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 June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ______ to _______
Commission File Number 0-24249
PROFESSIONAL DETAILING, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2919486
--------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 Mountainview Road
Upper Saddle River, New Jersey 07458
----------------------------------------
(Address of principal executive offices)
(201) 258-8450
----------------
(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.
Yes |X| No |_|
As of August 7, 2000 the Registrant had a total of 13,647,741 shares of Common
Stock, $.01 par value, outstanding.
<PAGE>
INDEX
PROFESSIONAL DETAILING, INC.
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements
Balance Sheets -- June 30, 2000 and December 31, 1999.......... 3
Statements of Operations -- Three and Six Months
Ended June 30, 2000 and 1999................................... 4
Statements of Cash Flows -- Six Months
Ended June 30, 2000 and 1999................................... 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... Not Applicable
Item 2. Changes in Securities and Use of Proceeds...................... 15
Item 3. Default Upon Senior Securities.......................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders............ 15
Item 5. Other Information....................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K........................ Not Applicable
SIGNATURES ........................................................... 16
2
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 111,830,629 $ 57,787,334
Short-term investments .................................... -- 1,677,317
Contract payments receivable .............................. 35,613,167 28,940,944
Unbilled costs and accrued profits on contracts in progress 4,509,058 2,257,400
Deferred training ......................................... 5,213,140 998,675
Other current assets ...................................... 3,597,990 2,438,511
Deferred tax asset ........................................ 210,544 352,312
------------- -------------
Total current assets ......................................... 160,974,528 94,452,493
Net property, plant & equipment .............................. 4,858,002 3,707,357
Other long-term assets ....................................... 4,544,253 4,800,120
------------- -------------
Total assets ................................................. $ 170,376,783 $ 102,959,970
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 5,684,394 $ 6,033,665
Payable to affiliate ...................................... -- --
Accrued incentives ........................................ 11,277,098 10,361,480
Accrued salaries and wages ................................ 5,802,170 3,870,745
Unearned contract revenue ................................. 26,828,160 17,672,640
Other accrued expenses .................................... 5,081,043 3,370,620
------------- -------------
Total current liabilities .................................... 54,672,865 41,309,150
-------------
Long-term liabilities:
Deferred tax liability .................................... 575,009 575,009
Other long-term liabilities ............................... 256,176 256,176
------------- -------------
Total long-term liabilities .................................. 831,185 831,185
------------- -------------
Total liabilities ............................................ $ 55,504,050 $ 42,140,335
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares
authorized; shares issued and
outstanding June 30, 2000 - 13,621,086;
December 31, 1999 - 11,975,097 .......................... 136,211 119,751
Preferred stock, $.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding ............ -- --
Additional paid-in capital ................................... 89,658,200 47,413,320
Retained earnings ............................................ 25,078,322 14,633,627
Accumulated other comprehensive income ....................... -- 92,224
Deferred compensation ........................................ -- (11,293)
Loan to officer .............................................. -- (1,427,994)
------------- -------------
Total stockholders' equity ................................... 114,872,733 60,819,635
------------- -------------
Total liabilities & stockholders' equity ..................... $ 170,376,783 $ 102,959,970
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net .................................................. $ 75,788,640 $ 41,006,137 $147,077,991 $ 81,317,887
Program expenses (including related party amounts of
$360,686 and $244,601 for the quarters ended
June 30, 2000 and 1999, and $1,064,151 and
$746,789 for the six months ended
June 30, 2000 and 1999, respectively) ...................... 58,108,132 30,611,159 108,228,337 60,093,881
------------ ------------ ------------ ------------
Gross profit .................................................. 17,680,508 10,394,978 38,849,654 21,224,006
Compensation expense .......................................... 6,793,475 4,325,976 15,187,274 9,052,315
Other selling, general & administrative expenses .............. 2,971,914 1,969,540 6,978,526 3,818,667
Acquisition and related expenses .............................. -- 1,334,847 -- 1,334,847
------------ ------------ ------------ ------------
Total selling, general & administrative expenses .............. 9,765,389 7,630,363 22,165,800 14,205,829
Operating income .............................................. 7,915,119 2,764,615 16,683,854 7,018,177
Other income, net ............................................. 255,301 802,130 939,043 1,603,526
------------ ------------ ------------ ------------
Income before provision for taxes ............................. 8,170,420 3,566,745 17,622,897 8,621,703
