<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number: 000-23989
PROVANT, Inc.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 04-3395167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
67 BATTERYMARCH STREET, SUITE 400
BOSTON, MA 02110
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 261-1600
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 [ ]
Number of shares of common stock outstanding at May 12, 2000: 20,975,985
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<PAGE> 2
PROVANT, INC.
INDEX
PART I. - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and March 31, 2000 3
Consolidated Statements of Operations for the three and nine months 4
ended March 31, 1999 and 2000
Consolidated Statements of Cash Flows for the nine months ended 5
March 31, 1999 and 2000
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosure on Market Risk 12
PART II. - OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVANT, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, March 31,
Assets 1999 2000
-------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 7,616 $ 217
Accounts receivable, net of allowance for doubtful 39,188 41,875
accounts of $1,437 and $1,433 respectively
Inventory ........................................ 4,470 3,793
Deferred income taxes ............................ 2,791 3,641
Costs in excess of billings ...................... 6,965 6,678
Prepaid expenses and other current assets ........ 3,561 4,670
-------- --------
Total current assets ......................... 64,591 60,874
Property and equipment, net ........................ 7,588 8,524
Other assets ....................................... 3,037 3,809
Goodwill, net ...................................... 223,479 217,914
-------- --------
Total assets ................................. $298,695 $291,121
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ................................. $ 8,412 $ 5,356
Accrued expenses ................................. 22,323 15,153
Accrued compensation ............................. 8,332 7,197
Billings in excess of costs ...................... 7,389 6,764
Deferred revenue ................................. 1,480 1,176
Income taxes payable ............................. 5,592 8
Accrued reorganization costs ..................... -- 7,007
Current portion of long term debt ................ 1,477 657
-------- --------
Total current liabilities .................... 55,005 43,318
Accrued contingent consideration ................... 32,863 --
Long term debt, net of current portion ............. 9,242 46,158
-------- --------
Total liabilities ............................ 97,110 89,476
Stockholders' Equity:
Preferred stock, $.01 par value; none issued ..... -- --
Common stock, $.01 par value; 19,325,893 and
20,975,985 shares issued and outstanding,
respectively ..................................... 193 210
Additional paid-in capital ....................... 178,675 197,324
Common stock issuable as
contingent consideration ........................ 18,881 --
Retained earnings ................................ 3,836 4,111
-------- --------
Total stockholders' equity ................... 201,585 201,645
-------- --------
Total liabilities and stockholders' equity ... $298,695 $291,121
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PROVANT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------- ---------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue .............................. $ 43,404 $ 51,317 $ 110,402 $ 164,007
Cost of revenue ............................ 17,175 21,490 44,013 66,445
---------------------------------------------------------------
Gross profit ......................... 26,229 29,827 66,389 97,562
Selling, general and administrative
expenses ................................. 21,069 25,972 55,653 78,656
Reorganization charge ...................... -- 8,087 -- 8,087
Pooling costs ............................. -- -- -- 1,215
Goodwill amortization ..................... 699 1,420 1,672 3,934
---------------------------------------------------------------
Income (loss) from operations .............. 4,461 (5,652) 9,064 5,670
Other income (expense) ..................... (6) (157) 883 91
Interest income (expense),net .............. 40 (779) (142) (1,527)
---------------------------------------------------------------
Income (loss) before income taxes ... 4,495 (6,588) 9,805 4,234
Provision (benefit) for income taxes ....... 2,411 (2,030) 5,524 3,959
---------------------------------------------------------------
Net income (loss) ................... $ 2,084 $ (4,558) $ 4,281 $ 275
===============================================================
Pro forma adjustments:
Compensation differential ........... 3,344
Pooling costs ....................... 1,215
Income tax provision ................ (1,259)
------------
Pro forma net income ....................... $ 3,575
============
Earnings (loss) per common share:
Basic ...................................... $ 0.13 $ (0.22) $ 0.30 $ 0.01
Diluted .................................... $ 0.12 $ (0.22) $ 0.28 $ 0.01
Pro forma earnings per common share:
Basic ...................................... $ 0.17
Diluted .................................... $ 0.17
Weighted average common shares outstanding:
Basic ...................................... 16,478,670 20,974,089 14,213,521 20,871,477
Diluted .................................... 17,680,157 20,974,089 15,287,137 21,325,528
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
PROVANT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) Nine Months Ended March 31,
--------------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 4,281 $ 275
Adjustments to reconcile net income to net
cash provided by (used) in operating activities:
Depreciation and amortization ....................... 3,015 6,105
Allowance for doubtful accounts ..................... (18) (4)
Gain on sale of business ............................ -- (362)
Non-cash reorganization charges ..................... -- 3,252
Changes in operating assets and liabilities:
Accounts receivable ................................. 1,875 (3,317)
Inventory ........................................... (743) (959)
Deferred income taxes ............................... (1,525) --
Costs in excess of billings ......................... (2,928) (535)
Prepaid expenses and other current assets ........... (1,592) (796)
Other assets ........................................ (230) (1,091)
Accounts payable and accrued expenses ............... (1,088) (10,446)
Accrued compensation costs........................... (1,273) (1,059)
Billings in excess of costs ......................... 4,376 (625)
Deferred revenue .................................... (958) (304)
Accrued reorganization costs ........................ -- 7,007
Income taxes payable ................................ (1,968) (2,981)
-------- --------
Total adjustments ................................. (3,057) (6,115)
-------- --------
Net cash provided by (used in) operating activities 1,224 (5,840)
-------- --------
Cash flows from investing activities:
Payment of acquisition related costs ................ -- (1,407)
Proceeds from sale of business ...................... -- 833
Additions to property and equipment ................. (1,437) (5,091)
Payment of contingent consideration ................. -- (33,342)
Acquisitions of businesses, net of cash acquired .... (30,544) --
Proceeds from sale of property and equipment ........ 214 --
-------- --------
Net cash used in investing activities ............. (31,767) (39,007)
-------- --------
Cash flows from financing activities:
Issuance of common stock ............................. 54,833 1,654
Borrowings under line of credit ...................... 26,200 46,500
Repayment of line of credit .......................... (27,747) (10,000)
Repayment of notes payable ........................... -- (706)
-------- --------
Net cash provided by financing activities .......... 53,286 37,448
-------- --------
Net increase (decrease) in cash and cash equivalents.... 22,743 (7,399)
Cash and cash equivalents, beginning of period ......... 7,823 7,616
-------- --------
Cash and cash equivalents, end of period ............... $ 30,566 $ 217
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................................. $ -- $ 1,322
======== ========
Cash paid for income taxes ............................. $ 4,294 $ 7,325
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PROVANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
PROVANT, Inc., a Delaware corporation (collectively with its subsidiaries,
"PROVANT" or the "Company"), provides a broad range of performance improvement
training services and products to Fortune 1000 companies, other large and
medium-sized corporations and government entities. The Company is a leading
single source provider of high-quality performance improvement training services
and products that are distributed through multiple delivery methods.
On May 4, 1998, PROVANT completed the initial public offering (the "IPO")
of its common stock (the "Common Stock") and simultaneously acquired in separate
merger transactions (the "Combination") seven companies engaged in providing
performance improvement training services and products (collectively referred to
as the "Founding Companies"). Since the completion of the IPO, the Company
acquired in separate transactions 13 additional companies (the "Subsequent
Acquisitions") engaged in providing performance improvement training services
and products (collectively such companies are referred to with the Founding
Companies as the "Operating Companies").
BASIS OF PRESENTATION
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Annual Report on Form 10-K for the year
ended June 30, 1999 filed by PROVANT with the Securities and Exchange
Commission.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments considered necessary to present fairly the
financial position of the Company as of March 31, 2000 and the results of
operations and cash flows for the periods presented. The Company prepares its
interim financial information using the same accounting principles as it uses
for its annual financial statements.
On December 14, 1999, PROVANT acquired Senn-Delaney Leadership Consulting
Group, Inc. and Senn-Delaney Leadership Consulting U.K., Ltd. (together,
"Senn-Delaney Leadership") in an acquisition accounted for as a
pooling-of-interests. As required under the pooling-of-interests method, the
results for all periods presented include the results of Provant and
Senn-Delaney Leadership.
