<PAGE>
===============================================================================
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 SEPTEMBER 30, 2000.
------------------
[ ] 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 00024865
NEWGEN RESULTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0604378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices)
(858) 481-7545
(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. /X/ Yes / / No
As of November 8, 2000, there were 10,248,553 shares of the Registrant's Common
Stock outstanding.
===============================================================================
1.
<PAGE>
NEWGEN RESULTS CORPORATION
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements...................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 16
Item 2. Changes in Securities and Use of Proceeds.............................. 16
Item 6. Exhibits and Reports on Form 8-K....................................... 17
</TABLE>
2.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $16,434,972 $ 5,849,906
Short-term investments, available-for-sale.................. -- 17,417,971
Accounts receivable, net of allowance for doubtful accounts
of $380,000 and $347,000 respectively.................. 17,309,092 9,471,175
Prepaid expenses and other current assets................... 3,116,588 972,301
----------- -----------
Total current assets................................... 36,860,652 33,711,353
PROPERTY AND EQUIPMENT, net.................................. 9,036,842 5,719,542
GOODWILL, net................................................ 10,924,320 11,444,279
OTHER ASSETS................................................. 2,862,487 219,337
----------- -----------
Total assets........................................... $59,684,301 $51,094,511
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 5,129,975 $ 4,395,736
Accrued and other current liabilities....................... 3,139,481 2,059,773
Current portion of capital lease obligations ............... 820,050 976,429
Current portion of equipment loan payable................... 199,902 --
----------- -----------
Total current liabilities............................... 9,289,408 7,431,938
LONG-TERM LIABILITIES:
Long-term portion of capital lease obligations.............. 621,458 1,225,032
Long-term portion of equipment loan payable................. 299,853 --
Deferred rent............................................... -- 90,930
----------- -----------
Total liabilities...................................... 10,210,719 8,747,900
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 28,000,000 shares
authorized; 10,241,923 and 10,032,866
shares issued and outstanding respectively................ 10,242 10,033
Additional paid-in capital.................................. 52,717,551 52,282,503
Deferred compensation....................................... (708,758) (1,104,228)
Notes receivable from stockholders.......................... (140,346) (56,250)
Accumulated other comprehensive income (loss)............... (13,652) 3,885
Retained deficit............................................ (2,391,455) (8,789,332)
----------- -----------
Total stockholders' equity............................... 49,473,582 42,346,611
----------- -----------
Total liabilities and stockholders' equity .............. $59,684,301 $51,094,511
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Database marketing services.................... $18,303,464 $12,656,016 $57,002,298 $35,190,837
Consulting services............................ 786,953 1,515,165 1,934,848 4,675,914
----------- ----------- ----------- -----------
Total revenues.............................. 19,090,417 14,171,181 58,937,146 39,866,751
----------- ----------- ----------- -----------
COST OF REVENUES:
Cost of database marketing services............ 8,530,126 6,820,511 29,436,022 19,380,567
Cost of consulting services.................... 862,505 1,285,604 2,332,343 3,999,208
Installation costs............................. 381,619 338,276 1,257,172 1,088,233
----------- ----------- ----------- -----------
Total cost of revenues...................... 9,774,250 8,444,391 33,025,537 24,468,008
----------- ----------- ----------- -----------
Gross profit................................ 9,316,167 5,726,790 25,911,609 15,398,743
----------- ----------- ----------- -----------
OPERATING COSTS:
Selling, general and administrative............ 5,174,553 3,038,407 15,036,726 9,365,916
Technology and product development............. 1,202,730 1,154,084 3,405,344 2,807,006
Amortization of goodwill and acquisition -
related costs.............................. 350,038 -- 1,418,556 --
----------- ----------- ----------- -----------
Total operating costs....................... 6,727,321 4,192,491 19,860,626 12,172,922
----------- ----------- ----------- -----------
Income from operations...................... 2,588,846 1,534,299 6,050,983 3,225,821
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest, investment and other income......... 294,785 454,996 1,842,002 629,375
Interest expense.............................. (71,364) (72,389) (191,845) (277,151)
----------- ----------- ----------- -----------
Other income, net........................... 223,421 382,607 1,650,157 352,224
----------- ----------- ----------- -----------
Income before taxes......................... 2,812,267 1,916,906 7,701,140 3,578,045
PROVISION FOR INCOME TAXES....................... 1,124,907 10,250 1,303,157 10,250
----------- ----------- ----------- -----------
Net income.................................. 1,687,360 1,906,656 6,397,983 3,567,795
ADJUSTMENT FOR ACCRETION OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK................... -- -- -- (486,807)
----------- ----------- ----------- -----------
Income applicable to common stockholders.... $ 1,687,360 $ 1,906,656 $ 6,397,983 $ 3,080,988
=========== =========== =========== ===========
Basic income per share........................... $ 0.17 $ 0.19 $ 0.63 $ 0.45
=========== =========== =========== ===========
Diluted income per share......................... $ 0.15 $ 0.18 $ 0.57 $ 0.38
=========== =========== =========== ===========