Provision for income taxes .................................... 3,331,927 1,535,457 7,170,598 3,268,836
------------ ------------ ------------ ------------
Net income .................................................... $ 4,838,493 $ 2,031,288 $ 10,452,299 $ 5,352,867
============ ============ ============ ============
Basic net income per share .................................... $ 0.36 $ 0.17 $ 0.79 $ 0.45
============ ============ ============ ============
Diluted net income per share .................................. $ 0.35 $ 0.17 $ 0.78 $ 0.44
============ ============ ============ ============
Basic weighted average number of shares outstanding ........... 13,592,028 11,949,007 13,298,612 11,947,725
============ ============ ============ ============
Diluted weighted average number of shares outstanding ......... 13,774,124 12,155,960 13,478,765 12,167,280
============ ============ ============ ============
Pro forma data (unaudited) (see note 5):
Income before provision for taxes, as reported ................ $ 3,566,745 $ 8,621,703
Pro forma provision for income tax ............................ 1,960,637 $ 3,982,620
------------ ------------
Pro forma net income .......................................... $ 1,606,108 $ 4,639,083
============ ============
Pro forma basic net income per share .......................... $ 0.13 $ 0.39
============ ============
Pro forma diluted net income per share ........................ $ 0.13 $ 0.38
============ ============
Pro forma basic weighted average number of shares outstanding . 11,949,007 11,947,725
============ ============
Pro forma diluted weighted average number of shares outstanding 12,155,960 12,167,280
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income.................................................................. $ 10,452,299 $ 5,352,867
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................................... 622,412 453,887
Non-cash compensation expense - stock options ...................... 11,293 22,632
Deferred taxes, net ................................................ -- (121,264)
Amortization of goodwill ........................................... 234,650 --
Loss on other investments .......................................... 2,500,000 --
Other changes in assets and liabilities:
Increase in contract payments receivable ........................... (6,672,223) (4,926,761)
(Increase) decrease in unbilled costs .............................. (2,251,658) 878,782
(Increase) in deferred training .................................... (4,214,465) (1,035,436)
(Increase) decrease in other current assets ........................ (1,159,480) (243,161)
(Increase) in other long-term assets ............................... (17,229) (69,172)
(Decrease) increase in accounts payable ............................ (349,271) 1,481,750
Increase in accrued liabilities .................................... 2,847,042 1,367,204
Increase in unearned contract revenue .............................. 9,155,520 5,213,189
Increase in payable to affiliate ................................... -- 305,505
Increase in other current liabilities .............................. 1,890,638 538,970
Increase in other long-term liabilities ............................ -- 112,713
------------- -------------
Net cash provided by operating activities .................................. 13,049,528 9,331,705
------------- -------------
Cash Flows From Investing Activities
Sale of short-term investments ........................................ 1,585,093 994,217
Other investment ...................................................... (2,500,000) --
Purchase of property and equipment .................................... (1,773,057) (560,843)
------------- -------------
Net cash (used in) provided by investing activities ........................ (2,687,964) 433,374
------------- -------------
Cash Flows From Financing Activities
Net proceeds from secondary offering .................................. 41,674,508 --
Net proceeds from the exercise of stock options ....................... 586,832 179,648
Distributions to S corporation stockholders ........................... (7,603) (280,000)
Repayment of loan from officer ........................................ 1,427,994 --
------------- -------------
Net cash provided by (used in) financing activities ........................ 43,681,731 (100,352)
------------- -------------
Net increase in cash and cash equivalents .................................. $ 54,043,295 9,664,727
Cash and cash equivalents - beginning ...................................... 57,787,334 56,989,233
------------- -------------
Cash and cash equivalents - ending ......................................... $ 111,830,629 $ 66,653,960
============= =============
Cash paid for interest ..................................................... $ 4,733 $ --
============= =============
Cash paid for taxes ........................................................ $ 5,260,583 $ 3,323,051
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements and related notes
should be read in conjunction with the financial statements of Professional
Detailing, Inc. and its subsidiaries (the "Company" or "PDI") and related notes
as included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 as filed with the Securities and Exchange Commission. The
unaudited interim financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited interim financial statements include all adjustments (consisting
only of normal recurring adjustments) which, in the judgement of management, are
necessary for a fair presentation of such financial statements. Operating
results for the three and six-month periods ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. Certain prior period amounts have been reclassified to
conform with the current presentation with no effect on financial position, net
income or cash flows.