The pro forma adjustments give effect to (i) the compensation differential
(adjusting compensation to contractually agreed-upon levels), (ii)
pooling-related costs, and (iii) provision for income taxes using an effective
corporate tax rate of 41.5% for Senn-Delaney Leadership and 40% for PROVANT,
adjusted for non-tax deductible goodwill. The compensation differential
represents pro forma adjustments to salary, bonuses and benefits paid to certain
employee owners of Senn-Delaney Leadership to which they have contractually
agreed prospectively. The aggregate compensation differential for the nine-month
periods ended March 31, 2000 was $3.3 million.
2. CONTINGENT CONSIDERATION
During the nine months ended March 31, 2000, PROVANT issued contingent
consideration consisting of cash of $33.3 million and 1,450,139 shares of Common
Stock valued at $16.3 million.
The merger agreements between PROVANT and four of the Subsequent
Acquisitions provide for the payment of contingent consideration of cash and/or
shares of Common Stock if certain performance criteria are met over future
periods ranging from one to three years. The contingent consideration will be
paid in cash and shares of Common Stock in accordance with a formula based on
the relationship of defined earnings before interest and taxes ("EBIT") of the
acquired business to a specified baseline EBIT target and certain other
adjustments. Contingent consideration of cash and/or shares of Common Stock up
to maximum amounts of $35.9 million could be payable based on performance
criteria associated with the two years ended June 30, 2001. For one Subsequent
Acquisition, contingent consideration of cash and/or shares of Common Stock is
payable based entirely on performance criteria over a three-year period and is
not currently determinable.
6
<PAGE> 7
3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per common share (dollars in thousands except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
----------------- -------------------
Numerator: 1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic and diluted net income ........................... $ 2,084 $ (4,558) $ 4,281 $ 275
========================================================
Denominator:
Basic weighted average common shares outstanding ......... 16,478,670 20,974,089 14,213,521 20,871,477
Shares to be issued as Contingent ........................ 509,907 -- 556,716 27,607
Consideration
Effect of dilutive securities: stock options, warrants and
convertible notes payable................................. 691,580 -- 516,900 426,444
--------------------------------------------------------
Diluted weighted average common shares outstanding ....... 17,680,157 20,974,089 15,287,137 21,325,528
Basic earnings (loss) per common share ................... $ 0.13 $ (0.22) $ 0.30 $ 0.01
========================================================
Diluted earnings (loss) per common share ................. $ 0.12 $ (0.22) $ 0.28 $ 0.01
========================================================
</TABLE>
The following securities that could potentially dilute future basic earnings per
common share were not included in the computation of diluted earnings per common
share because to do so would have been anti-dilutive:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------ -------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stock options ........... 25,444 1,706,802 35,075 741,183
Convertible notes payable -- 410,413 -- 404,348
------------------------------------------------
Total ................... 25,444 2,117,215 35,075 1,145,531
================================================
</TABLE>
4. REORGANIZATION AND OTHER CHARGES
In March 2000, the Company recorded charges related to its reorganization
program of $10.6 million. Of this $10.6 million, approximately $1.4 million was
recorded through cost of sales, $1.1 million was recorded through selling,
general and administrative expense and $8.1 million was recorded as a
reorganization charge. The reorganization program includes the elimination of
executive positions, reduction in service delivery and administrative employees,
combination of certain duplicative operating facilities, abandonment of certain
property, equipment and leasehold improvements, and the elimination of certain
services and products, which are not material to the Company's business. As part
of the reorganization program, the Company plans on terminating approximately
190 employees, of which, 55 employees were terminated as of March 31, 2000.