Shares used in basic per share calculation....... 10,226,856 10,015,372 10,183,649 6,817,070
=========== =========== =========== ===========
Shares used in diluted per share calculation..... 11,305,715 10,802,259 11,172,081 9,386,220
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 6,397,983 $ 3,567,795
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 3,416,614 1,393,332
Deferred rent................................................ (38,970) (30,561)
Deferred compensation........................................ 255,701 301,538
Changes in assets and liabilities:
Accounts receivable........................................ (7,837,917) 246,530
Prepaid expenses and other current assets.................. (2,126,365) (346,013)
Accounts payable........................................... 734,239 394,035
Accrued and other current liabilities...................... 1,027,748 1,320,170
----------- ------------
Net cash provided by operating activities................ 1,829,033 6,846,826
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.......................... (2,082,875) (12,300,516)
Proceeds from matured short-term investments................. 19,500,000 --
Purchases of property and equipment.......................... (5,259,325) (2,612,274)
Proceeds from sale of property and equipment ................ 22,605 --
Other assets................................................. (3,620,385) (148,141)
----------- ------------
Net cash provided by (used in) investing activities...... 8,560,020 (15,060,931)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock transactions............................. 278,777 32,164,286
Proceeds from stock options and warrant exercises............ 177,434 --
Payments on capital lease obligations........................ (759,953) (917,060)
Payments of related party loans............................... -- (800,000)
Proceeds from equipment loan................................. 599,706 --
Payments on equipment loan................................... (99,951) --
Net proceeds from lines of credit............................ -- 199,643
----------- ------------
Net cash provided by financing activities................ 196,013 30,646,869
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 10,585,066 22,432,764
CASH AND CASH EQUIVALENTS, beginning of period.................... 5,849,906 816,753
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.......................... $16,434,972 $ 23,249,517
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest..................................... $ 192,280 $ 287,151
=========== ============
Cash paid for taxes ........................................ $ 1,046,820 $ --
=========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations entered into for equipment......... $ -- $ 1,467,746
=========== ============
Accretion of redeemable preferred stock...................... $ -- $ 486,807
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by Newgen Results Corporation and subsidiaries (the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission") for interim financial information.
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
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The results of operations for the three and nine month
periods ended September 30, 2000, are not necessarily indicative of the
results to be expected for the full year. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999. In the opinion of management, these interim
consolidated financial statements contain all adjustments (consisting
of normal recurring entries) which are necessary for a fair and
accurate presentation of financial position at September 30, 2000, and
the results of operations and cash flows for the three and nine month
periods ended September 30, 2000 and 1999. Certain reclassification
have been made to prior consolidated financial statements to conform
with current presentations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE
Net income per share has been calculated under Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. This statement
requires companies to compute earnings per share under two different
methods (basic and diluted). Basic earnings per share are based on the
weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share are based on the weighted
average number of shares of common stock and potentially dilutive
securities (options and warrants) outstanding during the period,
computed using the treasury stock method.
6.
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- -------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME PER SHARE - BASIC
Income applicable to common
stockholders $ 1,687,360 $ 1,906,656 $ 6,397,983 $3,080,988
=========== =========== =========== ==========
Weighted average number of common shares 10,226,856 10,015,372 10,183,649 6,817,070
=========== =========== =========== ==========
Net income per share - basic $ 0.17 $ 0.19 $ 0.63 $ 0.45
=========== =========== =========== ==========
NET INCOME PER SHARE - DILUTED
Net income $ 1,687,360 $ 1,906,656 $ 6,397,983 $3,567,795
=========== =========== =========== ==========
Weighted average number of common shares 10,226,856 10,015,372 10,183,649 6,817,070
Potentially dilutive securities:
Preferred stock -- -- -- 1,760,559
Stock options 1,014,127 705,441 917,157 710,806
Warrants 64,732 81,446 71,275 97,785
----------- ----------- ----------- ----------
Total 11,305,715 10,802,259 11,172,081 9,386,220
=========== =========== =========== ==========
Net income per share - diluted $ 0.15 $ 0.18 $ 0.57 $ 0.38
=========== =========== =========== ==========
</TABLE>
3. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service
segments: database marketing and consulting operations. The database
marketing segment provides outsourced database management, direct
marketing and related customer retention services for the service
department of automobile dealerships and manufacturers. The consulting
segment develops and implements new techniques and programs that enable
automobile dealerships to grow their business, streamline inefficient
processes and more effectively market their services, and includes the
services offered by Newgen Management Services, Inc., a wholly-owned
subsidiary of the Company.
