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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 205498
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 March 31, 1998
or
[ ] Transitional report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transitional period from ________________ to __________________
Commission file number 0-29100
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PREMIER RESEARCH WORLDWIDE, LTD.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3264604
- ---------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employeer Identification No.)
incorporation or organization)
124 South 15th Street
Philadelphia, PA 19102
- ---------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
215-972-0420
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of Common Stock, $.01 par value, outstanding as of May 15,
1998, was 7,173,500.
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PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets--March 31, 1998 (unaudited) and
December 31, 1997 3
Condensed consolidated statements of operations (unaudited)--Three Months
Ended March 31, 1998 and 1997 4
Condensed consolidated statements of cash flows (unaudited)--Three Months
Ended March 31, 1998 and 1997 5
Notes to condensed consolidated financial statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-9
Part II. Other Information 10
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
27 Financial Data Schedule
b.) Reports on Form 8-K
None
Signatures 11
</TABLE>
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PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,575 $ 4,679
Short-term investments 12,697 17,084
Accounts receivable, net 5,813 5,169
Prepaid expenses and other 1,216 945
Deferred income taxes 91 91
------------- -------------
Total current assets 29,392 27,968
Property and equipment, net 2,348 1,986
Goodwill, net 2,442 2,538
Other assets 24 23
Deferred income taxes 4,215 4,259
------------- -------------
$ 38,421 $ 36,774
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,197 $ 1,745
Accrued expenses 1,117 1,214
Deferred revenues 5,041 3,348
-------------- --------------
Total current liabilities 7,355 6,307
-------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock-$10 par value, 500,000 shares authorized,
none issued and outstanding -- --
Common stock-$.01 par value, 15,000,000 shares authorized,
7,173,500 and 6,938,400 shares issued and outstanding 72 69
Additional paid-in-capital 36,961 36,430
Accumulated deficit (5,967) (6,032)
------------- -------------
Total stockholders' equity 31,066 30,467
------------- -------------
$ 38,421 $ 36,774
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
3
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PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Revenues $ 8,013 $ 4,143
Less-Reimbursed costs (1,240) (43)
------------ -----------
Net revenues 6,773 4,100
Costs and expenses:
Direct costs 2,758 1,422
Selling, general and administrative 3,825 2,059
Depreciation and amortization 343 138
----------- ------------
Total costs and expenses 6,926 3,619
----------- ------------
Income (loss) from operations (153) 481
Other income, net 262 249
------------ ------------
Income before income taxes 109 730
Income tax provision 44 306
----------- ------------
Net income $ 65 $ 424
=========== ============
Basic and diluted net income per share $ 0.01 $ 0.07
=========== ============
The accompanying notes are an integral part of these statements.
</TABLE>
4
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PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Operating activities:
Net income $ 65 $ 424
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 343 138
Deferred income taxes 44 --
Changes in assets and liabilities:
Accounts receivable (644) (868)
Prepaid expenses and other (272) (219)
Accounts payable (548) (397)
Accrued expenses (97) 75
Payable to UM Holdings Ltd. for income taxes -- 90
Deferred revenues 1,693 (463)
----------- -----------
Net cash provided by (used in) operating activities 584 (1,220)
----------- -----------
Investing activities:
Purchases of property and equipment (609) (230)
Purchases of short-term investments -- (6,663)
Proceeds from sales of short-term investments 4,387 --
----------- ----------
Net cash provided by (used in) investing activities 3,778 (6,893)
----------- -----------
Financing activities:
Net proceeds from issuance of common stock -- 34,159
Net proceeds from exercise of stock options 534 --
----------- ----------
Net cash provided by financing activities 534 34,159
----------- ----------
Net increase in cash and cash equivalents 4,896 26,046
Cash and cash equivalents, beginning of period 4,679 1,498
----------- ----------
Cash and cash equivalents, end of period $ 9,575 $ 27,544
=========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
5
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PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included. Operating results for the three
month period ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. Further
information on potential factors that could affect the Company's financial
results can be found in the Company's S-1 Registration Statement and its
Reports on Form 10-K and 10-Q filed with the Securities and Exchange
Commission.