The amounts recorded related to the reorganization program were as follows (in
thousands):
<TABLE>
<CAPTION>
Selling,
general and
Reorganization administrative
charge Cost of sales expense Total charges
-----------------------------------------------------------
<S> <C> <C> <C>
Executive severance ........................ $ 3,884 $ -- -- $ 3,884
Employee severance ......................... 813 -- -- 813
Lease termination costs .................... 2,161 -- -- 2,161
Inventory and contract termination costs ... -- 1,385 -- 1,385
Abandonment of property and equipment ...... 629 -- 922 1,551
Other costs related to eliminated
activities ................................ 600 -- 214 814
-----------------------------------------------------------
Total ...................................... $ 8,087 $ 1,385 $ 1,136 $10,608
===========================================================
</TABLE>
7
<PAGE> 8
The following table summarizes the activity related to the reorganization
program costs at March 31, 2000 (in thousands):
<TABLE>
<CAPTION>
Beginning Cash Ending
Balance Write-offs Payments Balance
-------------------------------------------------------
<S> <C> <C> <C> <C>
Severance benefits...... $ 4,697 $ (309) $ (142) $ 4,246
Exit costs ............. 2,975 (7) (207) 2,761
Asset impairments....... 2,936 (2,936) -- --
-------------------------------------------------------
Total .................. $10,608 $(3,252) $ (349) $ 7,007
=======================================================
</TABLE>
The Company expects to make future cash payments of approximately $3.2 million
in fiscal 2000 and approximately $3.7 million in fiscal 2001 and beyond. The
Company expects the final additional charges relating to the reorganization
program of approximately $1.0 million to be recorded during the fourth quarter
of fiscal year 2000. The severance and lease obligations will be disbursed over
a period based upon the terms of the severance and lease agreements.
5. LINE OF CREDIT FACILITY
The Company has a $105.0 million credit facility with related borrowings of
$38.0 million at March 31, 2000. During the quarter ended December 31, 1999, the
Company increased the availability under the credit facility from $80.0 million
to $105.0 million. The credit facility, which terminates on December 31, 2001,
(i) prohibits the payment of dividends and other distributions by the Company,
(ii) generally does not permit the Company to incur or assume other
indebtedness, and (iii) requires the Company to comply with certain financial
covenants.
6 PURCHASE BUSINESS COMBINATIONS
The following is a reconciliation of net cash paid for acquisitions during the
nine months ended March 31, 1999 (Dollars in thousands):
Fair value of assets acquired .................... $ 69,489
Liabilities assumed .............................. (12,758)
Notes payable issued ............................. (971)
Fair value of Common Stock consideration issued... (21,074)
--------
Cash paid ........................................ 34,686
Less cash acquired ............................... (4,142)
--------
Net cash paid for acquisitions ................ $ 30,544
========
The Company did not acquire any companies that were accounted for under the
purchase method of accounting during the nine months ended March 31, 2000.
7 POOLING OF INTERESTS
On December 14, 1999, PROVANT acquired Senn-Delaney Leadership for an
aggregate purchase price of 2,168,286 shares of the Company's Common Stock in an
acquisition accounted for as a pooling-of-interests. In connection with the
merger, the Company also assumed outstanding Senn-Delaney Leadership options
that were converted into options to purchase an aggregate of 352,212 shares of
the Company's common stock.
Senn-Delaney Leadership, based in Long Beach, California, specializes in
creating organizational and team effectiveness at the senior executive level,
including assisting senior management in fostering the success of mergers and
acquisitions by aligning the newly merged organization.
In accordance with the pooling-of-interests method of accounting, the
results of operations previously reported by the separate enterprises and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------ ------------------------
Revenue: 1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PROVANT $ 36,213 $ 42,658 $ 91,663 $140,157
Senn-Delaney Leadership 7,191 8,659 18,739 23,850
--------------------------------------------------------
Combined $ 43,404 $ 51,317 $110,402 $164,007
========================================================
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------ -----------------------
Net income (loss): 1999 2000 1999 2000
------- -------- ------- -------
<S> <C> <C> <C> <C>
PROVANT $ 2,689 $(6,007) $ 5,928 $ (100)
Senn-Delaney Leadership (605) 1,449 (1,647) 375
-------------------------------------------------------
Combined $ 2,084 $(4,558) $ 4,281 $ 275
=======================================================
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PROVANT is a leading provider of high-quality performance improvement
training services and products that are distributed through multiple delivery
methods. PROVANT's clients include Fortune 1000 companies, other large and
medium-sized corporations and government entities. The Company offers both
customized and standardized services and products that are designed to improve
the performance of a client's workforce. In addition, the Company offers
consulting, needs assessment and project management services.