The following tables summarize segment information for the three and
nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- -----------------------------------------------
(Unaudited) (Unaudited)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------ ----------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues $18,303,464 $786,953 $19,090,417 $12,656,016 $1,515,165 $14,171,181
Segment cost of revenues 8,911,745 862,505 9,774,250 7,158,787 1,285,604 8,444,391
----------- -------- ----------- ----------- ---------- -----------
Segment gross profit
(loss) $ 9,391,719 $(75,552) $ 9,316,167 $ 5,497,229 $ 229,561 $ 5,726,790
=========== ======== =========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- -----------------------------------------------
(Unaudited) (Unaudited)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------ ----------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues $57,002,298 $1,934,848 $58,937,146 $35,190,837 $4,675,914 $39,866,751
Segment cost of revenues 30,693,194 2,332,343 33,025,537 20,468,800 3,999,208 24,468,008
----------- ---------- ----------- ----------- ---------- -----------
Segment gross profit $26,309,104 $ (397,495) $25,911,609 $14,722,037 $ 676,706 $15,398,743
=========== =========== =========== =========== ========== ===========
</TABLE>
7.
<PAGE>
The following table reconciles the Company's reportable segments' gross profit
to consolidated net income for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ------------------------------------
2000 1999 2000 1999
----------------------------------- ------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross profit from reportable segments $9,316,167 $5,726,790 $25,911,609 $15,398,743
Operating costs 6,727,321 4,192,491 19,860,626 12,172,922
---------- ---------- ----------- -----------
Income from operations 2,588,846 1,534,299 6,050,983 3,225,821
Other income, net 223,421 382,607 1,650,157 352,224
Provision for income taxes 1,124,907 10,250 1,303,157 10,250
---------- ---------- ----------- -----------
Net income $1,687,360 $1,906,656 $ 6,397,983 $ 3,567,795
========== ========== =========== ===========
</TABLE>
4. COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30,
2000 and 1999 consisted of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Net income $1,687,360 $1,906,656 $6,397,983 $3,567,795
Other comprehensive income:
Unrealized losses (176) -- (846) --
Foreign currency translation (5,055) -- (12,806) --
---------- ---------- ---------- ----------
Comprehensive income $1,682,129 $1,906,656 $6,384,331 $3,567,795
========== ========== ========== ==========
</TABLE>
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Unrealized losses for
the three months and nine months ended September 30, 2000 are primarily related
to securities with an original maturity date of three months or less.
5. SOFTWARE DEVELOPMENT COSTS
In accordance with the adoption of the American Institute of Certified
Public Accountants' ("AICPA") Statement of Position 98-1, ACCOUNTING FOR THE
COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the Company
capitalized $965,180 and $3,058,840 for the three and nine months ended
September 30, 2000, respectively, and $2,201,210 and $857,630 is included in
Other Assets and Property and Equipment, respectively, in the accompanying
consolidated balance sheets.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
which establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement was amended
by SFAS No. 137 which defers the effective date to all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of SFAS 133 has no effect on
the Company's financial position or results of operations.
In December 1999, the Commission issued Staff Accounting Bulletin (SAB)
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This SAB summarizes the
Commission's view in applying generally accepted accounting principles to
revenue recognition in financial statements. This SAB was amended by SAB 101B,
which defers the effective date for all registrants with fiscal years that begin
after December 15, 1999 to allow for the option of
8.
<PAGE>
implementing no later than the fourth quarter of fiscal 2000. Management is
currently determining the impact of SAB No. 101 and does not believe that its
adoption will have a material impact on the Company's consolidated financial
statements.
In April 2000, the FASB issued FASB Interpretation No. ("FIN") 44,
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION: AN
INTERPRETATION OF FASB OPINION NO. 25. FIN 44 affects awards and modifications
made after December 15, 1998. Management believes that their accounting policies
comply with the applicable provisions of FIN 44.
7. OTHER INCOME
In June 2000, the Company recorded a gain of $1,000,000 related to the
settlement of a vendor dispute in Other Income.
