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 March 31, 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 of (I.R.S. Employer
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 May 8, 2000 the Registrant had a total of 13,585,965 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
March 31, 2000 and December 31, 1999................................ 3
Statements of Operations -- Three Months
Ended March 31, 2000 and 1999....................................... 4
Statements of Cash Flows -- Three
Months Ended March 31, 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........................... 14
Item 3. Default Upon Senior Securities.......................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders..... Not Applicable
Item 5. Other Information....................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K.................................... 14
SIGNATURES ................................................................. 15
2
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 115,846,634 $ 57,787,334
Short-term investments .......................................................... -- 1,677,317
Contract payments receivable .................................................... 21,427,498 28,940,944
Unbilled costs and accrued profits on contracts in progress ..................... 6,254,376 2,257,400
Deferred training ............................................................... 4,700,282 998,675
Other current assets ............................................................ 1,710,147 2,438,511
Deferred tax asset .............................................................. 210,544 352,312
------------- -------------
Total current assets ............................................................... 150,149,481 94,452,493
Net property, plant & equipment .................................................... 4,184,888 3,707,357
Other investments .................................................................. 1,555,109 --
Other long-term assets ............................................................. 4,661,578 4,800,120
------------- -------------
Total assets ....................................................................... $ 160,551,056 $ 102,959,970
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 10,185,621 $ 6,033,665
Payable to affiliate ............................................................ 307,097 --
Accrued incentives .............................................................. 7,119,074 10,361,480
Accrued salaries and wages ...................................................... 7,316,961 3,870,745
Unearned contract revenue ....................................................... 18,422,206 17,672,640
Other accrued expenses .......................................................... 6,850,601 3,370,620
------------- -------------
Total current liabilities .......................................................... 50,201,560 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 .................................................................. $ 51,032,745 $ 42,140,335
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized; shares issued and
outstanding March 31, 2000 - 13,585,179,
December 31, 1999 - 11,975,097 ............................................... 135,852 119,751
Preferred stock, $.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding ................................................ -- --
Additional paid-in capital ......................................................... 89,142,630 47,413,320
Retained earnings .................................................................. 20,239,829 14,633,627
Accumulated other comprehensive income ............................................. -- 92,224
Deferred compensation .............................................................. -- (11,293)
Loan to officer .................................................................... -- (1,427,994)
------------- -------------
Total stockholders' equity ......................................................... 109,518,311 60,819,635
------------- -------------
Total liabilities & stockholders' equity ........................................... $ 160,551,056 $ 102,959,970
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue, net ....................................................................... $71,289,351 $40,311,750
Program expenses (including related party amounts of
$703,465 and $502,188 for the periods ended
March 31, 2000 and 1999, respectively) .......................................... 50,120,205 29,482,723
----------- -----------
Gross profit ....................................................................... 21,169,146 10,829,027
Compensation expense ............................................................... 8,393,798 4,726,339
Other selling, general & administrative expenses ................................... 4,006,613 1,849,127
----------- -----------
Total selling, general & administrative expenses ................................... 12,400,411 6,575,466
Operating income ................................................................... 8,768,735 4,253,561
Other income, net .................................................................. 683,741 801,396
----------- -----------
Income before provision for taxes .................................................. 9,452,476 5,054,957
Provision for income taxes ......................................................... 3,838,670 1,733,378
----------- -----------
Net income ......................................................................... $ 5,613,806 $ 3,321,579
----------- -----------
Basic net income per share ......................................................... $ 0.43 $ 0.28
=========== ===========
Diluted net income per share ....................................................... $ 0.43 $ 0.27
=========== ===========
Basic weighted average number of shares outstanding ................................ 13,005,196 11,946,444
=========== ===========
Diluted weighted average number of shares outstanding .............................. 13,183,406 12,178,599
=========== ===========
Pro forma data (unaudited) (see note 5):
Income before provision for taxes, as reported ..................................... $ 5,054,957
Pro forma provision for income tax ................................................. 2,021,983
-----------
Pro forma net income ............................................................... $ 3,032,974
-----------
Pro forma basic net income per share ............................................... $ 0.25
-----------
Pro forma diluted net income per share ............................................. $ 0.25
===========
Pro forma basic weighted average number of shares outstanding ...................... 11,946,444
-----------
Pro forma diluted weighted average number of shares outstanding .................... 12,178,599
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PROFESSIONAL DETAILING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ....................................................................... $ 5,613,806 $ 3,321,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................................ 266,564 223,310
Non-cash compensation expense - stock options ........................... 11,293 11,316
Amortization of goodwill ................................................ 117,325 --
Loss on other investments ............................................... 944,891 --
Other changes in assets and liabilities:
Decrease (increase) in contract payments receivable ..................... 7,513,446 (7,671,523)
(Increase) decrease in unbilled costs ................................... (3,996,975) 1,097,378
(Increase) in deferred training ......................................... (3,701,607) (677,261)
Decrease in other current assets ........................................ 728,363 90,019
(Increase) in other long-term assets .................................... (17,231) (69,172)
