<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to
---------------- -------------------
Commission file number 0-30318
VENTIV HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
52-2181734
(IRS Employer Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive office and zip code)
(212) 768-8000
(Registrant's telephone number, including area code)
200 Cottontail Lane, Vantage Court North, Somerset, NJ 08873
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether 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 [ ]
*Based upon satisfaction of the conditions set forth in Staff Legal Bulletin
No. 4
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.001, 23,979,588 shares outstanding as of November 10,
1999
<PAGE>
VENTIV HEALTH, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1999 (unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of Operations, including unaudited pro forma
data, for the three and nine months ended September 30, 1999 and 1998
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statement of Equity and Comprehensive Loss for
the nine months ended September 30, 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................................. $ 37,796 $ 25,664
Accounts receivable, net of allowance for doubtful accounts of $2,588
and $2,971 at September 30, 1999 and December 31, 1998, respectively 44,552 43,521
Unbilled services .................................................... 17,219 15,212
Current portion of deferred tax asset ................................ 1,095 683
Other current assets ................................................. 7,660 10,369
--------- ---------
Total current assets ............................................ 108,322 95,449
--------- ---------
Property and equipment, net ............................................. 14,286 10,028
Goodwill and other intangible assets, net ............................... 95,370 80,728
Deferred tax asset ...................................................... 3,845 3,414
Deposits and other assets ............................................... 732 4,025
--------- ---------
Total assets .................................................... $ 222,555 $ 193,644
========= =========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit ...................................................... $ -- $ 198
Accrued payroll ...................................................... 16,467 13,989
Accounts payable ..................................................... 7,505 5,791
Accrued expenses ..................................................... 25,644 40,613
Client advances ...................................................... 5,362 1,965
Unearned revenue ..................................................... 8,550 8,446
--------- ---------
Total current liabilities ....................................... 63,528 71,002
--------- ---------
Long-term debt .......................................................... 1,299 2,908
Other liabilities ....................................................... 3 7
Commitments and contingencies
Equity:
Investments and advances from Snyder ................................. -- 119,727
Preferred stock, $.001 par value, 10,000 shares
authorized, none issued and outstanding
at September 30, 1999 and December 31,
1998, respectively ............................................... -- --
Common stock, $.001 par value, 50,000 shares authorized;
24,534 shares issued and outstanding at September 30, 1999 ....... 25 --
Additional paid-in-capital ........................................... 176,758 --
Deferred compensation ................................................ (4,400) --
Accumulated other comprehensive loss ................................. (1,269) --
Retained deficit ..................................................... (13,389) --
--------- ---------
Total equity .................................................... 157,725 119,727
--------- ---------
Total liabilities and equity .................................... $ 222,555 $ 193,644
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------------------- ----------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues ...................................... $ 72,900 $ 80,232 $ 254,159 $ 231,545
Operating expenses:
Cost of services .......................... 71,365 60,141 208,393 169,818
Selling, general and administrative expenses 13,668 11,883 35,253 31,812
Compensation to stockholders ............... -- 227 -- 742
Recapitalization costs ..................... 2,100 -- 2,100 --
Acquisition and related costs .............. 5,741 9,329 7,435 20,685
--------- --------- --------- ---------
Income (loss) from operations ................. (19,974) (1,348) 978 8,488
Interest expense .............................. (56) (522) (179) (1,600)
Investment income ............................. 121 251 494 906
--------- --------- --------- ---------
Income (loss) before income taxes ............. (19,909) (1,619) 1,293 7,794
Income tax provision (benefit) ................ (6,928) 2,152 1,635 8,947
--------- --------- --------- ---------
Net loss ................................ $ (12,981) $ (3,771) $ (342) $ (1,153)
========= ========= ========= =========
Pro forma historical net loss per share data:
Basic and diluted net loss per share .......... $ (0.55) $ (0.16) $ (0.01) $ (0.05)
========= ========= ========= =========
Shares used in computing net loss per share ... 23,727 23,715 23,719 23,715
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $ (342) $ (1,153)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ...................... 5,831 3,868
Deferred taxes ..................................... (843) (93)
Loss (gain) on disposal of assets .................. 951 (190)
Noncash expense for stock issuances ................ 5,741 --
Noncash expense for restricted
stock and option vesting ......................... 2,100 2,020
Other noncash amounts .............................. -- 126
Changes in assets and liabilities:
Accounts receivable, net ........................... 246 8,219
Unbilled services .................................. (1,841) (8,991)
Deposits and other assets .......................... 3,295 (1,784)
Other current assets ............................... 2,967 (6,608)