In March 2000, the Company recorded charges related to its reorganization
program of $10.6 million. Of this $10.6 million, approximately $1.4 million was
recorded through cost of sales, $1.1 million was recorded through selling,
general and administrative expense and $8.1 million was recorded as a
reorganization charge. The reorganization program includes the elimination of
executive positions, reduction in service delivery and administrative employees,
combination of certain duplicative operating facilities, abandonment of certain
property, equipment and leasehold improvements, and the exiting of certain
services and products.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
1999 AND 2000 (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
Three months ended March 31, Nine months ended March 31,
1999 2000 1999 2000
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue ................... $43,404 100.0% $51,317 100.0% $110,402 100.0% $164,007 100.0%
Cost of revenue ................. 17,175 39.6 21,490 41.9 44,013 39.9 66,445 40.5
-------------------------------------------------------------------------------------
Gross profit .................... 26,229 60.4 29,827 58.1 66,389 60.1 97,562 59.5
Operating expenses .............. 21,069 48.5 25,972 50.6 55,653 50.4 78,656 48.0
Reorganization charge ........... 8,087 15.7 8,087 4.9
Pooling costs ................... -- -- -- -- -- -- 1,215 0.7
Goodwill amortization ........... 699 1.6 1,420 2.8 1,672 1.5 3,934 2.4
-------------------------------------------------------------------------------------
Income (loss) from operations ... 4,461 10.3 (5,652) (11.0) 9,064 8.2 5,670 3.4
Other income (expense) .......... (6) -- (157) (0.3) 883 0.8 91 --
Interest income (expense), net .. 40 -- (779) (1.5) (142) (0.1) (1,527) (0.9)
Provision (benefit) for income
taxes .......................... 2,411 5.5 (2,030) (3.9) 5,524 5.0 3,959 2.4
-------------------------------------------------------------------------------------
Net income (loss)................ $ 2,084 4.8% $(4,558) (8.9)% $ 4,281 3.9% $ 275 0.2%
=====================================================================================
</TABLE>
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (THE "1999 QUARTER") COMPARED
TO THE THREE MONTHS ENDED MARCH 31, 2000 (THE "2000 QUARTER")
Revenue. Revenue increased $7.9 million, or 18.2%, from $43.4 million in
the 1999 Quarter to $51.3 million in the 2000 Quarter. The increase was
primarily attributable to revenues from businesses acquired during fiscal 1999
as well as increased service revenue, train-the-trainer seminars, license fees
and royalties.
Cost of Revenue. Cost of revenue as a percentage of revenue increased from
39.6% in the 1999 Quarter to 41.9% in the 2000 Quarter, primarily due to a
charge of $1.4 million recorded in the 2000 Quarter related to the
reorganization program.
Gross Profit. Gross profit increased $3.6 million, or 13.7%, from $26.2
million in the 1999 Quarter to $29.8 million in the 2000 Quarter, primarily due
to the growth in revenue. As a percentage of revenue, gross profit decreased
from 60.4% in the 1999 Quarter to 58.1% in the 2000 Quarter primarily due to a
charge of $1.4 million recorded in the 2000 Quarter related to the
reorganization program.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.9 million, or 23.3%, from $21.1 million in
the 1999 Quarter to $26.0 million in the 2000 Quarter, primarily due to the
expenses of the businesses acquired during fiscal 1999. Included in operating
expenses for the 2000 Quarter is a $1.1 million charge related to the
reorganization program. Included in selling, general and administrative expenses
for the 1999 Quarter is $1.9 million of compensation differential, which on a
pro forma basis is excluded from selling, general and administrative expenses.
The compensation differential represents pro forma adjustments to salary,
bonuses and benefits paid to certain employee owners of Senn-Delaney Leadership
to certain levels to which they contractually agreed prospectively. Excluding
the compensation differential and reorganization charge, as a percentage of
revenue, selling, general and administrative expenses increased from 44.1% in
the 1999 Quarter to 48.3% in the 2000 Quarter. This increase was due to the 2000
Quarter's revenue was lower than expected and increased expenditures for sales
and marketing efforts.
Goodwill Amortization. Goodwill amortization increased $721,000 or 103.1%,
from $699,000 in the 1999 Quarter to $1.4 million in the 2000 Quarter, due to
additional goodwill recorded in connection with acquisitions completed during
fiscal 1999 and contingent consideration recorded during fiscal 1999 and 2000.
Interest Income (Expense), net. Interest income (expense), net increased
from interest income of $40,000 in the 1999 Quarter to interest expense of
$779,000 in the 2000 Quarter, due to increased borrowings under the line of
credit and higher interest rates during fiscal 2000.