2. Secondary Public Offering of Common Stock
On January 26, 2000, a public offering of 2,800,000 shares of the
Company's common stock was completed at a public offering price per share of
$28.00, yielding net proceeds per share after deducting underwriting discounts
of $26.35 (before deducting expenses of the offering). Of the shares offered,
1,399,312 shares were sold by the Company and 1,400,688 shares were sold by
certain selling shareholders. In addition, in connection with the exercise of
the underwriters' over-allotment option, an additional 420,000 shares were sold
to the underwriters on February 1, 2000 on the same terms and conditions
(210,000 shares were sold by the Company and 210,000 shares were sold by a
selling shareholder). Net proceeds to the Company after expenses of the offering
were approximately $41.7 million.
3. Acquisitions
On May 12, 1999, the Company acquired 100% of the capital stock of TVG,
Inc. ("TVG") in a merger transaction. In connection with the transaction, the
Company issued 1,256,882 shares of its common stock in exchange for the
outstanding shares of TVG. The acquisition has been accounted for as a pooling
of interests and, accordingly, all prior periods presented in the accompanying
consolidated financial statements have been restated to include the accounts and
operations of TVG. TVG is a provider of marketing research and consulting
services as well as professional education and communication services to the
pharmaceutical industry.
6
<PAGE>
Net revenue and net income of the separate companies for the three months
ended March 31, 1999, the period preceding the acquisition, were as follows:
Revenue, net Net income
------------ ----------
PDI $34,580,979 $ 2,696,097
TVG 5,730,771 625,482
----------- -----------
Combined $40,311,750 $ 3,321,579
=========== ===========
In August 1999, the Company, through its wholly-owned subsidiary,
ProtoCall, Inc. ("ProtoCall"), acquired substantially all of the operating
assets of ProtoCall, LLC, a leading provider of syndicated contract sales
services to the United States pharmaceutical industry. The purchase price was
$4.5 million (of which $4.1 million was paid at closing) plus up to an
additional $3.0 million in contingent payments payable during 2000 if ProtoCall
achieves defined performance benchmarks. This acquisition was accounted for as a
purchase. In connection with this transaction, the Company recorded $4.3 million
in goodwill (included in other long-term assets) which is being amortized over a
period of 10 years.
4. Other Investments
In February 2000, the Company signed a three-year agreement with
iPhysicianNet Inc. ("iPhysicianNet"). In connection with this agreement, the
Company made an investment of $2.5 million in preferred stock of iPhysicianNet.
Under the agreement PDI was appointed as the exclusive contract sales
organization in the United States to be affiliated with the iPhysicianNet
network, prospectively allowing PDI to offer e-detailing capabilities to its
existing and potential clients. For the three and six months ended June 30,
2000, the Company recorded net losses related to this investment of $1,555,109
and $2,500,000, respectively, which represented its share of iPhysicianNet's
losses for the respective periods.
5. Pro Forma Information
Prior to its acquisition in May 1999, TVG was an S corporation and not
subject to Federal income tax. During such periods the net income of TVG had
been reported by and taxed directly to the pre-acquisition shareholders rather
than TVG. Accordingly, for informational purposes, the accompanying statements
of operations for the three and six months ended June 30, 1999 include a pro
forma adjustment for the income taxes which would have been recorded had TVG
been a C corporation for the periods presented based on the tax laws in effect
during those periods. The pro forma adjustment for income taxes is based upon
the statutory rates in effect for C corporations during the three and six months
ended June 30, 1999. The pro forma adjustment for income taxes for the three and
six months ended June 30, 1999 also reflects the non-deductibility of certain
acquisition related costs.