Accrued payroll, accounts payable and accrued
expenses.......................................... (20,789) 20,952
Client advances .................................... 1,429 1,361
Unearned revenue ................................... 63 (7,941)
-------- --------
Net cash provided by (used in) operating activities .... (1,192) 9,786
-------- --------
Cash flows from investing activities:
Cash on hand at acquired businesses .................. 2,917 6,083
Purchase of subsidiaries ............................. (1,135) (10,386)
Purchase of property and equipment ................... (6,729) (3,103)
Proceeds from sale of equipment ...................... -- 780
Net sales of marketable securities ................... -- 1,157
Purchases of license agreements ...................... (628) (13)
-------- --------
Net cash used in investing activities .................. (5,575) (5,482)
-------- --------
Cash flows from financing activities:
Net repayment of long-term debt ...................... (1,609) (3,993)
Loan to officer for purchase of stock ................ (500) --
Net repayments on lines of credit ................... (198) (22,337)
Investments and advances from Snyder ................. 22,636 30,763
-------- --------
Net cash provided by financing activities .............. 20,329 4,433
-------- --------
Effect of exchange rate changes ........................ (1,430) (66)
-------- --------
Net increase in cash and equivalents ................... 12,132 8,671
Cash and equivalents, beginning of period .............. 25,664 18,040
-------- --------
Cash and equivalents, end of period .................... $ 37,796 $ 26,711
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................... $ 282 $ 965
Cash paid for income taxes ........................... 10,148 2,919
Supplemental disclosures of noncash activities:
Businesses acquired with Snyder stock ................ 16,336 64,546
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
VENTIV HEALTH, Inc.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY AND
COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Common
Common Stock Additional Retained
Stock Shares Par Value Paid-in-Capital Deficit
-------------- ----------- ---------------- -----------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1998 ............. -- $ -- $ -- $ --
Initial capitalization,
September 27, 1999 .................... 23,715,000 24 170,759 (11,289)
Net loss................................ -- -- -- (2,100)
Restricted stock - deferred compensation 819,000 1 6,499 --
Loan to officer for purchase of stock .. -- -- (500) --
---------- ---------- ---------- ----------
Balance, September 30, 1999 ............ 24,534,000 $ 25 $ 176,758 $ (13,389)
========== ========== ========== ==========
<CAPTION>
Accumulated Other
Deferred Comprehensive Comprehensive
Compensation Loss Total Income (loss)
-------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 ............. $ -- $ -- $ -- $ --
Initial capitalization,
September 27, 1999 .................... -- (1,269) 158,225 --
Net loss ............................... -- -- (2,100) (2,100)
Restricted stock - deferred compensation (4,400) -- 2,100
Loan to officer for purchase of stock .. -- -- (500) --
--------- --------- --------- -------
Balance, September 30, 1999 ............ $ (4,400) $ (1,269) $ 157,725 $(2,100)
========= ========= ========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Basis of Presentation:
Organization
Snyder Communications, Inc. ("Snyder"), a Delaware corporation, was
incorporated on June 25, 1996, to continue the business operations of Collegiate
Marketing and Communications, L.P. Snyder completed an initial public offering
of its common stock on September 24, 1996. Snyder provides direct marketing and
communications services and Internet professional services to its clients.
On June 22, 1999, the Board of Directors of Snyder approved a plan to
effect the distribution (the "Distribution") of Snyder's healthcare services
group to existing stockholders. Snyder contributed its healthcare services group
in the third quarter of 1999 to a newly formed subsidiary, Ventiv Health, Inc.
("Ventiv"). Snyder consummated the Distribution on September 27, 1999 through a
special dividend of one share of common stock of Ventiv for every three shares
of Snyder common stock issued and outstanding on September 20, 1999, the record
date for the Distribution.
As a result of the Distribution, Ventiv became an independent,
publicly traded corporation. Ventiv's operations consist of the business
formerly conducted by Snyder's healthcare services group prior to the
Distribution.
Basis of Presentation
The condensed unaudited consolidated financial statements of Ventiv
Health, Inc. present the financial position, results of operations and cash
flows of Snyder's healthcare services group, referred to herein as "Ventiv" or
the "Company," as if it were formed as a separate entity of Snyder for all
periods presented. Snyder's historical basis in the assets and liabilities of
the Company has been carried over to the condensed consolidated financial
statements. All expenses reflected in the condensed consolidated financial
statements for the periods prior to the Distribution are costs specifically
identified to the Company. It is not practicable to estimate costs that would
have been incurred by the Company for the periods prior to the Distribution if
it had been operated on a stand-alone basis.
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the interim rules and regulations of the
Securities and Exchange Commission. As a result, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") have been
omitted. The Company believes that the disclosures made are adequate to make the
information presented not misleading. The condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows of the
Company as of September 30, 1999 and for the nine months ended September 30,
1999 and 1998. Certain amounts previously presented have been reclassified to
conform to September 30, 1999 presentation. Operating results for the nine month
period ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's
Registration Statement on Form 10, as amended, filed with the Securities and
Exchange Commission on September 22, 1999.
