the system.
10
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor for Forward-Looking Statements
- ------------------------------------------
From time-to-time, the Company may publish statements which are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to: (i)
reliance on principal client relationships in the insurance, financial services
and telecommunications industries; (ii) fluctuations in quarterly results of
operations due to the timing of clients' telemarketing campaigns, the timing of
opening new call centers and expansion of existing call centers and changes in
competitive conditions affecting the telemarketing industry; (iii) difficulties
of managing growth profitably; (iv) dependence on the services of the Company's
executive officers and other key operations and technical personnel; (v) changes
in the availability of qualified employees; (vi) performance of automated
call-processing systems and other technological factors; (vii) the impact of the
Year 2000 issues on the Company; (viii) reliance on independent long-distance
companies; (ix) changes in government regulations affecting the teleservices and
telecommunications industries; (x) competition from other outside providers of
teleservices and in-house telemarketing operations of existing and potential
clients; (xi) competition from providers of other marketing formats, such as
direct mail and emerging strategies such as interactive shopping and marketing
over the Internet; and (xii) expected revenues and expenses of RMH's joint
venture, 365biz.com L.P.
Overview
- --------
The Company is a leading outsourcing provider of outbound and inbound
teleservices predominantly to major corporations in the insurance, financial
services and telecommunications industries. Founded in 1983, the Company opened
its first call center in 1985 to support the marketing efforts of its consulting
customers. At the present time, outbound business-to-consumer teleservices is
the predominant business of the Company.
In December 1998, RMH Teleservices International Inc. ("RMHTI"), a wholly owned
subsidiary, was incorporated in the Province of New Brunswick, Canada for the
purpose of conducting the Company's business operations in Canada. During fiscal
1999, RMHTI entered into leases for premises in Oromocto, New Brunswick,
Brantford, Ontario and Saint John, New Brunswick for new call centers. The call
center in Oromocto, New Brunswick commenced operations in March 1999 with 200
workstations, and in June 1999 was expanded to 313 workstations. The call center
in Brantford, Ontario began initial operations in July 1999 with 250
workstations and in October 1999 was expanded to 380 workstations. The call
center in Saint John, New Brunswick commenced operations in August 1999 with 144
workstations and was expanded to 344 workstations in February 2000. In March
2000, RMHTI entered into a lease for a new call and quality center in Sarnia,
Ontario, which is scheduled to commence operations in June 2000 with 300
workstations. Also in March 2000, RMHTI entered into a lease for a new call
center in Sault Ste. Marie, Ontario, which is scheduled to commence operations
in June 2000 with 230 workstations. RMHTI has received financial incentives from
the Canadian provincial governments of Ontario and New Brunswick
11
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totaling $3.1 million and expects to receive an additional $1.4 million over the
next three years. These incentives offset various start-up, payroll and
operating costs associated with the new Canadian call centers. In the three
months ended March 31, 2000, the Company incurred payroll costs associated with
the Oromocto, Brantford and Saint John call centers totaling $213,000, which
were offset against the financial incentives received from the Canadian
provincial governments of Ontario and New Brunswick. The remaining amounts are
primarily being amortized against payroll costs over the next three years.
In addition to the call centers in Canada, the Company operates 15 call centers
in the United States which had an aggregate of 1,929 workstations at March 31,
2000.
The Company's results of operations in any single interim period should not be
viewed as an indication of future results of operations. The Company may
experience quarterly variations in net revenues and operating income as a result
of the timing of clients' telemarketing campaigns, the commencement and
expiration of contracts, the amount of new business generated by the Company,
the timing of additional selling, general and administrative expenses to acquire
and support such new business and changes in the Company's revenue mix among its
various customers.