6. New Accounting Pronouncements
The Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," in June 1998. This statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. This statement addresses the
accounting for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. The Company does not
believe that the adoption of this new statement will have a material effect on
the Company's financial statements.
7
<PAGE>
7. Basic and Diluted Net Income Per Share
A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share for the three-month and six-month periods ended
June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average number
of common shares outstanding ........ 13,592,028 11,949,007 13,298,612 11,947,725
Dilutive effect of stock options ......... 182,096 206,953 180,153 219,555
---------- ---------- ---------- ----------
Diluted weighted average number
of common shares outstanding ........ 13,774,124 12,155,960 13,478,765 12,167,280
========== ========== ========== ==========
</TABLE>
8. Investments
At December 31, 1999, the Company had investments of $1.7 million, which
were classified as available-for-sale securities and recorded at fair market
value. These investments were sold during the quarter ended March 31, 2000. The
sale resulted in a gain of $163,815, which was recognized in "Other income, net"
during the quarter ended March 31, 2000 and six months ended June 30, 2000. As
of June 30, 2000, the Company had no investments classified as
available-for-sale securities.
9. Comprehensive Income
A reconciliation of net income as reported in the Consolidated Statements
of Operations to Other comprehensive income, net of taxes is presented in the
table below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 4,838,493 $ 2,031,288 $ 10,452,299 $ 5,352,867
Other comprehensive income, net of tax:
Unrealized holding gain on
available-for-sale securities
arising during period -- 54,753 -- 99,325
Reclassification adjustment for
gains included in net income -- -- (92,224) --
------------ ------------ ------------ ------------
Other comprehensive income $ 4,838,493 $ 2,086,041 $ 10,360,075 $ 5,452,192
============ ============ ============ ============
</TABLE>
10. Segment Information
PDI is organized primarily on the basis of its three principal service
offerings, which include customized contract sales services, marketing research
and consulting services, and professional education and communication services.
Marketing research and consulting services and professional education and
communication services have been combined to form the "All other" category.
The accounting policies of the segments are the same as those described in
the "Nature of Business and Significant Accounting Policies" footnote to the
Company's financial statements, which is included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. Segment data includes a
charge allocating all corporate headquarters costs to each of the operating
segments. PDI evaluates the performance of its segments and allocates resources
to them based on revenue, net. The
8
<PAGE>
Company does not utilize information about assets for its operating segments
and, accordingly, no asset information is presented in the following table.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Contract sales services $ 69,996,551 $ 34,387,671 $136,667,711 $ 68,968,649
All other 5,792,089 6,618,466 10,410,280 12,349,238
------------ ------------ ------------ ------------
Total $ 75,788,640 $ 41,006,137 $147,077,991 $ 81,317,887
============ ============ ============ ============
Operating income
Contract sales services $ 7,239,933 $ 3,108,628 $ 15,632,650 $ 6,825,904
All other 675,186 990,834 1,051,204 1,527,120
------------ ------------ ------------ ------------
Total $ 7,915,119 $ 4,099,462 $ 16,683,854 $ 8,353,024
============ ============ ============ ============
Reconciliation of operating
income to income before
provision for income taxes
Total operating income
for operating groups $ 7,915,119 $ 4,099,462 $ 16,683,854 $ 8,353,024
Acquisition and related expenses -- (1,334,847) -- (1,334,847)
Other income, net 255,301 802,130 939,043 1,603,526
------------ ------------ ------------ ------------
Income before provision
for income taxes $ 8,170,420 $ 3,566,745 $ 17,622,897 $ 8,621,703
============ ============ ============ ============
Capital expenditures
Contract sales services $ 806,466 $ 203,334 $ 1,449,577 $ 507,620
All other 219,303 26,870 248,715 53,223
------------ ------------ ------------ ------------
Total $ 1,025,769 $ 230,204 $ 1,698,292 $ 560,843
============ ============ ============ ============
Depreciation expense
Contract sales services $ 265,131 $ 133,852 $ 457,467 $ 260,129
All other 90,718 98,508 164,945 193,758
------------ ------------ ------------ ------------
Total $ 355,849 $ 232,360 $ 622,412 $ 453,887
============ ============ ============ ============
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Various statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. The
forward-looking statements included in this report are based on current
expectations that involve numerous risks and uncertainties. Our plans and
objectives are based, in part, on assumptions involving judgements about, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
our assumptions underlying the forward-looking statements are reasonable, any of
these assumptions could prove inaccurate and, therefore, we cannot assure you
that the forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this report, the inclusion of these
statements should not be interpreted by anyone that our objectives and plans
will be achieved. Factors that could cause actual results to differ materially
from those expressed or implied by forward-looking statements include, but are
not limited to, the factors set forth in "Certain Factors That May Affect Future
Growth," under Part I, Item 1, of the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 as filed with the Securities and Exchange
Commission.