7
<PAGE>
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Investments and Advances from Snyder:
Prior to the Distribution, changes in the investments and advances
from Snyder represented the net income (loss) of the Company, the comprehensive
income (loss) of the Company, the net change in cash transferred between the
Company and Snyder (or previous owners with respect to the Pooled Entities (as
defined below) prior to their merger with Snyder) and the effect of businesses
acquired by Snyder in purchase transactions and contributed to Ventiv. An
analysis of the investments and advances from Snyder for the period December 31,
1998 through September 30, 1999, is as follows (in thousands):
Balance, December 31, 1998 ........................ $ 119,727
Net loss, excluding $2.1 million recapitalization
costs (unaudited) ............................. 1,758
Comprehensive loss (unaudited) .................. (2,232)
Noncash transfers from Snyder (unaudited) ...... 16,336
Cash transfers from Snyder, net (unaudited) ..... 22,636
Contribution of healthcare marketing services
group by Snyder to Ventiv (unaudited) ........ (158,225)
---------
Balance, September 30, 1999 (unaudited) ........... $ 0
=========
3. Business Combinations:
In 1998, the Company completed acquisitions which were accounted for
as pooling of interests transactions for financial reporting purposes. The
entities with which the Company has completed mergers accounted for as pooling
of interests for financial reporting purposes will be collectively referred to
as the "Pooled Entities," and the mergers will be referred to herein as the
"Acquisitions." The accompanying condensed consolidated financial statements
have been retroactively restated to reflect the combined financial position and
combined results of operations and cash flows of the Company and the Pooled
Entities, after elimination of all significant intercompany transactions, for
all periods presented, giving effect to the Acquisitions as if they had occurred
at the beginning of the earliest period presented.
The following details revenues and net income (loss) for the three and
nine months ended September 30, 1999 and 1998, respectively, of the Company and
the Pooled Entities through the dates of their respective Acquisitions (in
thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1999 1998 1999 1998
----------- --------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
The Company .... $ 72,900 $ 68,263 $ 254,159 $ 180,307
Pooled Entities -- 11,969 -- 51,238
--------- --------- --------- ---------
$ 72,900 $ 80,232 $ 254,159 $ 231,545
========= ========= ========= =========
Net loss:
The Company ... $ (12,981) $ (4,895) $ (342) $ (714)
Pooled Entities -- 1,124 -- (439)
--------- --------- --------- ---------
$ (12,981) $ (3,771) $ (342) $ (1,153)
========= ========= ========= =========
</TABLE>
8
<PAGE>
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
On March 25, 1999, the Company completed the acquisition of PromoTech
Research Associates, Inc. ("Promotech"). The total consideration paid was $16.3
million and consisted of 583,431 shares of Snyder common stock. This purchase
business combination has resulted in additional goodwill of $18.1 million. On
February 13, 1998 and March 25, 1999, respectively, the Company completed two
business combinations, CLI Pharma S.A. ("CLI Pharma") and Healthcare Promotions,
LLC ("HCP"), for total consideration paid of approximately $64.0 million
(1,211,029 shares of Snyder common stock and $4.3 million in net cash). Based
upon an allocation of purchase consideration, these purchase business
combinations have resulted in additional goodwill of approximately $55.7
million.
The following table presents pro forma financial information as if the
1999 purchase of PromoTech and the 1998 purchases of HCP and CLI Pharma had been
consummated at the beginning of each of the periods presented and all of the
Company's operations had been taxed as a C corporation.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- -----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Pro forma revenues ........................... $ 72,900 $ 81,328 $ 256,086 $ 244,818
Pro forma net loss ........................... (12,981) (3,559) (53) (463)
Pro forma basic and diluted
net loss per share.......................... (0.55) (0.15) -- (0.02)
</TABLE>
The Company's other purchase business combinations are immaterial to the
condensed consolidated financial statements.
4. Acquisition and Related Costs:
During the nine months ended September 30, 1998, the Company recorded
$20.7 million in nonrecurring acquisition and related costs. These costs are
primarily related to the consummation of pooling of interests transactions and
consist of investment banking fees, expenses associated with the accelerated
vesting of options held by employees of certain of the Company's acquirees,
other professional service fees, transfer taxes and other contractual payments.
In addition, this amount includes a charge of approximately $4.4 million for
costs necessary to consolidate and integrate certain of the Company's acquired
operations in the U.S. and the U.K.
During the nine months ended September 30, 1999, the Company recorded
$7.4 million in nonrecurring acquisition and related costs. Included in this
amount is $5.7 million related to a payment made by Ventiv, in the form of
695,304 shares of Ventiv common stock, to the prior owners of PromoTech in
exchange for the release of any and all claims against Snyder or Ventiv related
to the purchase of PromoTech. The payment was not provided for in the purchase
agreement and is not part of the purchase price for accounting purposes. In
addition, the $7.4 million expense includes a charge of approximately $1.7
million for costs necessary to consolidate and integrate certain of the
Company's acquired operations in the U.S., U.K. and France under the Company's
plan initiated in 1998. The charge recorded in the nine months ended September
30, 1999 consists of $1.3 million in severance and related costs associated with
the termination of 23 employees, and $0.4 million in consulting services and
other costs related to these integration activities.