8. SIGNIFICANT EVENT
On August 21, 2000, the Company, TeleTech Holdings, Inc. ("TeleTech")
and NG Acquisition Corp., a wholly-owned subsidiary of TeleTech ("Merger Sub"),
entered into a definitive Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement and subject to the terms and conditions set
forth therein, Merger Sub will be merged with and into the Company (the
"Merger"), with the Company surviving the Merger and becoming a wholly-owned
subsidiary of TeleTech. At the effective time of the Merger, all outstanding
shares of the Company's common stock will be exchanged for shares of TeleTech
common stock based on the exchange ratio described in the Merger Agreement, and
all outstanding options to purchase Company common stock will be assumed by
TeleTech and exchanged for options to purchase shares of TeleTech common stock
with the exercise price and number of shares of TeleTech common stock subject to
each such assumed Company option being appropriately adjusted to reflect the
exchange ratio. It is anticipated that all currently outstanding warrants to
purchase shares of the Company's common stock will be exercised prior to the
closing of the Merger.
The Merger is expected to close in the fourth quarter of 2000 and
will be accounted for as a pooling of interests.
On August 21, 2000, three senior executives of the Company entered into
employment agreements with TeleTech that become effective upon completion of the
Merger. In addition, these senior executives will, concurrently with the
consummation of the Merger, receive cash bonuses in the aggregate of
approximately $1 million relating to services performed up to the date of the
Merger. As of September 30, 2000, the Company deferred $505,000 of costs
associated with the Merger transaction. These costs will be charged to
operations in the first fiscal quarter in which the Merger is consummated.
9.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Newgen Results Corporation and subsidiaries (the "Company") should
be read in conjunction with the consolidated unaudited financial statements and
the related notes thereto included elsewhere in this Form 10-Q and the audited
consolidated financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1999 included in the Company's Form 10-K.
Certain statements set forth below constitute "forward-looking
statements". Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors including, but not limited to, those discussed
herein and in the Form 10-K for the year ended December 31, 1999, that may cause
the actual results, performance or achievements of the Company, or industry
results to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, investors and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update information contained in any forward-looking statement.
OVERVIEW
The Company provides customized, outsourced database management, direct
marketing and related services for service departments of automobile dealerships
and for automobile manufacturers. The Company has expertise both in database
marketing and customer retention services, as well as an in-depth knowledge of
automobile service department operations.
The Company generates revenue from database marketing services and
consulting services. Revenues from database marketing services are derived
primarily from customer retention services, including the RESULTS program and
other ancillary products and services. Database marketing services comprised
96% and 89% of total revenues for the three months ended September 30, 2000
and 1999, respectively. Database marketing services comprised 97% and 88% of
total revenues for the nine months ended September 30, 2000 and 1999,
respectively. Revenues from consulting services were derived from consulting
services provided to Ford Motor Company and its dealerships and services
provided to automobile dealerships' service and parts departments by Newgen
Management Services, Inc. ("NMS"), a wholly-owned subsidiary of the Company.
The Company is not certain of the viability of the NMS subsidiary, and
intends to determine the future direction of NMS over the coming months.
Consulting services comprised 4% and 11% of total revenues for the three
months ended September 30, 2000 and 1999, respectively. Consulting services
comprised 3% and 12% of total revenues for the nine months ended September
30, 2000 and 1999, respectively.
Database marketing services revenues consist of revenues from the
RESULTS program as well as ancillary products and services. Revenues for the
RESULTS program are based on the number of active names in a dealership's
database, typically a fixed number determined by the dealership. For customers
acquired in connection with the acquisition of Computer Care in November 1999
who are not on the RESULTS program, revenues are based on the number of service
reminder letters and follow-up phone calls performed on behalf of the dealer.
For services provided under the RESULTS program, the Company invoices each of
the dealers on a monthly basis in advance. For services provided under the
former Computer Care program, dealers are invoiced at the end of the month.
Consulting revenues from NMS are based on minimal installation fees, fixed
monthly fees and monthly profit sharing. All other consulting
10.
<PAGE>
revenues are based principally on a per diem rate for the services provided. The
Company is also reimbursed for travel expenses and associated costs it incurs in
providing consulting services, which are included as revenues. The Company
recognizes all of its revenues in the month during which it performs the related
database marketing or consulting services.