Results of Operations
- ---------------------
Three and Six Months Ended March 31, 2000 Compared to Three and Six Months Ended
- --------------------------------------------------------------------------------
March 31, 1999
- --------------
Revenues - Revenues increased to $31,420,000 and $60,093,000 for the three and
six month periods ended March 31, 2000 from $17,290,000 and $33,127,000 for the
comparable periods in 1999. This represents revenue increases of 81.7% and 81.4%
for the three and six month periods ended March 31, 2000, respectively, as
compared to the comparable periods in 1999. Of such increase in revenues,
approximately $6,661,000 and $11,196,000 were attributable to increased calling
volumes from existing clients, and $7,469,000 and $15,770,000 were attributable
to new clients, for the three and six month periods ended March 31, 2000,
respectively.
Cost of Services - Cost of services increased to $24,039,000 and $46,373,000 for
the three and six month periods ended March 31, 2000 from $13,144,000 and
$25,094,000 for the comparable periods in 1999. As a percentage of revenues,
cost of services increased to 76.5% and 77.2% for the three and six month
periods ended March 31, 2000, as compared to 76.0% and 75.8% for the comparable
periods in 1999. The increase in cost of services as a percentage of revenues
during the three and six months is attributable to higher volumes of lower
revenue rate work.
The Company anticipates that cost of services, as a percentage of revenues, may
continue to increase during the year to the degree that large volume
opportunities warrant the Company offering appropriate pricing discounts, to the
extent that the Company requires a longer period of time to generate acceptable
levels of utilization at its new call centers, and/or the Company experiences
upward pressures on hourly wages as a result of tighter or more competitive
labor markets.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $6,025,000 and $11,527,000 for the three and six month
periods ended March 31, 2000 from $3,663,000 and $7,246,000 for the comparable
periods in 1999. As a percentage of revenues, selling, general and
administrative expenses decreased to 19.2% in each of the three and six month
periods ended March 31, 2000, as compared to 21.2% and 21.9% for the comparable
periods in 1999. The decrease was primarily the result of better utilization of
infrastructure and increasing revenues being serviced by the Company's
infrastructure.
12
<PAGE>
Interest Income (Expense) - Interest expense for the six months ended March 31,
2000, was $64,000 and was incurred on borrowings on the Company's line of
credit. There was no interest expense incurred during the three months ended
March 31, 2000. Interest income for the three and six months ended March 31,
1999, was $69,000 and $176,000, respectively, and was earned by investing the
remaining proceeds of the Company's initial public offering in marketable
securities and cash equivalents.
Income Taxes - Income tax expense for the three and six month periods ended
March 31, 2000 and 1999, was $473,000 and $742,000 and $207,000 and $361,000,
respectively, and represents income taxes based upon an effective tax rate of
37.5% in both fiscal 2000 and 1999. This tax rate is reflective of both the U.S.
and Canadian Federal tax rates and the state and provincial tax rates in effect
where the Company does business coupled with certain implemented tax planning
strategies.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company's primary sources of liquidity have been cash flow
from operations and borrowings under its credit facilities. These funds,
combined with the proceeds of the Company's initial public offering in September
1996, have provided the liquidity to finance the growth of the Company.
On March 21, 1997, the Company entered into a $4.0 million line of credit
facility (the "Credit Facility") with PNC Bank (the "Bank"). The Credit Facility
replaced the Company's former term loan and credit facility. The Credit Facility
originally expired on April 1, 1998, but was subsequently extended by the Bank.
On September 28, 1999, the term of the Credit Facility was extended to September
30, 2000, subject to renewal, and the amount available under the Credit Facility
was increased to $10.0 million. On November 24, 1999, the amount available under
the Credit Facility was increased to $15.0 million. Outstanding balances bear
interest at the Company's option at either the LIBOR rate plus 95 basis points
or at the Bank's prime rate minus fifty basis points. The Credit Facility
contains financial covenants and certain restrictions which, among others,
restrict the Company's ability to incur additional debt or dispose of its
assets. As of March 31, 2000, the Company did not have any borrowings
outstanding on the Credit Facility.
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company had up to $6.0 million available for the purpose of
leasing call center equipment. The $6.0 million commitment expired on April 1,
1998, and required that such leases meet the accounting definition of an
operating lease with rent to be paid over a period not to exceed sixty months.