Note 2. Net Income per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per
Share." This statement established new standards for computing and presenting
earnings per share and requires the restatement of prior year amounts. The
Company adopted SFAS No. 128 effective December 31, 1997.
Basic net income per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period.
Diluted net income per share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period, adjusted for the dilutive effect of common stock equivalents, which
consist of stock options, using the treasury stock method.
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per share computations. As
required by SFAS No. 128, all prior-period per share data has been restated to
conform to the provisions of this statement.
<TABLE>
<CAPTION>
Three Months Ended March 31,
- ----------------------------
Per
Net Share
1998 Income Shares Amount
- ---------------------------------------------------------- -------- ------ ------
<S> <C> <C> <C>
Basic net income.......................................... $ 65,000 7,082,000 $ 0.01
Effect of dilutive shares................................. -- 146,000 --
--------------- ----------- ---------
Diluted net income $ 65,000 7,228,000 $ 0.01
=============== =========== =========
1997
- ----------------------------------------------------------
Basic net income.......................................... $ 424,000 6,096,000 $ 0.07
Effect of dilutive shares................................. -- 269,000 --
--------------- ----------- ---------
Diluted net income $ 424,000 6,365,000 $ 0.07
=============== =========== =========
</TABLE>
Options to purchase 300,983 and 395,795 shares of common stock were
outstanding at March 31, 1998 and 1997, respectively, but were not included in
the respective computations of diluted net income per share because the option
exercise prices were greater than the average market price of the Company's
common stock during the respective periods.
6
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Note 3. Recently Adopted Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for financial statements issued for fiscal years beginning
after December 15, 1997. The Company's comprehensive income included net
income and unrealized gains and losses from foreign currency translation and
short-term investments. These unrealized gains and losses were immaterial for
the three months ended March 31, 1998 and 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company is a clinical research organization (CRO) providing a broad range
of integrated products and services to facilitate and expedite the product
development and regulatory approval process on a global basis to its clients
in the pharmaceutical, biotechnology and medical device industries. The
company's services include centralized core laboratory testing (diagnostic
services that consist primarily of ECG reading and blood laboratory services),
clinical trial and data management, bio-statistical analysis, health care
economics and outcomes research and regulatory affairs services. In addition,
the Company develops, markets and supports clinical trial software products.
The Company's core laboratory services are on a fee-for-service basis and
generally have terms from one month to two years. A portion of the Company's
fee typically is paid upon contract execution as a non-refundable up-front
payment, with the remaining amounts billed monthly. Clinical research service
contracts are generally fixed priced, with certain variable components, and
range in duration from a few months to two years. A portion of the Company's
fee typically is paid upon contract execution as a non-refundable up-front
payment, with the balance billed in accordance with the contract terms. The
Company's contracts generally may be terminated with or without cause on 30 to
90 days notice. Clients terminate or delay contracts for a variety of reasons,
including, among others, the failure of the product(s) being tested to satisfy
safety or efficacy requirements; unexpected or undesired clinical results of
the product; the client's decision to forego a particular study; insufficient
patient enrollment or investigator recruitment; and production problems
resulting in shortages of required supplies. Revenues from clinical trial
software and services are derived primarily from software license fees and
software maintenance and support services.
Revenues from core laboratory service contracts generally are recognized on a
per procedure basis as the work is performed. Revenues from clinical research
service contracts generally are recognized on a percentage of completion
basis, as work is performed. The Company regularly subcontracts with
third-party investigators in connection with clinical trials and with other
third-party providers for specialized services. These and other reimbursable
costs are paid by the Company and reimbursed by clients and, in accordance
with industry practice, are included in revenues. Since reimbursed costs may
vary significantly from contract to contract and are not meaningful for
analyzing trends in revenues, they are included in gross revenues but excluded
from net revenues. Revenues from clinical trial software licenses are
recognized upon shipment of the software and related documentation and
customer acceptance. Revenues from software maintenance and continuing support
contracts are recognized on a straight-line basis over the period in which the
software maintenance and continuing support is provided. Revenues from
consulting and training services are recognized when the services are
performed.
Consistent with industry practice, the Company considers net revenues its
primary measure of growth. The Company has had, and expects to continue to
have, certain clients, which will generate at least 10% of the Company's
overall net revenue. The Company believes that such concentration of business
is not uncommon in the clinical research industry.