The Company derives a significant portion of its revenues from Ford and
Ford dealerships. Although each Ford dealership utilizing the Company's database
marketing services enters into a separate contract with the Company, collection
of receivables from Ford dealerships is primarily centralized through Ford's
accounting department. The Company's current consulting engagement with Ford
relating to the implementation of the Around The Wheel program for targeted Ford
dealers has been completed. For these dealers, Ford has extended certain
maintenance aspects of the project through the end of December 2000. The Company
is reimbursed for certain costs it incurs in providing services for the
maintenance project. Consulting revenue is expected to decrease as a result of
the completion of the Around The Wheel contract. The Company is not currently
seeking a commitment from Ford for new consulting engagements beyond the
completion of the Around The Wheel project. A significant amount of the
Company's database marketing services are attributable to Ford dealerships.
Sales of RESULTS program to Ford dealerships represented 43% and 56% of total
revenues for the three months ended September 30, 2000 and 1999, respectively,
and 43% and 57% for the nine months ended September 30, 2000 and 1999,
respectively. The Company also continues to provide data mining services to Ford
Motor Company. Services provided under this agreement have begun to diminish as
the project nears completion, which is expected in fourth quarter of 2000. One
hundred percent of consulting services were provided to Ford during the three
and nine months ended September 30, 2000.
Cost of revenues consist of database marketing services costs,
consulting costs and installation costs. Costs of database marketing services
include the printing and mailing of letters, as well as the costs of the
teleservice contacts of dealership customers. The costs of database marketing
services also include all costs of managing and purifying the dealership
databases, as well as the costs associated with maintaining the Company's
customer service department. Costs of consulting include the direct costs of
consulting personnel, as well as the cost of any independent consultants
subcontracted by the Company. Costs of consulting also include costs of
travel and associated costs incurred by the Company's Consulting Division.
Installation costs include the direct costs (excluding sales commissions) of
implementing the Company's program at dealerships and the costs of the
initial download, setup and purification of the dealership's customer
database. These costs are expensed as incurred and represent a one-time
initial cost for each new dealership added to the Company's customer base. As
a result, these costs are expected to decrease as a percentage of total
revenues as database marketing services revenues increase, unless the Company
installs a greater number of dealerships than in the past. Installation costs
are presented as a separate line item to reflect costs associated with
implementing new dealerships. For the purposes of calculating the gross
profit associated with database marketing services in Management's Discussion
and Analysis of Financial Condition and Results of Operations, installation
costs are added to cost of database marketing services.
Operating costs consist of selling, general and administrative and
technology and product development costs. The Company anticipates that operating
costs will increase as it develops and introduces new services, such as
Carabunga.com, and increases its customer base. Because the Company is generally
unable to significantly reduce costs in the short term to compensate for any
unexpected revenue shortfall, any such shortfall would have an immediate adverse
effect on the business, results of operations and financial condition. Selling
costs include costs of internal sales department, as well as commissions earned
and certain expenses incurred by sales representatives. Likewise, any short-term
increase in expenses would likely have an immediate
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adverse effect on the business, results of operations and financial condition of
the Company, unless the Company was able to also increase revenues in the short
term. General and administrative costs include accounting, payroll and human
resources functions. General and administrative costs also include other
non-allocated costs, such as professional fees and general corporate services.
Technology and product development costs include the cost of personnel who
maintain the Company's information systems and conduct research and product
development activities.
On November 30, 1999, the Company acquired Computer Care, a division
of the Dealer Services Group of Automatic Data Processing, Inc. ("ADP").
Under the terms of the agreement, the Company paid approximately $11.0
million in cash at closing, and may pay up to an additional $9.0 million in
cash dependent on certain earn-out criteria, which would be payable in the
first quarter of 2001 and reflected as an increase in goodwill. The Company
acquired a business that serviced over 2,000 dealerships. These included
approximately 1,100 manufacturer accounts and 1,100 individual dealerships.
The acquisition was accounted for using the purchase method of accounting.
The operations of Computer Care are included in the Company's results of
operations and financial position subsequent to the date of acquisition.
Acquisition goodwill of approximately $12.0 million is being amortized on a
straight-line basis over nine years.
In February 2000, the Company incorporated a wholly-owned subsidiary
called Carabunga.com, Inc. Carabunga.com utilizes the Internet as a marketing
tool for dealerships. It is intended to be a dealership portal for one-to-one
marketing programs for the automotive industry. Live operations on the Internet
site began on June 26, 2000. The Internet site showcases the following three
value-added products for dealers and manufacturers:
- E-PROMOTIONS will identify service customers who are ready to
purchase another vehicle and create an on-line program of
specialty letters and telephone follow-up calls.
- E-COUPONS will provide an electronic format for the delivery
of coupons that offer discounted services.
- ROAD will provide an electronic format that will enable
dealerships and manufacturers to analyze their customer
database to better understand potential opportunities, perform
data visualization and mapping techniques, and consequently
generate lists of customers who are ready to buy another
vehicle.