GENERAL
We are a leading and rapidly growing contract sales organization ("CSO")
providing product detailing programs and other marketing and promotional
services to the United States pharmaceutical industry. Our primary objective is
to enhance our leadership position in the growing CSO industry and to become the
premier supplier of product detailing programs and other marketing and
promotional services to the pharmaceutical industry and other segments of the
healthcare market. We have demonstrated strong internal growth generated by
renewing and expanding programs with existing clients and by securing new
business from leading pharmaceutical companies.
On May 12, 1999, we acquired 100% of the capital stock of TVG, Inc.
("TVG") in a merger transaction. In connection with that transaction, we issued
1,256,882 shares of our common stock in exchange for the outstanding shares of
TVG. The acquisition has been accounted for as a pooling of interests and,
accordingly, all prior periods presented in the accompanying consolidated
financial statements have been restated to include the accounts and operations
of TVG. The acquisition of TVG expands the scope of high quality services that
we provide to the pharmaceutical industry. TVG has provided services to 18 of
the top 20 pharmaceutical companies. Through its Marketing Research and
Consulting division, TVG provides brand marketing strategy, product profiling,
positioning, and message development services. Projects run across the full
range of product lifecycles, with an emphasis on the critical pre-launch
planning phase. Through its Education/Communications division, TVG provides a
broad spectrum of professional education and communication services, including
dinner meetings, symposia, teleconferences and on-site hospital programs.
On August 31, 1999, we acquired, through our wholly-owned subsidiary
ProtoCall, Inc. ("ProtoCall"), substantially all of the operating assets of
ProtoCall, LLC, a leading provider of syndicated contract sales services to the
United States pharmaceutical industry. The purchase price was $4.5 million (of
which $4.1 million was paid at closing) plus up to an additional $3.0 million in
contingent payments payable during 2000 if ProtoCall achieves defined
performance benchmarks. This acquisition was accounted for as a purchase. The
acquisition of ProtoCall adds a syndicated sales force option to our
10
<PAGE>
product offerings expanding the scope and flexibility of high quality services
that we can provide to our customers. In connection with this transaction, we
recorded $4.3 million in goodwill, which is being amortized over a period of 10
years.
On January 26, 2000, a public offering of 2,800,000 shares of our common
stock was completed at a public offering price per share of $28.00, yielding net
proceeds per share after deducting underwriting discounts of $26.35 (before
deducting expenses of the offering). Of the shares offered, 1,399,312 shares
were sold by us and 1,400,688 shares were sold by certain selling shareholders.
In addition, in connection with the exercise of the underwriters' over-allotment
option, an additional 420,000 shares were sold to the underwriters on February
1, 2000 on the same terms and conditions (210,000 shares were sold by us and
210,000 shares were sold by a selling shareholder). Net proceeds to us after
expenses of the offering were approximately $41.7 million.
In February 2000, we signed a three-year agreement with iPhysicianNet Inc.