9
<PAGE>
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
In 1998, the Company recorded total costs of approximately $10.7
million to consolidate and integrate certain of the Company's acquired
operations in the U.S., U.K. and France. As of September 30, 1999, 151 employees
had terminated employment with the Company and $11.4 million had been charged
against the total liability of $12.4 million. The integration activities
recorded in 1998 were recorded in accordance with Emerging Issues Task
Force 94-3, "Liability Recognition for Costs to Exit an Activity (including
certain costs incurred in a restructuring)" ("EITF 94-3"). Additional expenses
for the Company's integration activities recorded in 1999 represent additional
costs incurred that did not qualify for accrual at December 31, 1998 in
accordance with EITF 94-3. As of September 30, 1999, the Company substantially
completed these integration activities.
The following table summarizes the activity in the integration
activities liability account:
<TABLE>
<CAPTION>
Beginning Deductions for Balance at End
Balance Additions Amount Paid of Period
--------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998 .............. $ -- $10,654 $(2,683) $ 7,971
Nine Months Ended September 30, 1999....... $ 7,971 $ 1,696 $(8,679) $ 988
</TABLE>
5. Pro Forma Net Income (Loss) Per Share:
The Company has applied Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128") to all periods presented in these
financial statements. SFAS No. 128 requires disclosure of basic and diluted
earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings
available to common stockholders by the weighted average number of shares
outstanding without consideration of common stock equivalents or other
potentially dilutive securities. Diluted EPS gives effect to common stock
equivalents and other potentially dilutive securities outstanding during the
period. For all 1998 periods presented, EPS has been computed using the shares
that were issued upon the Distribution. For the three and nine months ended
September 30, 1999, EPS has been computed using the shares that were issued upon
the Distribution, adjusted for activity and restricted stock issuance following
the Distribution. The effect of options were excluded as they were antidilutive
due to the loss for the periods.
6. Recapitalization Costs
During the third quarter of 1999, the Company recorded $2.1 million of
expense related to restricted stock which was granted to certain key employees
of Ventiv. The $2.1 million represent the portion of restricted stock which
vested in conjunction with the Distribution.
10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations covers periods prior to the Distribution, during which the
operations of Ventiv were part of Snyder Communications, Inc. The following
information should be read in conjunction with Ventiv's Condensed Consolidated
Financial Statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q. See "Index to Financial Statements."
Overview
Ventiv's services are designed to develop, execute and monitor
strategic marketing plans for pharmaceutical and other life sciences products
and to conduct educational research and communication services for the medical
community. Snyder created the business conducted by Ventiv in January 1997 in a
merger transaction with a U.S. provider of pharmaceutical sales and marketing
services. During 1997, 1998, and 1999, Snyder completed a series of acquisitions
which expanded both our scope of services and geographic presence. We plan to
focus on internal growth for the foreseeable future as the primary means of our
expansion, although Ventiv will consider attractive acquisition opportunities as
they arise.
We expect that the complementary services, which Ventiv is able to
offer to its customers as a result of the acquisitions described above, will
increase our opportunities and strengthen our client relationships. We strive to
integrate our service capabilities to provide a spectrum of healthcare marketing
and sales services. Ventiv's Health Products Research Group designs and monitors
product launches and sales strategies with its proprietary programs to maximize
asset utilization and return on investment for pharmaceutical and other life
sciences companies. Ventiv's Healthcare Communications Group provides
educational programs to physicians and other healthcare professionals. The
Contract Sales Group implements and executes outsourced sales programs for
pharmaceutical and other life sciences products. Most of Ventiv's largest
clients utilize the services of more than one of our operating groups.
Results of Operations
Revenues and associated costs under pharmaceutical detailing contracts
are generally based on the number of physician calls made or the number of sales
representatives utilized. For consulting and educational services, Ventiv's
revenues are generally based on a fixed project amount.
Cost of services consists of all costs specifically associated with
client programs, such as salary, commissions and benefits paid to personnel,
including senior management associated with specific service offerings, payments
to third-party vendors and systems and other support facilities specifically
associated with client programs.
Selling, general and administrative expenses consist primarily of
costs associated with administrative functions, such as finance, accounting,
human resources, and information technology, as well as personnel costs of
senior management not specifically associated with client services.
Compensation to stockholders consists of excess compensation paid to
certain stockholders of acquired companies prior to their respective mergers
with Ventiv. The amount by which the historical compensation of these
11
<PAGE>
stockholders exceeds that provided in their employment contracts with Ventiv has
been classified as compensation to stockholders.