On August 21, 2000, the Company, TeleTech Holdings, Inc. ("TeleTech")
and NG Acquisition Corp., a wholly-owned subsidiary of TeleTech ("Merger Sub"),
entered into a definitive Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement and subject to the terms and conditions set
forth therein, Merger Sub will be merged with and into the Company (the
"Merger"), with the Company surviving the Merger and becoming a wholly-owned
subsidiary of TeleTech. At the effective time of the Merger, all outstanding
shares of the Company's common stock will be exchanged for shares of TeleTech
common stock based on the exchange ratio described in the Merger Agreement, and
all outstanding options to purchase Company common stock will be assumed by
TeleTech and exchanged for options to purchase shares of TeleTech common stock
with the exercise price and number of shares of TeleTech common stock subject to
each such assumed Company option being appropriately adjusted to reflect the
exchange ratio. It is anticipated that all currently outstanding warrants to
purchase shares of the Company's common stock will be exercised prior to the
closing of the Merger.
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The Merger is expected to close in the fourth quarter of 2000 and
will be accounted for as a pooling of interests.
On August 21, 2000, three senior executives of the Company entered
into employment agreements with TeleTech that become effective upon
completion of the Merger. In addition, these senior executives will,
concurrently with the consummation of the Merger, receive cash bonuses in the
aggregate of approximately $1 million relating to services performed up to
the date of the Merger. As of September 30, 2000, the Company deferred
$505,000 of costs associated with the Merger transaction. These costs will be
charged to operations in the first fiscal quarter in which the Merger is
consummated.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. Revenues from database marketing services increased by
$5.6 million, or 45%, to $18.3 million in the quarter ended September 30,
2000 from $12.7 million in the quarter ended September 30, 1999. The increase
in database marketing services revenues was due primarily to a net increase
of approximately 1,352 RESULTS program customers and the new customers
associated with the acquisition of Computer Care in November 1999. Revenues
from consulting services decreased by $728,000, or 48%, to $787,000 in the
quarter ended September 30, 2000 from $1.5 million in the quarter ended
September 30, 1999. The decrease in consulting services revenues was due
primarily to the completion of the implementation of the Around The Wheel
consulting project at the end of 1999.
GROSS PROFIT. Gross profit from database marketing services increased
by $3.9 million, or 71%, to $9.4 million in the quarter ended September 30, 2000
from $5.5 million in the quarter ended September 30, 1999. As a percentage of
database marketing services revenues, database marketing services gross profit
was approximately 51% in the quarter ended September 30, 2000 and 43% in the
quarter ended September 30, 1999. The increase reflects the elimination of the
Company's field customer satisfaction department to reflect the Company's new
sales methodology, which allows the sales representatives the ability to
concurrently service accounts while primarily selling new products to existing
dealers, in addition to selling new accounts. The former field customer
satisfaction representative's main purpose was to service existing accounts and
such costs were previously recorded as costs of revenues. Some cost efficiency
was also obtained through upgrading the Company's technical infrastructure.
Gross profit from consulting services decreased by $305,000, or 133%, to a gross
loss of $76,000 for the quarter ended September 30, 2000 from a gross profit of
$230,000 for the quarter ended September 30, 1999. This decrease was due
primarily to increased expenses associated with the development efforts of NMS
and to a lesser extent the completion of the implementation of the Around The
Wheel consulting project at the end of 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs increased by $2.1 million, or 70%, to $5.2 million for
the quarter ended September 30, 2000 from $3.0 million for the quarter ended
September 30, 1999. As a percentage of revenues, selling, general and
administrative costs were 27% for the quarter ended September 30, 2000 and
21% for the quarter ended September 30, 1999. The increase was due primarily
to the modification of the sales department infrastructure, which included
additional sales personnel. To a lesser extent, the increase was due to the
continued growth in the marketing department and the addition of
adminstrative personnel.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product
development costs increased by $49,000, or 4%, to $1,203,000 for the quarter
ended September 30, 2000 from $1,154,000 for the quarter ended September 30,
1999. The increase was due primarily to the Company's decision to continue to
invest in new service development and the difficulty of attracting qualified
full time employees. As a result, the Company was required to pay higher
salaries and utilize higher cost contractors. During the quarter ended
September 30, 2000, the Company capitalized
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$965,000 of costs associated with software developed for internal use in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 98-1, ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. As a percentage of total revenues,
technology and product development costs decreased to 6% for the quarter ended
September 30, 2000 from 8% for the quarter ended September 30, 1999.