Increase in accounts payable ............................................ 4,151,956 1,667,830
Increase in accrued liabilities ......................................... 203,810 875,063
Increase in unearned contract revenue ................................... 749,566 6,865,918
Increase in payable to affiliate ........................................ 307,097 134,383
Increase in other current liabilities ................................... 3,660,197 1,292,602
(Decrease) in other long-term liabilities ............................... -- (204,503)
------------- -------------
Net cash provided by operating activities ........................................ 16,552,501 6,956,939
------------- -------------
Cash Flows From Investing Activities
Sale of short-term investments ............................................. 1,585,093 996,312
Other investments .......................................................... (2,500,000) --
Purchase of property and equipment ......................................... (744,095) (330,639)
------------- -------------
Net cash (used in) provided by investing activities .............................. (1,659,002) 665,673
------------- -------------
Cash Flows From Financing Activities
Net proceeds from secondary offering ....................................... 41,734,754 --
Net proceeds from the exercise of stock options ............................ 10,656 --
Distributions to S corporation stockholders ................................ (7,603) --
Repayment of loan from officer ............................................. 1,427,994 --
------------- -------------
Net cash provided by financing activities ........................................ 43,165,801 --
------------- -------------
Net increase in cash and cash equivalents ........................................ 58,059,300 7,622,612
Cash and cash equivalents - beginning ............................................ 57,787,334 56,989,233
------------- -------------
Cash and cash equivalents - ending ............................................... $ 115,846,634 $ 64,611,845
------------- -------------
Cash paid for interest ........................................................... $ -- $ --
------------- -------------
Cash paid for taxes .............................................................. $ 607,168 $ 377,436
------------- -------------
</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 (the "Annual Report") 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-month period ended March 31, 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 sales 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 CSO in the United States
to be affiliated with the iPhysicianNet network, allowing PDI to offer
e-detailing capabilities to its existing and potential clients. For the three
months ended March 31, 2000, the Company recorded a loss related to this
investment of $944,891 which represented its share of iPhysicianNet's losses
from the date of the investment through March 31, 2000.
5. Pro Forma Information
Prior to its acquisition by PDI 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 months ended March 31, 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
that period. The pro forma adjustment for income taxes is based upon the
statutory rates in effect for C corporations during the three months ended March
31, 1999.
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 periods ended March 31, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Basic weighted average number of common shares outstanding........ 13,005,196 11,946,444
Dilutive effect of stock options.................................. 178,210 232,155
---------- ----------
Diluted weighted average number of common shares outstanding...... 13,183,406 12,178,599
---------- ----------
</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 three-month period 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. As of March 31, 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
March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income $ 5,613,806 $ 3,321,579
Other comprehensive income, net of tax:
Unrealized holding gain on
available-for-sale securities arising during period -- 76,198
Reclassification adjustment for gains included in net income (92,224) --
----------- -----------
Other comprehensive income $ 5,521,582 $ 3,397,777
=========== ===========
</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.
8
<PAGE>
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 are 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 operating income. The 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
March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Contract sales services $66,671,160 $34,580,979
All other 4,618,191 5,730,771
----------- -----------
Total $71,289,351 $40,311,750
=========== ===========
Operating income
Contract sales services $ 8,392,010 $ 3,717,275
All other 376,725 536,286
----------- -----------
Total $ 8,768,735 $ 4,253,561
=========== ===========
Reconciliation of operating income to income
before provision for income taxes
Total operating income for operating groups $ 8,768,735 $ 4,253,561
Other income, net 683,741 801,396
----------- -----------
Income before provision for income taxes $ 9,452,476 $ 5,054,957
=========== ===========
Capital expenditures
Contract sales services $ 643,111 $ 304,286
All other 100,984 26,353
----------- -----------
Total $ 744,095 $ 330,639
=========== ===========
Depreciation expense
Contract sales services $ 192,337 $ 126,277
All other 74,227 97,033
----------- -----------
Total $ 266,564 $ 223,310
=========== ===========
</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
10
<PAGE>
accounted for as a purchase. The acquisition of ProtoCall adds a syndicated
sales force option to our 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.
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.
Three Months Ended
March 31,
-------------------
2000 1999
----- -----
Revenue, net............................................. 100.0% 100.0%
Program expenses......................................... 70.3 73.2
----- -----
Gross profit.......................................... 29.7 26.8
Compensation expense..................................... 11.8 11.7
Other selling, general and administrative expenses....... 5.6 4.6
----- -----
Total selling, general and administrative expenses.... 17.4 16.3
----- -----
Operating income......................................... 12.3 10.5
Other income, net........................................ 1.0 2.0
----- -----
Income before provision for income taxes.............. 13.3 12.5
Provision for income taxes............................... 5.4 4.3
----- -----
Net income............................................ 7.9% 8.2%
===== =====
11
<PAGE>
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Revenue. Revenue for the quarter ended March 31, 2000 was $71.3 million,
an increase of 76.9% over revenue of $40.3 million for the quarter ended March
31, 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 additional product detailing programs that
started during the fourth quarter of 1999 and the first quarter of 2000. Revenue
included incentive payments of $3.9 million earned as a result of our sales
force meeting or exceeding established targets for 1999 on several programs. In
accordance with our revenue recognition policies described in Part II, Item 7 of
our Annual Report on Form 10-K for the year ended December 31, 1999, we do not
recognize revenue until payment is assured. Since the computation of these
incentive payments required product sales results for the entire year, the
amounts could not be accurately determined until the first quarter of 2000, and
thus payment could not be assured until that time. Incentive payments may be
earned in future reporting periods, but they are not expected to have a material
impact on results of operations for the remaining quarters of 2000.