Recapitalization costs consist of restricted stock granted to certain
key employees of the Company, which vested immediately following the
Distribution of Ventiv common stock to Snyder common stockholders.
Acquisition and related costs consist primarily of investment banking
fees, other professional service fees, certain tax payments and other
contractual payments resulting from the consummation of the pooling of interests
transactions, as well as the costs of consolidating certain of our acquired
operations.
The following sets forth, for the periods indicated, certain
components of Ventiv's income statement data, including such data as the
percentage of revenues. Compensation to stockholders, recapitalization costs and
acquisition costs are considered to be nonrecurring by Ventiv because Ventiv's
current operations will not result in any compensation to stockholders,
recapitalization costs or acquisition costs in future periods.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
------------------------------------ ------------------------------------
(unaudited, dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................... $ 72,900 100.0% $80,232 100.0% $254,159 100.0% $231,545 100.0%
Operating expenses:
Cost of services .................. 71,365 97.9 60,141 75.0 208,393 82.0 169,818 73.3
Selling, general and administrative
expenses........................... 13,668 18.7 11,883 14.8 35,253 13.9 31,812 13.8
Compensation to stockholders ....... -- -- 227 0.3 -- -- 742 0.3
Recapitalization costs ............. 2,100 2.9 -- -- 2,100 0.8 -- --
Acquisition and related costs ...... 5,741 7.9 9,329 11.6 7,435 2.9 20,685 8.9
--------- ------ -------- ------- --------- ------ --------- -------
Income (loss) from operations ...... (19,974) (27.4) (1,348) (1.7) 978 0.4 8,488 3.7
Interest expense ................... (56) -- (522) (0.6) (179) (0.1) (1,600) (0.7)
Investment income .................. 121 0.1 251 0.3 494 0.2 906 0.4
--------- ------ -------- ------- --------- ------ --------- -------
Income (loss) before income taxes .. (19,909) (27.3) (1,619) (2.0) 1,293 0.5 7,794 3.4
Income tax provision (benefit) ..... (6,928) (9.5) 2,152 2.7 1,635 0.6 8,947 3.9
--------- ------- -------- ------- --------- ------ --------- -------
Net loss ........................... $(12,981) (17.8)% $(3,771) (4.7)% $ (342) (0.1)% $ (1,153) (0.5)%
========= ======= ======== ======= ========= ====== ========= =======
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Revenues. Revenues decreased $7.3 million, or 9.1%, to $72.9 million
in the third quarter of 1999 from $80.2 million in the same period of 1998.
Revenues declined $5.9 million, or 17.2%, at our European Contract Sales Group
in the third quarter of 1999 compared with 1998 due to the business challenges
associated with integration of acquired businesses in the U.K. and France and
lower revenues during this period due to the traditional European holiday season
in July and August. Revenues declined $8.6 million, or 51.2%, at our Healthcare
Communications Group in the third quarter of 1999 compared with 1998 as a result
of the business challenges associated with the integration of acquired
businesses. The decreases in revenue are offset by a $6.2 million, or 25.2 %,
increase in revenues from our U.S. Contract Sales Group which reflects new
business contracts secured for 1999, and by a $0.9 million, or 20.9%, increase
in revenues at our Health Products Research Group.
12
<PAGE>
In August 1999, our U.S. Contract Sales Group entered into an
agreement with an existing client to expand the level of service provided. Under
this $350 million six year agreement, which may be cancelled by our client with
six months prior notice, we expect to recognize a total of approximately $12
million of start-up related expenses to hire, train, and equip our sales force
in connection with this new agreement, with no recorded revenue directly
associated with the start-up expenses. A large portion of these start-up costs
are expected to be incurred in the fourth quarter of 1999. The start-up activity
related to this agreement commenced during the third quarter of 1999 and there
is no revenue from this contract included in the results of operations for the
third quarter of 1999. Under the terms of the agreement, revenues may exceed
$350 million through incentive payment provisions of the agreement.
Cost of services. Cost of services increased $11.3 million, or 18.8%,
to $71.4 million for the third quarter of 1999 from $60.1 million for the same
period of 1998. Cost of services as a percentage of revenues increased to 97.9%
for the third quarter of 1999 from 75.0% for the same period of 1998 due in
large part to start-up costs associated with new contracts in our U.S. Contract
Sales Group and the lower revenues experienced as we completed the integration
of our Healthcare Communications Group, as well as integration of the U.K. and
France Contract Sales Groups. We expect to continue to incur start-up costs as
we secure additional contracts for new businesses and will also continue to make
investments in our operating infrastructure which could result in increased
costs during the fourth quarter and future periods. For the $350 million
agreement discussed above, $2.0 million of start-up costs were incurred in the
third quarter of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 15.1%, to $13.7 million for
the third quarter of 1999 from $11.9 million for the same period of 1998.