AMORTIZATION OF GOODWILL AND ACQUISITION-RELATED COSTS. As a result of
the Company's acquisition of Computer Care in November 1999, for the quarter
ended September 30, 2000, the Company recognized $350,000 of amortization of
goodwill and various acquisition-related costs.
OTHER INCOME (EXPENSE), NET. Net other income decreased by $159,000 to
$223,000 for the quarter ended September 30, 2000 from net other income of
$383,000 for the quarter ended September 30, 1999. This decrease was due
primarily to the decrease in short-term investments as a result of the Computer
Care acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. Revenues from database marketing services increased by $21.8
million, or 62%, to $57.0 million in the nine months ended September 30, 2000
from $35.2 million in the nine months ended September 30, 1999. The increase in
database marketing services revenues was due primarily to the increase in
customer base, offset by the reductions in certain customer discounts and
credits. Since September 30, 1999, RESULTS program customers increased by
approximately 1,352, which includes the new customers associated with the
acquisition of Computer Care in November 1999. Revenues from consulting services
decreased by $2.7 million, or 59%, to $1.9 million in the nine months ended
September 30, 2000 from $4.7 million in the nine months ended September 30,
1999. The decrease in consulting services revenues was due primarily to the fact
that the Company has completed its implementation of the Around The Wheel
consulting project.
GROSS PROFIT. Gross profit from database marketing services
increased by $11.6 million, or 79%, to $26.3 million in the nine months ended
September 30, 2000 from $14.7 million in the nine months ended September 30,
1999. As a percentage of database marketing services revenues, database
marketing services gross profit increased to 46% in the nine months ended
September 30, 2000 from 42% for the nine months ended September 30, 1999. The
increase reflects the elimination of the Company's field customer
satisfaction department to reflect the Company's new sales methodology, which
allows the sales representatives the ability to concurrently service accounts
while primarily selling new products to existing dealers, in addition to
selling new accounts. The former field customer satisfaction representative's
main purpose was to service existing accounts and such costs were previously
recorded in cost of revenues. Some cost efficiency was also obtained through
upgrading the Company's technical infrastructure. Gross profit from
consulting services decreased by $1.1 million, or 159%, to a gross loss of
$397,000 in the nine months ended September 30, 2000 from a gross profit of
$677,000 in the nine months ended September 30, 1999. This decrease was due
primarily to increased expenses associated with the development efforts of
NMS and to a lesser extent the completion of the implementation of the Around
The Wheel consulting project.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs increased by $5.7 million, or 61%, to $15.0 million for the
nine months ended September 30, 2000 from $9.4 million in the nine months ended
September 30, 1999. As a percentage of total revenues, selling, general and
administrative costs were 26% for the nine months ended September 30,
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2000 and 23% for the nine months ended September 30, 1999. The increase was
due primarily to the modification of the sales department infrastructure,
which included additional sales personnel. To a lesser extent, the increase
was due to the continued growth in the marketing department and the addition
of administrative personnel.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product
development costs increased by $598,000, or 21%, to $3.4 million in the nine
months ended September 30, 2000 from $2.8 million in the nine months ended
September 30, 1999. The increase was due primarily to the Company's decision
to invest heavily in new service development and the difficulty of attracting
qualified full-time employees. As a result, the Company was required to pay
higher salaries and utilize higher cost contractors. For the nine months
ended September 30, 2000, the Company capitalized $3,059,000 of the cost
associated with software developed for internal use in accordance with
Statement of Position 98-1. As a percentage of total revenues, technology and
product development costs were 6% for the nine months ended September 30,
2000 and 7% for the nine months ended September 30, 1999.
AMORTIZATION OF GOODWILL AND ACQUISITION-RELATED COSTS. As a result of
the Company's acquisition of Computer Care in November 1999, for the nine months
ended September 30, 2000, the Company recognized $1,419,000 of amortization of
goodwill and various acquisition-related costs.
OTHER INCOME (EXPENSE), NET. Net other income increased by $1.3 million
to $1.7 million for the nine months ended September 30, 2000 from net other
income of $352,000 for the nine months ended September 30, 1999. This increase
was due primarily to a gain of $1.0 million related to the settlement of a
vendor dispute, which was recorded in Other Income during the second quarter
2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $1,829,000 and $6,847,000 for
the nine months ended September 30, 2000 and 1999, respectively. The decrease in
cash provided by operating activities was primarily due to the timing of the
collection of accounts receivable in the nine months ended September 30, 2000
compared to the same period in 1999.