Results of Operations
Three months ended March 31, 1998 compared to three months ended March 31, 1997.
Net revenues for the three months ended March 31, 1998, increased $2,673,000
or 65.2 % to $6,773,000 compared to $4,100,000 for the three months ended
March 31, 1997. The increase in net revenues resulted primarily from the
7
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Company's strong performance in clinical trial and data management products
and services which increased $3,532,000 to $4,773,000 for the quarter ended
March 31, 1998 from $1,241,000 for the quarter ended March 31, 1997. DLB
Systems, which was acquired by the Company in the fourth quarter of 1997,
accounted for $2,514,000 of the overall increase in clinical trail and data
management net revenues. During 1997, the Company made the strategic decision
to build, rather than buy, its international clinical research business, which
contributed $70,000 to net revenues in the 1998 quarter. Partially offsetting
the above increases were lower net revenues from the Company's core laboratory
operations, which declined to $1,856,000 in the 1998 quarter from $2,305,000
in the 1997 quarter. The decline in core laboratory net revenues resulted from
the completion of several large ECG contracts in the first quarter of 1997
with a lower level of new contracts initiated since the first quarter of 1997.
On February 12, 1998, the Company announced that it had signed a non-binding
letter of intent to acquire the assets of the South Florida Bioavailability
Clinic (SFBC). The Company completed the planned closure of its
Philadelphia-based Phase I unit during the first quarter of 1998, opting to
either outsource or, if the SFBC acquisition was successful, transfer its
Phase I requirements to SFBC. On April 8, 1998, the Company announced that it
had terminated discussions with SFBC and had decided to focus its resources
and efforts on further developing existing and new technologies. The Company
will continue to satisfy its clients Phase I requirements by outsourcing these
services to other organizations, including SFBC. During the first quarter of
1998, the Company generated $74,000 in net revenues from its Phase I unit
compared to $553,000 during the first quarter of 1997.
Direct costs of $2,758,000 during the three months ended March 31, 1998, were
$1,336,000 or 94.0% higher when compared to the $1,422,000 reported in the
three months ended March 31, 1997. Clinical trial and data management direct
expenses were $1,846,000 for the three months ended March 31, 1998 compared to
$367,000 for the three months ended March 31, 1997, accounting for the
majority of the year-to-year increase in overall direct expenses. DLB Systems'
direct expenses, which are included in clinical trial and data management,
were $759,000 for the 1998 quarter. The remaining increase in clinical trail
and data management direct expenses was volume related. Core laboratory direct
expenses increased slightly to $828,000 from $701,000 for the three months
ended March 31, 1998 and 1997, respectively. Partially offsetting these
increases were lower direct expenses in the Company's Phase I unit, which was
closed during the first quarter, which declined to $74,000 in the first
quarter of 1998 from $352,000 in the first quarter of 1997. Direct costs, as a
percentage on net revenues, were 40.7% for the three months ended March 31,
1998 compared to 34.7% of the three months ended March 31, 1997. The increase
in direct costs, as a percentage of net revenues, was due to a higher mix of
clinical trial management net revenues, which have higher direct costs.
Selling, general and administrative expenses increased $1,766,000 or 85.8% to
$3,825,000 for the three months ended March 31, 1998 from $2,059,000 for the
three months ended March 31, 1997. DLB Systems' selling, general and
administrative expenses were $1,030,000 for the three months ended March 31,
1998. The balance of the year-to-year increase reflects general growth to
support increased net revenues and the Company's decision to build its
international clinical research business, which accounted for $295,000 of the
increase in selling, general and administrative expenses. Selling, general and
administrative expenses were 56.5 % of net revenues for the three months ended
March 31, 1998 compared to 50.2% for the three months ended March 31, 1997. The
increase in selling, general and administrative expenses, as a percentage of
net revenues, was due primarily to the Company's decision to build, rather than
buy, its presence in Europe.
Depreciation and amortization expense increased to $343,000 in the first
quarter of 1998 from $138,000 in the comparable 1997 quarter. The increase was
due to the amortization of the DLB Systems goodwill and increased depreciation
expense resulting from additional capital spending to support the growth in
net revenues.