Selling, general, and administrative expenses as a percentage of revenue
increased to 18.7% for the third quarter of 1999 from 14.8% for the same period
of 1998. The increase in selling, general, and administrative expenses as a
percentage of revenue was exacerbated by the decline in revenues from the third
quarter of 1998 to the third quarter of 1999, and in absolute dollars is
primarily a result of additional ongoing corporate overhead costs incurred as
Ventiv prepared to become a separate publicly traded company and from $0.3 of
goodwill amortization resulting from the purchase of PromoTech in March 1999.
Selling, general, and administrative expenses may continue to increase in
future periods as Ventiv operates as a separate publicly traded company.
Compensation to Stockholders. No compensation to stockholders was
recorded during the three months ended September 30, 1999. Compensation to
stockholders was $ 0.2 million during the three months ended September 30, 1998.
Compensation to stockholders reflects compensation paid to certain stockholders
of acquired companies prior to their respective mergers with Ventiv that is in
excess of the compensation provided for in their employment contracts with
Ventiv. No compensation to stockholders is recorded subsequent to an acquisition
by Ventiv.
Recapitalization Costs. Ventiv recorded $2.1 million in
recapitalization costs during the three months ended September 30, 1999. The
non-cash cost consists of restricted stock granted to certain key employees of
Ventiv which vested immediately following the Distribution of Ventiv common
stock to Snyder common stockholders on September 27, 1999. No recapitalization
costs were recorded for the three months ended September 30, 1998.
Acquisition and Related Costs. During the three months ended September
30, 1999, the Company recorded $5.7 million in nonrecurring acquisition and
related costs with regard to a payment made by Ventiv, in the form of 695,304
shares of Ventiv common stock, to the prior owners of PromoTech in exchange for
the release of any and all claims against Snyder or Ventiv related to the
purchase of PromoTech. The payment was not provided for in the purchase
agreement and is not part of the purchase price for accounting purposes. In the
third quarter of 1998, we recorded a charge of approximately $9.3 million for
13
<PAGE>
costs related to the acquisitions of Clinical Communications Group and MKM
Marketing Institute GmbH. These costs primarily consist of investment banking
fees, other professional service fees, transfer taxes and other contractual
payments.
Interest expense. Ventiv recorded $56,000 of interest expense during
the three months ended September 30, 1999 compared to $0.5 million of interest
expense during the three months ended September 30, 1998. Ventiv does not have
any significant debt obligations outstanding. The interest expense recorded
during the three months ended September 30, 1998 consists primarily of interest
on debt at an acquired company prior to its acquisition by Ventiv. Ventiv
generally repays the debt of its acquired companies. If Ventiv borrows money for
acquisitions or for other purposes following the Distribution, interest expense
will increase in future periods.
Investment Income. Ventiv recorded $0.1 million of investment income
during the three months ended September 30, 1999 and $0.3 million of investment
income during the three months ended September 30, 1998. Variations in
investment income result from differences in average amounts of cash and
equivalents available for investment during these periods.
Income Tax Provision. Ventiv recorded a tax benefit of $6.9 million
during the three months ended September 30, 1999. Ventiv's effective tax rate on
its recurring operations is approximately 38.3% for the three months ended
September 30, 1999. The actual tax provision recorded differs from the effective
rate due to the nondeductibility of certain of the nonrecurring costs recorded
during the period.
Net Loss. Net loss increased $9.2 million to $13.0 million in the
third quarter of 1999 from $3.8 million in the same period of 1998 due primarily
to the decrease in revenues and operating margins as discussed above.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues. Revenues increased $22.7 million, or 9.8%, to $254.2 million
in the nine months ended September 30, 1999 from $231.5 million in the same
period of 1998. $21.1 million of revenue growth was achieved within our U.S.
Contract Sales Group primarily as a result of new contracts which were secured
in the first nine months of 1999, an incentive compensation payment received
from a client and the purchase of HCP in 1998 which has been integrated into our
U.S. Contract Sales Group. $4.3 million of revenue growth was achieved within
our Healthcare Products Research Group which reflects new business contracts
secured in 1999. Revenue at our European Contract Sales Group increased $1.9
million in the first nine months of 1999 compared with 1998. The increases in
revenues are offset by a $4.7 million decrease in revenues from our Healthcare
Communications Group attributed primarily to the business challenges associated
with the integration of acquired businesses during the first nine months of
1999.
Cost of services. Cost of services increased $38.6 million, or 22.7%,
to $208.4 million in the nine months ended September 30, 1999 from $169.8
million for the same period of 1998. The dollar fluctuations in cost of services
at our various operating units generally correspond to the revenue changes
discussed above. Cost of services was favorably impacted by a one-time $2.0
million reduction in the estimated amount of employee-related social costs to be
paid as a result of the integration of our French sales force. Cost of services
as a percentage of revenues increased to 82.0% in the nine months ended
September 30, 1999 from 73.3% in the same period of 1998 due in large part to
the start-up costs associated with the new contracts in both the Healthcare
Products Research Group and the U.S. Contract Sales Group and the lower revenues
experienced as we completed the integration of our Healthcare Communications
Group. We expect to continue to incur start-up costs as we secure additional
contracts for new business and will also continue to make investments in our
operating infrastructure which could result in increased costs during the
fourth quarter and future periods.