("iPhysicianNet"). In connection with this agreement, we made an investment of
$2.5 million in preferred stock of iPhysicianNet. Under the agreement we were
appointed the exclusive CSO in the United States to be affiliated with the
iPhysicianNet network, allowing us to offer e-detailing capabilities to
iPhysicianNet's and our existing and potential clients. For the three and six
months ended June 30, 2000, we recorded net losses related to this investment of
$1,555,109 and $2,500,000, respectively, which represented our share of
iPhysicianNet's losses from the respective periods.
Until its acquisition by us on May 12, 1999, TVG was an S corporation.
Accordingly, TVG's net income had been reported by and taxed directly to the
pre-acquisition stockholders.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statements of operations data as a percentage of revenue. The trends illustrated
in this table may not be indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue, net ........................................ 100.0% 100.0% 100.0% 100.0%
Program expenses .................................... 76.7 74.7 73.6 73.9
----- ----- ----- -----
Gross profit ..................................... 23.3 25.3 26.4 26.1
Compensation expense ................................ 9.0 10.5 10.3 11.1
Other selling, general and administrative expenses .. 3.9 4.8 4.8 4.7
Acquisition and related expenses .................... 0.0 3.3 0.0 1.7
----- ----- ----- -----
Total selling, general and administrative expenses 12.9 18.6 15.1 17.5
----- ----- ----- -----
Operating income .................................... 10.4 6.7 11.3 8.6
Other income, net ................................... 0.4 2.0 0.7 2.0
----- ----- ----- -----
Income before provision for income taxes ......... 10.8 8.7 12.0 10.6
Provision for income taxes .......................... 4.4 3.7 4.9 4.0
----- ----- ----- -----
Net income ....................................... 6.4% 5.0% 7.1% 6.6%
===== ===== ===== =====
</TABLE>
11
<PAGE>
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
Revenue. Revenue for the quarter ended June 30, 2000 was $75.8 million, an
increase of 84.8% over revenue of $41.0 million for the quarter ended June 30,
1999. This increase in revenue was generated primarily from the continued
renewal and expansion of existing product detailing programs and the expansion
of our client base, including several product detailing programs that started
during the fourth quarter of 1999 and the first quarter of 2000.
Program expenses. Program expenses for the quarter ended June 30, 2000
were $58.1 million, an increase of 89.8% over program expenses of $30.6 million
for the quarter ended June 30, 1999. As a percentage of revenue, program
expenses increased to 76.7% in the 2000 period from 74.7% in the corresponding
1999 period. This increase reflects a greater proportion of larger programs with
longer term durations which have slightly lower gross profit margins but afford
the opportunity for additional compensation through the achievement of
performance incentives.
Compensation expense. Compensation expense for the quarter ended June 30,
2000 was $6.8 million, an increase of 57.0% over compensation expense of $4.3
million for the quarter ended June 30, 1999. As a percentage of revenue,
compensation expense decreased to 9.0% in the first quarter of 2000 from 10.5%
in the comparable 1999 period. This decrease as a percentage of revenue is a
result of continued operating efficiencies that we have realized through our
growth.
Other selling, general and administrative expenses. Other selling, general
and administrative expenses for the quarter ended June 30, 2000 were $3.0
million, an increase of 50.9% over other selling, general and administrative
expenses of $2.0 million for the quarter ended June 30, 1999. As a percentage of
revenue, other selling, general and administrative expenses decreased to 3.9% in
the first quarter of 2000 from 4.8% in the comparable 1999 period. This decrease
as a percentage of revenue is a result of continued operating efficiencies that
we have realized through our growth.
Operating income. Operating income for the quarter ended June 30, 2000 was
$7.9 million compared to operating income of $2.8 million for the quarter ended
June 30, 1999. As a percentage of revenue, operating income increased to 10.4%
for the 2000 period from 6.7% in the corresponding 1999 period. Excluding
acquisition and related expenses of $1.3 million, operating income would have
been $4.1 million or 10.0% for the three months ended June 30, 1999.
Other income, net. Other income for the quarter ended June 30, 2000 was
$0.3 million compared to other income of $0.8 million, all of which was interest
income, for the quarter ended June 30, 1999. Other income for the 2000 period
consisted of interest income of $1.8 million which was partially offset by our
share in the losses of iPhysicianNet of $1.5 million. The increase in interest
income was due to the investment of the proceeds of our secondary offering and
rising interest rates.