Under this agreement, the Company entered into operating leases for equipment
with an aggregate total cost of $4.1 million.
Under a separate agreement dated March 10, 1998, with PNC Leasing Corporation,
the Company established an additional lease facility of $6.0 million available
for purposes of leasing call center equipment. The $6.0 million commitment
expired on April 1, 1999, and required that such leases meet the accounting
definition of an operating lease with rent to be paid over a period not to
exceed sixty months. Under this agreement, the Company entered into operating
leases for equipment with an aggregate total cost of $5.5 million.
Under a separate agreement dated May 28, 1999, with PNC Leasing Corporation, the
Company established an additional lease facility of $8.0 million available for
purposes of leasing call center equipment. In September 1999, this commitment
was reduced to $5.0 million at the same time that the Credit Facility was
increased from $4.0 million to $10.0 million. The $5.0 million commitment
expires on September 30, 2000 and requires that such leases meet the accounting
definition of an operating lease with rent to be paid over a period not to
exceed sixty months. Under this agreement, as of March 31, 2000, the Company has
entered into operating leases for equipment with an aggregate total cost of $2.7
million.
13
<PAGE>
In June 1999, RMHTI entered into an agreement with GATX Technology Finance Inc.
("GATX") for a $5.0 million CDN lease facility which was increased in September
1999 to $10.0 million CDN. Under the terms of this lease facility, leases must
meet the accounting definition of an operating lease with rent to be paid over a
period not to exceed sixty months. Under this agreement, as of March 31, 2000,
the Company has entered into operating leases for equipment with an aggregate
total cost of $8.4 million CDN. On April 26, 2000, GATX assigned its rights
under the lease to Royal Bank of Canada.
Net cash provided by operating activities was approximately $8.4 million for the
six months ended March 31, 2000 and net cash used in operating activities was
$629,000 during the six months ended March 31, 1999. The cash provided by
operations in the fiscal 2000 period resulted from the Company's net income for
the period and decrease in the Company's accounts receivable offset by an
increase in prepaid expenses and other assets coupled with a decrease in
accounts payable and accrued expenses.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the six months ended March 31,
2000 and 1999, were $1,137,000 and $531,000, respectively. The Company expects
to allocate approximately $6.0 million for capital equipment expenditures from
its operating lease facilities during the remainder of the fiscal year ending
September 30, 2000, primarily for call center capacity expansion and other
enhancements of technology used throughout its call center operations.
As required under a certain customer contract, the Company spent $2.0 million in
the three months ended September 30, 1999, $1.0 million in the three months
ended December 31, 1999, and $175,000 during three months ended March 31, 2000.
The Company expects to spend up to an additional $0.6 million under that
customer contract.
The Company believes that funds generated from operations, together with the
available credit under the Credit Facility and the lease lines of credit, will
be sufficient to finance its current operations and planned capital expenditures
at least through December 31, 2000.
The Company has entered into a joint venture with Advanta Partners to create a
new entity called 365biz.com LP. RMH owns a 49% interest in the venture.
365biz.com provides Web design, hosting and membership services to small and
medium sized businesses. Additionally, 365biz.com provides a variety of online
options and features including Internet access, e-mail accounts, search engine
posting and e-commerce related services. The venture was launched in response to
the growing demand for flexible and inexpensive Web solutions. The Company is
committed to provide the joint venture additional capital funding of $0.5
million which is expected to be paid in the year ending September 30, 2000. In
addition, the Company will extend up to $1.0 million of normal trade credit for
services the Company is expected to provide to the joint venture.
14
<PAGE>
Segment Information
- -------------------
The Company operates in three business segments as follows:
Insurance
The Insurance segment works with large consumer insurance companies and their
agents throughout the United States to market such products as accidental death
and dismemberment policies, graded benefit life insurance and other niche
insurance products primarily to credit card customers. The Company has also
assisted clients in marketing supplemental dental and vision coverage to credit
card holders.