14
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.5 million, or 11.0 %, to $ 35.3 million in
the nine months ended September 30, 1999 from $ 31.8 million in the same period
of 1998. Selling, general, and administrative expenses as a percentage of
revenue remained fairly consistent at 13.9% in the nine months ended
September 30, 1999 and 13.8% for the same period of 1998. Selling, general and
administrative expenses increased during the third quarter of 1999 due to
additional ongoing corporate overhead costs incurred as Ventiv prepared to
become a separate publicly traded company.
Compensation to Stockholders. No compensation to stockholders was
recorded during the nine months ended September 30, 1999. Compensation to
stockholders was $0.7 million during the nine months ended September 30, 1998.
Compensation to stockholders reflects compensation paid to certain stockholders
of acquired companies prior to their respective mergers with Ventiv that is in
excess of the compensation provided for in their employment contracts with
Ventiv. No compensation to stockholders is recorded subsequent to an acquisition
by Ventiv.
Recapitalization Costs. Ventiv recorded $2.1 million in
recapitalization costs during the nine months ended September 30, 1999. The cost
incurred consists of restricted stock granted to certain key employees of Ventiv
which vested immediately following the Distribution of Ventiv common stock to
Snyder common stockholders. No recapitalization costs were recorded for the nine
months ended September 30, 1998.
Acquisition and Related Costs. Ventiv recorded $7.4 million in
acquisition and related costs during the nine months ended September 30, 1999.
Included in this amount is $5.7 million related to a payment made by Ventiv, in
the form of 695,304 shares of Ventiv common stock, to the prior owners of
PromoTech in exchange for the release of any and all claims against Snyder or
Ventiv related to the purchase of PromoTech. The payment was not provided for in
the purchase agreement and is not part of the purchase price for accounting
purposes. The remaining $1.7 million is due to the consolidation and integration
of certain Ventiv's acquired operations in the U.S., U.K. and France under the
Company's plan initiated in 1998. The charge consists of $1.3 million in
severance and related costs associated with the termination of 23 employees, and
$0.4 million in consulting services and other costs related to these integration
activities. During the nine months ended September 30, 1998, we recorded a
charge of approximately $10.7 million for costs necessary to consolidate and
integrate certain of our acquired operations in the U.S., U.K. and France. As of
September 30, 1999, 151 employees had terminated employment with Ventiv and
$11.4 million had been charged against the total liability of $12.4 million.
Ventiv recorded $20.7 million in acquisition and related costs during the nine
months ended September 30, 1998, and $16.3 million of these costs were related
to the consummation of pooling of interests transactions during the nine months
ended September 30, 1998. Ventiv completed four pooling of interests
transactions valued at approximately $259 million during the nine months ended
September 30, 1998. The remaining $4.4 million was due to the consolidation and
integration of certain of Ventiv's acquired operations within the Contract Sales
Group.
Interest expense. Ventiv recorded $0.2 million of interest expense
during the nine months ended September 30, 1999 compared with $ 1.6 million of
interest expense during the nine months ended September 30, 1998. Ventiv does
not have any significant debt obligations outstanding. The interest expense
recorded during the nine months ended September 30, 1998 consists primarily of
interest on debt at acquired companies prior to their acquisition by Ventiv.
Ventiv generally repaid the debt of its acquired companies. If Ventiv borrows
money for acquisitions or for other purposes following the Distribution,
interest expense will increase in future periods.
Investment Income. Ventiv recorded $0.5 million of investment income
during the nine months ended September 30, 1999 and $0.9 million of investment
income during the nine months ended September 30, 1998. Variations in investment
Income result from differences in average amounts of cash and equivalents
available for investment during these periods.
15
<PAGE>
Income Tax Provision. Ventiv recorded a tax provision of $1.6 million
during the nine months ended September 30, 1999. Ventiv's effective tax rate on
its recurring operations is approximately 40.0% for the nine months ended
September 30, 1999. The actual tax provision recorded differs from the effective
rate primarily due to the nondeductibility of certain of the nonrecurring costs
recorded during the period.
Net Loss. Net loss decreased by $0.9 million to $0.3 million in the
nine months ended September 30, 1999 from $1.2 million in the same period of
1998 due to the decrease in nonrecurring acquisition and related costs, offset
by increases in operating expenses which exceeded increases in revenue.