Provision for income taxes. Income taxes of $3.3 million for the quarter
ended June 30, 2000 and $1.5 million for the quarter ended June 30, 1999
consisted of Federal and state corporate income taxes. TVG was an S corporation
for Federal income tax purposes until its acquisition by us on May 12, 1999 and
therefore incurred no Federal income taxes prior to the acquisition.
Pro forma net income. We were a C corporation for the quarter ended June
30, 2000 and therefore there is no pro forma information for that period. Prior
to its acquisition by us on May 12, 1999, TVG was an S corporation. Pro forma
net income for the quarter ended June 30, 1999 of $1.6 million assumes that TVG
was taxed for Federal and state corporate income tax purposes as a C corporation
during that period.
12
<PAGE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenue. Revenue for the six months ended June 30, 2000 was $147.1
million, an increase of 80.9% over revenue of $81.3 million for the six months
ended June 30, 1999. This increase in revenue was generated primarily from the
continued renewal and expansion of existing product detailing programs and the
expansion of our client base, including several product detailing programs that
started during the fourth quarter of 1999 and the first quarter of 2000.
Program expenses. Program expenses for the six months ended June 30, 2000
were $108.2 million, an increase of 80.1% over program expenses of $60.1 million
for the six months ended June 30, 1999. As a percentage of revenue, program
expenses decreased to 73.6% in the 2000 period from 73.9% in the corresponding
1999 period. This decrease was caused by the high gross profit realized on our
incentive payments and efficiencies associated with the rollout of new programs
offset by a greater proportion of larger programs with longer term durations
which have slightly lower gross profit margins but afford the opportunity for
additional compensation through the achievement of performance incentives.
Compensation expense. Compensation expense for the six months ended June
30, 2000 was $15.2 million, an increase of 67.8% over compensation expense of
$9.1 million for the six months ended June 30, 1999. As a percentage of revenue,
compensation expense decreased to 10.3% in the first half of 2000 from 11.1% in
the comparable 1999 period. This decrease as a percentage of revenue is a result
of continued operating efficiencies that we have realized through our growth.
Other selling, general and administrative expenses. Other selling, general
and administrative expenses for the six months ended June 30, 2000 were $7.0
million, an increase of 82.7% over other selling, general and administrative
expenses of $3.8 million for the six months ended June 30, 1999. As a percentage
of revenue, other selling, general and administrative expenses in the first half
of 2000 were consistent with the first half of 1999.
Operating income. Operating income for the six months ended June 30, 2000
was $16.7 million compared to operating income of $7.0 million for the six
months ended June 30, 1999. As a percentage of revenue, operating income
increased to 11.3% for the 2000 period from 8.6% in the corresponding 1999
period. Excluding acquisition and related expenses of $1.3 million, operating
income would have been $8.4 million, or 10.3%, for the six months ended June 30,
1999.
Other income, net. Other income for the six months ended June 30, 2000 was
$0.9 million compared to other income of $1.6 million, all of which was interest
income, for the six months ended June 30, 1999. Other income for the 2000 period
consisted of interest income of $3.4 million which was partially offset by our
share in the losses of iPhysicianNet of $2.5 million. The increase in interest
income was due to the investment of the proceeds of our secondary offering and
rising interest rates.
Provision for income taxes. Income taxes of $7.2 million for the six
months ended June 30, 2000 and $3.3 million for the six months ended June 30,
1999 consisted of Federal and state corporate income taxes. TVG was an S
corporation for Federal income tax purposes until its acquisition by us on May
12, 1999 and therefore incurred no Federal income taxes prior to the
acquisition.
Pro forma net income. We were a C corporation for the six months ended
June 30, 2000 and therefore there is no pro forma information for that period.
Prior to its acquisition by us on May 12, 1999, TVG was an S corporation. Pro
forma net income for the six months ended June 30, 1999 of $4.6 million assumes
that TVG was taxed for Federal and state corporate income tax purposes as a C
corporation during that period.