Financial Services
The Financial Services segment provides teleservices to several of the largest
credit card issuers, banks and other financial and membership service
institutions in the United States. The Company's services include customer
account acquisition and retention programs, programs to sell credit card
enhancement features such as higher credit limits, lower interest rates and
lower fees and discounts on selected goods and services purchased through a
variety of interest group clubs. The Company also cross-sells additional
services such as home equity loans and related banking services.
Telecommunications
The Telecommunications segment provides a variety of teleservices for the
nation's leading local, long-distance and wireless telecommunications companies.
The reportable segments have been identified because they have separate
management teams and predominantly serve separate classes of customers via
specific call centers. The accounting policies of the reportable segments are
the same as those of the consolidated Company. The Company evaluates the
performance of its operating segments based on operating income (loss) and
corporate assets and costs are allocated to the segments based upon segment
revenue. Intersegment sales and transfers are not significant.
15
<PAGE>
Financial information for each business segment as of March 31, 2000 and 1999
and for the three and six months then ended is as follows:
<TABLE>
<CAPTION>
For the Three months Ended March 31, For the Six months Ended March 31,
------------------------------------ ----------------------------------
2000 1999 2000 1999
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Insurance $9,387,000 $7,321,000 $16,814,000 $16,327,000
Financial services 11,509,000 8,985,000 19,713,000 15,746,000
Telecommunications 10,524,000 984,000 23,566,000 1,054,000
------------- ------------ -------------- -------------
$31,420,000 $17,290,000 $60,093,000 $33,127,000
============= ============ ============== =============
Operating income (loss):
Insurance $1,076,000 $874,000 $1,752,000 $792,000
Financial services (87,000) 104,000 (681,000) 237,000
Telecommunications 367,000 (495,000) 1,122,000 (242,000)
------------- ------------ -------------- -------------
$1,356,000 $483,000 $2,193,000 $787,000
============= ============ ============== =============
Depreciation and amortization:
Insurance $71,000 $190,000 $138,000 $413,000
Financial services 230,000 183,000 449,000 318,000
Telecommunications 189,000 12,000 368,000 21,000
------------- ------------ -------------- -------------
$490,000 $385,000 $955,000 $752,000
============= ============ ============== =============
Capital expenditure:
Insurance $113,000 $95,000 $237,000 $172,000
Financial services 69,000 187,000 149,000 276,000
Telecommunications 495,000 39,000 751,000 83,000
------------- ------------ -------------- -------------
$677,000 $321,000 $1,137,000 $531,000
============= ============ ============== =============
<CAPTION>
March 31
------------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Total assets:
Insurance $15,986,000 $21,667,000
Financial services 10,128,000 8,258,000
Telecommunications 9,166,000 549,000
------------- ------------
$35,280,000 $30,474,000
============= ============
Geographic information
Property and equipment:
United States $3,491,000 $3,826,000
Canada 869,000 -
------------- ------------
$4,360,000 $3,826,000
============= ============
</TABLE>
The Company's revenues during the three and six months ended March 31, 2000 and
1999 were generated entirely from customers within the United States.
16
<PAGE>
From time to time, when customer demand of a particular segment exceeds that
segment's resources, the additional volume is serviced by other segments' call
centers and revenue is recorded in the servicing segment. Revenue based on
clients' industries without regard to the segment providing the service is as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31 March 31
---------------------------------- --------------------------------
2000 1999 2000 1999
---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Insurance $ 9,319,000 $ 7,321,000 $ 18,485,000 $ 16,327,000
Financial Services 10,990,000 8,985,000 19,984,000 15,746,000
Telecommunications 11,111,000 984,000 21,624,000 1,054,000
</TABLE>
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," which must be adopted by the Company in the year ending September 30,
2001, provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As the Company does not
currently hold derivative instruments or engage in hedging activities, the
adoption of this pronouncement is expected to have no impact on the Company's
financial position or results of operations.