Liquidity and Capital Resources
At September 30, 1999, Ventiv had $37.8 million in cash and
equivalents. Cash and equivalents increased $12.1 million during the nine months
ended September 30, 1999, due to the $1.2 million used in operating activities,
the $20.3 million provided by financing activities offset by the $5.6 million
used in investing activities and the $1.4 million effect of changes in the
exchange rate. The $20.3 million in cash provided by financing activities
consists primarily of $22.6 million of investments and advances from Snyder
offset by $1.8 million net repayments of debt. The $5.6 million used in
investing activities consists primarily of capital expenditures net of cash
acquired in the purchase of PromoTech. Cash and equivalents increased $8.7
million for the nine months ended September 30, 1998, due to $9.8 million
provided by operating activities, $4.4 million provided by financing activities,
offset by $5.5 million used in investing activities.
We believe our cash and equivalents, as well as cash provided by
operations, will be sufficient to fund our current operations and planned
capital expenditures over the next 12 months and also for a longer-term basis.
We plan to focus on internal growth for the foreseeable future as the primary
means of our expansion, although we will consider attractive acquisition
opportunities as they arise. Cash provided from operations may not be sufficient
to fund internal growth initiatives which we may pursue. If we pursue
significant internal growth initiatives or if we acquire additional businesses
in transactions that include any cash payment as part of the purchase price,
both in the short-term and the long-term, we will first use excess cash
available from operations and then pursue additional debt or equity financing as
sources of cash necessary to complete any acquisitions. Ventiv does not
currently have its own line of credit. We expect to obtain a multi-year line of
credit for acquisitions and general corporate purposes during the fourth quarter
of 1999. In addition to borrowing under a line of credit, once available, Ventiv
could pursue additional debt or equity transactions to finance its acquisitions,
depending on market conditions. We can't assure you that we will be successful
in raising the cash required to complete all acquisition opportunities which we
may pursue in the future.
We are subject to the impact of foreign currency fluctuations,
specifically that of the British pound, German mark and French franc. To date,
changes in the British pound, German mark and French franc exchange rates have
not had a material impact on our liquidity or results of operations. We
continually evaluate our exposure to exchange rate risk but do not currently
hedge such risk. We do not expect the introduction of the Euro to have a
material impact on our operations or cash flows in the near term. We will
continue to evaluate the impact of the introduction of the Euro as we continue
to expand our services in Europe.
Effect of Inflation
Because of the relatively low level of inflation experienced in the
United States and Europe, inflation did not have a material impact on our
consolidated results of operations for 1998.
16
<PAGE>
Year 2000
Ventiv has assessed its current systems and equipment with regard to
year 2000. We believe that these systems and equipment are year 2000 compliant
or will imminently become year 2000 compliant and that no material additional
costs will be incurred. However, we cannot assure you that this will be the case
until these systems are operational in 2000. Approximately $0.5 million was
incurred through September 30, 1999 to address specific year 2000 requirements.
We have made inquiries of our vendors and other third parties that we have
identified whose year 2000 problems could affect our systems or operations and
have received assurances from approximately 96% of the vendors contacted, both
written and oral, that their systems are compliant or are expected to be
compliant on time. Approximately 52% of vendors contacted indicated to us that
they are currently year 2000 compliant and approximately 44% of vendors
contacted indicated to us that they will be year 2000 compliant before the year
2000 begins. Approximately 4% of the vendors contacted did not provide
information in response to our inquiries. In the event the statements and
warranties of these third parties concerning their year 2000 compliance are
incorrect resulting in critical systems failure, our business and operations may
be materially adversely affected.
Private Securities Litigation Reform Act of 1995 - A Caution Concerning Forward-
Looking Statements
Any statement made in this Form 10-Q that deals with information that
is not historical, such as statements concerning Ventiv's anticipated financial
results, are forward-looking statements. Ventiv wishes to caution readers not to
place undo reliance on any of these forward-looking statements, which speak only
as of the date made. Forward-looking statements are subject to the occurrence of
many events outside Ventiv's control and to various risk factors that could
cause results to differ materially from those expressed in Ventiv's periodic
reports, registration statements filed with the Securities and Exchange
Commission, including Ventiv's Registration Statement on Form 10, as amended,
and Ventiv's press releases or other public communications.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various proceedings arising in the normal
course of business, none of which individually or in the aggregate, is expected
to have a material adverse effect on the Company's financial condition results
of operations or liquidity.
Item 2. Changes in Securities
On September 27, 1999, immediately following the distribution of all
of the issued and outstanding shares of Ventiv common stock to the common
stockholders of Snyder on the record date for such distribution, Ventiv issued a
total of 831,502 restricted shares of Ventiv common stock to the six executive
officers and three other management employees. The issuance of the 831,502
restricted shares of Ventiv common stock was made in a transaction exempt from
the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1999.
18
<PAGE>
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.
VENTIV HEALTH, INC.
Date: November 15, 1999 By: /s/ Gregory S. Patrick
----------------------------------
Gregory S. Patrick
Chief Financial Officer
(Principal Financial Officer)
19
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