Income Taxes. Provision for income taxes decreased from an income tax
expense of $2.4 million in the 1999 Quarter to an income tax benefit of $2.0
million in the 2000 Quarter. The decrease in income taxes is primarily due to
the loss recorded in the 2000 Quarter due to the $10.6 million reorganization
program charges.
Net Income (Loss). Net income (loss) decreased from net income of $2.1
million in the 1999 Quarter to a net loss of $4.6 million in the 2000 Quarter.
RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1999 (THE "1999 PERIOD") COMPARED TO
THE NINE MONTHS ENDED MARCH 31, 2000 (THE "2000 PERIOD")
Revenue. Revenue increased $53.6 million, or 48.5%, from $110.4 million in
the 1999 Period to $164.0 million in the 2000 Period. The increase was primarily
attributable to revenues from businesses acquired during fiscal 1999 as well as
increased service revenue, train-the-trainer seminars, license fees and
royalties.
Cost of Revenue. Cost of revenue as a percentage of revenue increased from
39.9% in the 1999 Period to 40.5% in the 2000 Period, primarily due to a charge
of $1.4 million recorded in the 2000 Quarter related to the reorganization
program.
Gross Profit. Gross profit increased $31.2 million, or 47.0%, from $66.4
million in the 1999 Period to $97.6 million in the 2000 Period primarily due to
the growth in revenue. As a percentage of revenue, gross profit decreased from
60.1% in the 1999 Period to 59.5% in the 2000 Period primarily due to a charge
of $1.4 million recorded in the 2000 Quarter related to the reorganization
program.
Selling, General and Administrative Expenses. Operating expenses increased
$23.0 million, or 41.3%, from $55.6 million in the 1999 Period to $78.6 million
in the 2000 Period, primarily due to the expenses of the businesses acquired
during fiscal 1999. Included in selling, general and administrative expenses for
the 2000 Period is a $1.1 million charge related to the reorganization program.
Also, included in selling, general and administrative expenses is $5.5 million
and $3.3 million of compensation differential for the 1999 and 2000 Period,
which on a pro forma basis is excluded from selling, general and administrative
expenses. The compensation differential represents pro forma adjustments to
salary, bonuses and benefits paid to certain employee owners of Senn-Delaney
Leadership to certain levels to which they contractually agreed prospectively.
Excluding the compensation differential and reorganization charge, as a
percentage of revenue, selling, general and administrative expenses decreased
slightly from 45.5% in the 1999 Period to 45.2% in the 2000 Period.
Pooling Costs. Pooling costs consist of accounting, legal, investment
banker fees and due diligence expenses incurred in connection with the
acquisition of Senn-Delaney Leadership.
Goodwill Amortization. Goodwill amortization increased $2.3 million or
135.3%, from $1.7 million in the 1999 Period to $3.9 million in the 2000 Period,
due to additional goodwill recorded in connection with acquisitions completed
during fiscal 1999 and contingent consideration recorded during fiscal 1999 and
2000.
Other Income. Other income for the 1999 Period consisted primarily of a
non-recurring gain of $982,000 ($581,000, net of tax) from the settlement of
litigation by Senn-Delaney Leadership. The impact on diluted earnings
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<PAGE> 11
per share for the 1999 Period was $0.04. Other income for the 2000 Period
consisted primarily of a $362,000 gain recorded on proceeds of $833,000 from the
sale of a business.
Interest Income (Expense), net. Interest income (expense), net increased
$1.4 million from $142,000 in the 1999 Period to $1.5 million in the 2000
Period, due to increased borrowings under the line of credit and higher interest
rates during fiscal 2000.
Income Taxes. Provision for income taxes decreased from $5.5 million in the
1999 Period to $3.9 million in the 2000 Period, due to increased pre-tax income
in the first and second quarters of 2000 offset by a $4.2 million benefit
recorded in the third quarter of 2000 for the reorganization charge of $10.6
million.
Net Income. Net income decreased from $4.3 million in the 1999 Period to
$275,000 in the 2000 Period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash of approximately $217,000 and
outstanding indebtedness of $46.8 million. The Company has a $105.0 million
credit facility with related borrowings of $38.0 million at March 31, 2000.