Program expenses. Program expenses for the quarter ended March 31, 2000
were $50.1 million, an increase of 70.0% over program expenses of $29.5 million
for the quarter ended March 31, 1999. Included in program expenses were $2.1
million paid to field personnel as a result of the incentive payments included
in revenue. As a percentage of revenue, program expenses decreased to 70.3% in
the 2000 period from 73.1% in the corresponding 1999 period. This decrease is
due primarily to the high gross profit realized on our incentive payments and
efficiencies associated with the rollout of the new programs.
Compensation expense. Compensation expense for the quarter ended March 31,
2000 was $8.4 million, an increase of 77.6% over compensation expense of $4.7
million for the quarter ended March 31, 1999. As a percentage of revenue,
compensation expense increased slightly to 11.8% in the first quarter of 2000
from 11.7% in the comparable 1999 period. This increase resulted from our
discretionary expenditures for training and related resources needed to continue
the development of our management personnel.
Other selling, general and administrative expenses. Other selling, general
and administrative expenses for the quarter ended March 31, 2000 were $4.0
million, an increase of 116.7% over other selling, general and administrative
expenses of $1.8 million for the quarter ended March 31, 1999. As a percentage
of revenue, other selling, general and administrative expenses increased to 5.6%
in the first quarter of 2000 from 4.6% in the comparable 1999 period. This
increase was primarily due to discretionary investments in information
technology and other resources needed to manage future growth.
Operating income. Operating income for the quarter ended March 31, 2000
was $8.8 million compared to operating income of $4.3 million for the quarter
ended March 31, 1999. As a percentage of revenue, operating income increased to
12.3% for the 2000 period from 10.6% in the corresponding 1999 period. Operating
income benefited from incentive payments earned net of amounts paid to field
personnel.
Other income, net. Other income for the quarter ended March 31, 2000 was
$0.7 million compared to other income of $0.8 million for the quarter ended
March 31, 1999. Other income consisted of interest income of $1.6 million
partially offset by our share in the losses of iPhysicianNet of $0.9 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 $3.8 million for the quarter
ended March 31, 2000 and $1.7 million for the quarter ended March 31, 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. We expect
our effective tax rate to approximate 40% in future periods.
12
<PAGE>
Pro forma net income. We were a C corporation for the quarter ended March
31, 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 March 31, 1999 of $3.0 million assumes that TVG
was taxed for Federal and state corporate income tax purposes as a C corporation
during that period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had cash and cash equivalents of approximately
$115.8 million and working capital of $99.9 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 three months ended March 31, 2000, net cash provided by operating
activities was $16.5 million, an increase of $9.6 million from cash provided by
operating activities of $6.9 million for the same period in 1999. The main
components of cash provided by operating activities for the three months ended
March 31, 2000 were net income from operations of $5.6 million and an increase
of $9.6 million in "Other changes in assets and liabilities." 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. During the period ended March 31, 2000, the large decrease in contract
payments receivable of $7.5 million resulted primarily from collections of
amounts due from several clients for whom contract sales programs were initiated
in the fourth quarter of 1999.
For the three months ended March 31, 2000, net cash used in investing
activities was $1.6 million compared to net cash provided by investing
activities of $0.7 million for the same period in 1999. Net cash used in
investing activities for the three months ended March 31, 2000 consisted of $2.5
million in connection with the investment in iPhysicianNet and $0.7 million in
purchases of property and equipment, partially offset by the sale of $1.6
million in short-term investments.
For the three months ended March 31, 2000, net cash provided by financing
activities of $43.1 million consisted of the net proceeds from our secondary
offering of $41.7 million and the repayment of loan from officer of $1.4
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.
YEAR 2000 COMPLIANCE
We have not experienced any business interruptions or client or supplier
delays from Y2K problems to date and have not discovered any Y2K problems in
internal computer systems material to our operations. We intend to continue to
monitor our internal system for Y2K problems. There can be no assurance,
however, that we or our clients or suppliers may not face future problems as a
result of Y2K issues.
13
<PAGE>
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 March 31, 2000.
Item 3 - Not Applicable
Item 4 - Not Applicable
Item 5 - Not Applicable
Item 6 - Reports on Form 8-K
During the three months ended March 31, 2000, the Company filed the
following reports on Form 8-K:
Date Item Description
----------------- ---- ------------------------------------------------
February 2, 2000 5 Earnings Press Release
February 14, 2000 5 Audited Financial Statements - December 31, 1999
14
<PAGE>
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 on the 11th day of May, 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
15
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