17
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high credit quality issuers
and limits the amount of credit exposure with any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in only the safest and highest
credit quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below represents principal (or notional) amounts and related weighted
average interest rates for the Company's investment portfolio as of March 31,
2000 and 1999. All investments mature in one year or less.
Principal Amount Fair Value
---------------- ----------
(in thousands) (in thousands)
March 31 March 31
--------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Assets
- ------
Cash equivalents:
Variable rate $4,326 $ 50 $4,326 $ 50
Average interest rate --% 4.84% --% 4.84%
Marketable Securities:
Fixed rate $ -- 4,450 $ -- $4,354
Average interest rate --% 4.91% --% 4.91%
------ ------ ------ ------
Total Investments $4,326 $4,500 * $4,326 $4,404
====== ====== ====== ======
* Includes $31,000 of unaccrued interest received at maturity
18
<PAGE>
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
On March 2, 2000, the Company held its Annual Meeting of
Shareholders (the "Annual Meeting") at which the holders of the
Company's Common stock voted in an election of two members of the
Company's Board of Directors to three year terms expiring at the
Company's 2003 Annual Meeting of Shareholders. The total number of
shares of Common stock represented at the Annual Meeting were
5,683,532 constituting a quorum. Both nominees of the Board of
Directors were re-elected. The following is a report of the votes
cast at the Annual Meeting for each nominee for director.
Nominee Name Votes For Withhold Authority
------------ --------- ------------------
Mitchell L. Hollin 5,393,132 290,400
David P. Madigan 5,393,132 290,400
As of March 31, 2000 the other directors whose terms of office
continued after the Annual Meeting were John Fellows, Herbert Kurtz,
Gary Neems and Derek Lubner. Messrs. Hollin, Neems and Lubner
subsequently resigned from the Board of Directors.
At the Annual Meeting, the shareholders also approved a proposal
to ratify the choice of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending September
30, 2000. The following is a report of the votes cast with respect
to this proposal.
Votes For Votes Against Abstain
--------- ------------- -------
5,683,532 0 0
At the Annual Meeting, the shareholders also approved a proposal
to amend the Company's Stock Incentive Plan ("Plan") to increase the
number of shares of Common stock available for grants of Options or
Awards (as defined in the Plan) under the Plan from 950,000 to
1,450,000. The following is a report of the votes cast with respect
to this proposal.
Votes For Votes Against Abstain
--------- ------------- -------
5,042,252 639,680 1,600
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits:
27.0 - Financial Data Schedule
b. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on
April 14, 2000 announcing the acquisition by R-T
Investors, LLC, of approximately 49% of the issued
and outstanding shares of the Company's Common stock,
the purchase of 126,315 shares of the Company's
Common stock by certain officers of the Company and
the resignation of two members of the Company's Board
of Directors.
19
<PAGE>
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.
RMH Teleservices, Inc.
DATED: May 15, 2000 BY: /s/ John A. Fellows
--------------------------
John A. Fellows
Chief Executive Officer
DATED: May 15, 2000 BY: /s/ Noah S. Asher
------------------------
Noah S. Asher
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 4,326,000
<SECURITIES> 0
<RECEIVABLES> 19,928,000
<ALLOWANCES> 248,000
<INVENTORY> 0
<CURRENT-ASSETS> 27,660,000
<PP&E> 13,438,000
<DEPRECIATION> 9,078,000
<TOTAL-ASSETS> 35,280,000
<CURRENT-LIABILITIES> 10,125,000
<BONDS> 0
0
0
<COMMON> 49,331,000
<OTHER-SE> (24,176,000)
<TOTAL-LIABILITY-AND-EQUITY> 35,280,000
<SALES> 0
<TOTAL-REVENUES> 60,093,000
<CGS> 0
<TOTAL-COSTS> 57,900,000
<OTHER-EXPENSES> 151,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,000
<INCOME-PRETAX> 1,978,000
<INCOME-TAX> 742,000
<INCOME-CONTINUING> 1,236,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,236,000
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.14
</TABLE>