During the quarter ended December 31, 1999, the Company increased the
availability under the credit facility from $80.0 million to $105.0 million. The
credit facility, which terminates on December 31, 2001, (i) prohibits the
payment of dividends and other distributions by the Company, (ii) generally does
not permit the Company to incur or assume other indebtedness, and (iii) requires
the Company to comply with certain financial covenants.
The Company anticipates that its cash flow from operations and availability
under the credit facility will provide cash sufficient to satisfy the Company's
working capital requirements, debt service requirements and planned capital
expenditures for the next 12 months. In connection with the reorganization
program, the Company expects to make future cash payments of approximately $3.2
million in fiscal 2000 and approximately $3.7 million in fiscal 2001 and
beyond. The severance and lease obligations will be disbursed over a period
based upon the terms of the severance and lease agreements.
The Company has two effective shelf registration statements on Form S-4.
Each registration statement relates to the issuance of up to 3,000,000 shares of
Common Stock in connection with acquisitions. Of these shares, 3,736,180 shares
have been issued through May 12, 2000 and a currently undeterminable number of
shares may become issuable as contingent consideration under the registration
statements with respect to acquisitions completed before such date.
During the nine months ended March 31, 2000, PROVANT issued contingent
consideration consisting of cash of $33.3 million and 1,450,139 shares of Common
Stock valued at $16.3 million.
The merger agreements between PROVANT and four of the Subsequent
Acquisitions provide for the payment of contingent consideration of cash and/or
shares of Common Stock if certain performance criteria are met over future
periods ranging from one to three years. The contingent consideration will be
paid in cash and shares of Common Stock in accordance with a formula based on
the relationship of defined earnings before interest and taxes ("EBIT") of the
acquired business to a specified baseline EBIT target and certain other
adjustments. Contingent consideration of cash and/or shares of Common Stock up
to maximum amounts of $35.9 million could be payable based on performance
criteria associated with the two years ended June 30, 2001. For one Subsequent
Acquisition, contingent consideration of cash and/or shares of Common Stock is
payable based entirely on performance criteria over a three-year period and is
not currently determinable.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition and Financial Statements" (SAB
No. 101), which provides guidance for revenue recognition under
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<PAGE> 12
certain circumstances. The Company is currently evaluating the impact of SAB No.
101 on the financial statements and related disclosures. SAB No. 101 is
effective for all fiscal quarters beginning after March 31, 2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
The Company invests its cash in money market instruments. These instruments
are denominated in U.S. dollars. Due to the conservative nature of these
instruments, the Company does not believe that it has a material exposure to
interest rate or market risk. The investment portfolio is used to preserve the
Company's capital until it is required to fund operations or acquisitions. None
of these instruments are held for trading purposes. The Company does not own
derivative financial instruments.
The Company is exposed to interest rate risk in the ordinary course of
business. For fixed rate debt, interest rate changes affect the fair value but
do not impact earnings or cash flow. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market value, but do
impact future earnings or cash flow. A one-percentage increase in interest rates
would have an immaterial impact on the fair market value of the Company's debt
and future earnings or cash flow.
One of the Company's subsidiaries conducts operations in Europe. The
Company does not believe currency fluctuations would have a material impact on
the Company's future earnings or cash flow.
This report on form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties, and that actual results may
vary materially from those in the forward-looking statements as a result of
any number of factors, many of which are beyond the control of management.
These factors include the Company's limited combined operating history,
risks of integration, risks of internal growth, risks associated with the
Company's acquisition strategy, and the Company's ability to attract and
retain key personnel, to name a few, and are hereby incorporated by
reference from the risk factors included in Company's Registration
Statement on Form S-1 (file no. 333-70119) filed with the Securities and
Exchange Commission.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Curtis M. Uehlein was appointed Chief Executive Officer of the Company and
John R. Murphy was appointed Chairman of the Board of Directors of the
Company upon the resignation of Paul M. Verrochi from the position of
Chairman and Chief Executive Officer on March 21, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
27. Financial Data Schedule
B. Reports on Form 8-K:
None.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVANT, INC.
Date: May 15, 2000 By: /s/ Rajiv Bhatt
----------------------------------------------------
Rajiv Bhatt
Executive Vice President and Chief Financial Officer
14
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