Other income increased to $262,000 from $249,000 for the three months ended
March 31, 1998 and 1997, respectively. The increase was due primarily to the
interest earned on the Company's cash, cash equivalents and short-term
investments.
The Company's effective tax rate was 40.0% of the three months ended March 31,
1998 compared to an effective tax rate of 42.0% for the three months ended
March 31, 1997.
Liquidity and Capital Resources
For the three months ended March 31, 1998, the Company generated cash from
operations of $584,000 compared to $1,220,000 of cash used in operations for
the three months ended March 31, 1997. The year-to-year change was primarily
the result of increased deferred revenues, partially offset by lower net
income. As a result of the Company's investment in
8
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domestic and international infrastructure, expenses have grown at a faster rate
than net revenues, thereby reducing net income.
At March 31, 1998, the Company had $9,575,000 of cash and cash equivalents on
hand and $12,697,000 invested in short-term securities. The Company generally
places its investments in A1P1 rated commercial bonds and paper, municipal
securities and certificates of deposit with maturities of less than one year.
During the three months ended March 31, 1998, the Company purchased $609,000
of equipment compared to $230,000 during the three months ended March 31,
1997. The increase in equipment purchases reflects the additional capital
equipment needed to support the growth of the Company.
During the three months ended March 31, 1998, the Company received $534,000 in
cash from the exercise of 235,100 employee stock options.
The Company has a line of credit with a bank, through June 30, 1998, that
provides for borrowings up to $3,000,000 at an interest rate of prime minus 35
basis points. The line of credit agreement includes certain covenants, the
most restrictive of which limit future indebtedness and require compliance
with a liabilities-to-tangible net worth ratio. To date, the Company has not
borrowed any amounts under its line of credit.
The Company expects that existing cash and cash equivalents, short-term
investments, cash flows from operations and borrowings under its line of
credit will be sufficient to meet its foreseeable cash needs for at least the
next year. However, there may be acquisition and other growth opportunities
that require additional external financing and the Company may from time to
time seek to obtain additional funds from the public or private issuances of
equity or debt securities. There can be no assurance that such financings will
be available or available on terms acceptable to the Company.
Year 2000
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore, computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The current versions of
the Company's software products support dates in the year 2000 and beyond. In
the event that any of the Company's significant suppliers or customers do not
successfully achieve Year 2000 compliance on a timely basis, the Company's
business or operations could be adversely affected. The Company has evaluated
its information technology infrastructure and has made or is in the process of
making modifications for Year 2000 compliance. The Company does not expect
future costs to modify its information technology infrastructure to be
material to its financial condition or results of operations.
Inflation
The Company believes the effects of inflation generally do not have a material
adverse effect on its results of operations or financial condition.
Cautionary Statement for Forward-Looking Information.
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth above may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve a number of risks and
uncertainties such as competitive factors, technology development, market
demand and the Company's ability to obtain new contracts and accurately
estimate net revenues due to variability in size, scope and duration of
projects, and internal issues of the sponsoring client. Further information on
potential factors that could affect the Company's financial results can be
found in the Company's S-1 Registration Statement and its Reports on Form 10-K
and 10-Q filed with the Securities and Exchange Commission.
9
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Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
27 Financial Data Schedule
b.) Reports on Form 8-K
None
10
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Signatures
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PREMIER RESEARCH WORLDWIDE, LTD.
(Registrant)
Date: May 15, 1998 By: /s/ Joel Morganroth
--------------------------
Joel Morganroth, MD
President and Chief
Executive Officer
Date: May 15, 1998 By: /s/ Fred M. Powell
----------------------
Fred M. Powell
Chief Financial Officer
(Principal Financial and Accounting
Officer)
11
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 9,575
<SECURITIES> 12,697
<RECEIVABLES> 5,990
<ALLOWANCES> (177)
<INVENTORY> 0
<CURRENT-ASSETS> 29,392
<PP&E> 8,966
<DEPRECIATION> (6,618)
<TOTAL-ASSETS> 38,421
<CURRENT-LIABILITIES> 7,355
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 30,994
<TOTAL-LIABILITY-AND-EQUITY> 38,421
<SALES> 0
<TOTAL-REVENUES> 6,773
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<TOTAL-COSTS> 2,758
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