Cash provided by (used in) investing activities was $8,560,000 and
$(15,061,000) in the nine months ended September 30, 2000 and 1999,
respectively. The increase in cash provided by investing activities was
primarily due to the maturity of short-term investments, offset by purchases of
property and equipment and investment in software development.
Cash provided by financing activities was $196,000 and $30,647,000 in
the nine months ended September 30, 2000 and 1999, respectively. The decrease in
cash provided by financing activities is due to the Company's completion of its
initial public offering in May 1999, which resulted in net proceeds of
approximately $32,100,000.
The Company has a working capital line of credit with Silicon Valley
Bank ("SVB") that is secured by substantially all of its assets. The total
available amount of the line of credit is $7.0 million, including a $3.3
million sub-limit for securing letters of credit. Borrowings under this
credit facility bear interest at SVB prime rate (9.5% at September 30, 2000),
plus 0.5% with a maturity date of May 9, 2001. As of September 30, 2000,
there are no borrowings outstanding under this line of credit. The Company
has a $2,790,000 letter of credit, which expires on March 31, 2001, to secure
the facility lease obligation for the Company's future facility. This letter
of credit reduces the amount available under the line of credit. The line of
credit contains certain
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covenants and restrictions, including a limitation on indebtedness requiring the
Company, as of the last day of each quarter, to maintain a ratio of quick assets
to current liabilities of at least 2.0 to 1.0. The Company also has a $2.0
million equipment line of credit with SVB that bears an interest rate of SVB
prime rate plus 0.5% with a draw period up to May 9, 2001. As of September 30,
2000, the Company had outstanding borrowings of $500,000 under the equipment
line of credit.
The Company has signed a $53-million, 15-year lease to build an
approximately 103,000-square foot corporate headquarters, with a projected
building completion and occupancy date of April 2001.
As of September 30, 2000, the Company has approximately $16.4
million of cash and cash equivalents. From time to time, the Company may
utilize the credit facility with SVB to meet short-term needs. The Company
believes that its existing capital resources together with cash generated
from operations and amounts available under the line of credit will be
sufficient to meet its requirements for at least the next twelve months and
its potential earn-out obligation related to its Computer Care acquisition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its excess cash in short-term, interest-bearing
investment-grade securities that are held for the duration of the term of the
respective instrument. The Company does not utilize derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion. Accordingly,
management believes that, while the investment-grade securities the Company
holds are subject to changes in the financial standing of the issuer of such
securities, it is not subject to any material risks arising from changes in
interest rates, foreign currency exchange rates, commodity prices, equity prices
or other market changes that affect market risk sensitive instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2000, the Company was notified by four individuals asserting
claims for unspecified equity interests in the Company. The Company believes
that the claims of these individuals are without merit and the Company intends
to vigorously defend any lawsuit asserting the claims of these individuals.
However, should any litigation be decided adversely to the Company, the Company
might be required to pay damages or issue shares of the Company's common stock
to these individuals.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) The effective date or the Company's registration statement on
Form S-1 (No. 333-62703) relating to the Company's initial
public offering was May 20, 1999. A total of 2,724,370 shares
of common stock in the aggregate were sold by the Company at a
price of $13.00 per share to an underwriting syndicate led by
Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc. and
Dain Rauscher Wessels. The offering commenced on May 21, 1999
and ended on May 25, 1999. The initial public offering
resulted in gross proceeds of approximately $35.4 million, of
which $2.5 million was applied toward the underwriting
discount. Expenses related to the offering totaled
approximately $800,000. Net proceeds to the Company were $32.1
million. From the time of receipt through September 30, 2000,
the net proceeds were used in the acquisition of Computer Care
($11.6 million), for purchases of property and equipment
related to
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operations ($7.6 million) and development of software for
internal use ($3.1 million). The remaining $9.8 million was
applied to net purchases of cash equivalents and short-term
investments in government securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are included as part of this Report:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.39 Contract Amendment No. 2 dated August 29,
2000 between the Registrant and Data Based
Advertising, Inc.
10.40 Joint Marketing Agreement dated October 24,
2000 between the Registrant and Percepta
LLC.
27.1 Financial Data Schedule for the nine months
ended September 30, 2000.
(b) Reports on Form 8-K: On August 21, 2000, Items 5 and 7 were
reported.
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.
NEWGEN RESULTS CORPORATION
(Registrant)
Date: November 14, 2000 /S/ GERALD L. BENOWITZ
------------------------------
Gerald L. Benowitz
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 /S/ SAMUEL SIMKIN
------------------------------
Samuel Simkin
Chief Operating Officer
(Principal Financial Officer)
17.