13
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had cash and cash equivalents of approximately
$111.8 million and working capital of $106.3 million compared to cash and cash
equivalents of approximately $57.8 million and working capital of $53.1 million
at December 31, 1999.
For the six months ended June 30, 2000, net cash provided by operating
activities was $13.0 million, an increase of $3.7 million from cash provided by
operating activities of $9.3 million for the same period in 1999. The main
component of cash provided by operating activities for the six months ended June
30, 2000 was net income from operations of $10.5 million. The balances in "Other
changes in assets and liabilities" may fluctuate depending on a number of
factors, including the number and size of programs, contract terms and other
timing issues. These fluctuations may vary in size and direction each reporting
period.
For the six months ended June 30, 2000, net cash used in investing
activities was $2.7 million compared to net cash provided by investing
activities of $0.4 million for the same period in 1999. Net cash used in
investing activities for the six months ended June 30, 2000 consisted of $2.5
million in connection with the investment in iPhysicianNet and $1.8 million in
purchases of property and equipment, partially offset by the sale of $1.6
million in short-term investments.
For the six months ended June 30, 2000, net cash provided by financing
activities of $43.7 million consisted primarily of the net proceeds from our
secondary offering of $41.7 million, the repayment of loan from officer of $1.4
million and proceeds from the exercise of stock options of $0.6 million.
We believe that our cash and cash equivalents and future cash flows
generated from operations will be sufficient to meet our foreseeable operating
and capital requirements for the next twelve months. We continue to evaluate and
review acquisition candidates in the ordinary course of business.
14
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Part II - Other Information
Item 1 - Not Applicable
Item 2 - Changes in Securities and Use of Proceeds
On May 19, 1998, the Company completed its initial public offering (the
"IPO") of 3,220,000 shares of Common Stock (including 420,000 shares in
connection with the exercise of the underwriters' over-allotment option) at a
price per share of $16.00. Net proceeds to the Company after expenses of the IPO
were approximately $46.4 million.
(1) Effective date of Registration Statement: May 19, 1998 (File No.
333-46321).
(2) The Offering commenced on May 19, 1998 and was consummated on May 22,
1998.
(3) Not applicable.
(4)(i) All securities registered in the Offering were sold.
(4)(ii) The managing underwriters of the Offering were Morgan Stanley Dean
Witter, William Blair & Company and Hambrecht & Quist.
(4)(iii) Common Stock, $.01 par value.
(4)(iv) Amount registered and sold: 3,220,000 shares.
Aggregate purchase price: $51,520,000.
All shares were sold for the account of the Issuer.
(4)(v) $3,606,400 in underwriting discounts and commissions were paid to the
underwriters. $1,490,758 of other expenses were incurred, including
estimated expenses.
(4)(vi) $46,422,842 of net Offering proceeds to the Issuer.
(4)(vii) Use of Proceeds:
$46,422,000 of temporary investments with average maturities of three
months as of June 30, 2000.
Item 3 - Not Applicable
Item 4 - Submission of matters to a vote of security holders
On June 7, 2000 the Company held its 2000 annual meeting of stockholders.
At the meeting, John M. Pietruski and Charles T. Saldarini were re-elected as
Class III Directors of the Company for three-year terms with 12,803,711 votes
cast in favor of their election and 47,709 votes withheld. In addition, the
Professional Detailing, Inc. 2000 Omnibus Incentive Compensation Plan was
approved with 9,817,594 votes in favor, 1,945,440 votes against and 11,764
abstentions.
Item 5 - Not Applicable
Item 6 - Not Applicable
15
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
August 11, 2000 PROFESSIONAL DETAILING, INC.
By: /s/ Charles T. Saldarini
-------------------------------------
Charles T. Saldarini, President
and Chief Executive Officer
By: /s/ Bernard C. Boyle
-------------------------------------
Bernard C. Boyle
Chief Financial and Accounting
Officer
16
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
August 11, 2000 PROFESSIONAL DETAILING, INC.
By:
-------------------------------------
Charles T. Saldarini, President
and Chief Executive Officer
By:
-------------------------------------
Bernard C. Boyle
Chief Financial and Accounting
Officer
