<PAGE> 1
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 DECEMBER 31, 1996 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: 0-14315
ATC COMMUNICATIONS GROUP, INC.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
5950 BERKSHIRE LANE, SUITE 1650 DALLAS, TEXAS 75225
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 361-9870
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
at February 7, 1997
-------------------
<S> <C>
COMMON STOCK $.01 PAR VALUE 18,007,590
</TABLE>
<PAGE> 2
ATC COMMUNICATIONS GROUP, INC.
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
Three Months Ended December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Six Months Ended December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flow
Three Months Ended December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . 9-11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
ASSETS: (Unaudited) (Audited)
----------------- ----------------
<S> <C> <C>
Current Assets:
Cash $ 1,987,291 $ 1,723,702
Notes receivable 1,061,324 825,428
Accounts receivable, less allowance for doubtful
accounts of $100,016 and $175,016 19,507,230 21,699,793
Prepaid expenses 1,312,523 292,632
Deferred tax asset 506,539 506,539
----------------- ----------------
Total Current Assets 24,374,907 25,048,094
Equipment and Other Assets:
Equipment net of accumulated depreciation of
$8,660,028 and $6,912,196 11,660,262 10,807,739
Cost in excess of net assets acquired, net of
accumulated amortization of $1,008,572 and $970,669 1,231,837 1,269,740
Other assets 621,006 654,609
----------------- ----------------
Total Equipment and Other Assets 13,513,105 12,732,088
----------------- ----------------
37,888,012 $ 37,780,182
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 2,500,002 $ 2,576,068
Revolving line of credit 14,579 2,382,165
Unearned revenues and customer deposits 531,737 1,072,662
Accrued compensation 1,625,494 1,958,413
Accrued telephone expense 723,023 1,129,703
Other accrued liabilities 4,063,695 5,389,319
Current portion of long-term debt 1,184,169 1,156,547
----------------- ----------------
Total Current Liabilities 10,642,699 15,664,877
Long-term Debt 1,857,617 2,455,022
Deferred Tax Liability 218,507 218,507
Shareholders' Equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized;
29,778 convertible, $.36 cumulative Series B shares and
840,000 convertible, $.11 cumulative Series C shares
issued and outstanding. 8,698 8,698
Common Stock, $.01 par value, 27,500,000 shares authorized;
17,007,590 and 15,032,161 issued and outstanding at
December 31, 1996 and June 30, 1996, respectively 170,076 150,322
Additional paid-in capital 12,828,817 10,092,956
Retained earnings 12,161,598 9,189,800
----------------- ----------------
Total Shareholders' Equity 25,169,189 19,441,776
----------------- ----------------
$ 37,888,012 $ 37,780,182
================= ================
</TABLE>
See accompanying note.
3
<PAGE> 4
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
<S> <C> <C>
Revenues $ 25,114,364 $ 22,961,196
Cost of services 18,243,480 16,338,841
-------------------- -------------------
Gross profit 6,870,884 6,622,355
Selling, general and administrative expense 4,720,677 4,092,601
Depreciation and amortization expense 863,854 743,232
-------------------- -------------------
Income from operations 1,286,353 1,786,522
Interest expense 137,585 185,386
Interest income 29,769 18,779
-------------------- -------------------
Income before provision for income taxes 1,178,537 1,619,915
Income tax expense 328,007 550,772
-------------------- -------------------
Net income $ 850,530 $ 1,069,143
==================== ===================
Earnings per common share and common share equivalents
(Note 1): $ 0.04 $ 0.05
==================== ===================
Weighted average common and common equivalent shares
outstanding 22,501,911 20,991,324
==================== ===================
</TABLE>
See accompanying note.
4
<PAGE> 5
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 51,659,438 $ 40,999,006
Cost of services 35,708,530 28,640,569
-------------------- -------------------
Gross profit 15,950,908 12,358,437
Selling, general and administrative expense 9,677,909 7,729,248
Depreciation and amortization expense 1,673,050 1,433,678
-------------------- -------------------
Income from operations 4,599,949 3,195,511
Interest expense 256,158 377,629
Interest income 48,782 44,196
-------------------- -------------------
Income before provision for income taxes 4,392,573 2,862,078
Income tax expense 1,420,782 973,107
-------------------- -------------------
Net income $ 2,971,791 $ 1,888,971
==================== ===================
Earnings per common share and common share equivalents
(Note 1): $ 0.12 $ 0.08
==================== ===================
Weighted average common and common equivalent shares
outstanding 22,474,102 20,991,324
==================== ===================
</TABLE>
5
See accompanying note.
<PAGE> 6
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 2,971,791 $ 1,888,971
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 1,673,050 1,433,678
Loss on disposition of assets -- 1,236
Changes in certain other assets and liabilities:
Accounts receivable 2,192,563 (3,109,066)
Notes receivable (235,896) 481,985
Prepaid expenses (1,019,891) 21,321
Other assets (36,957) 14,266
Accounts payable (76,066) 500,243
Unearned revenue and customer deposits (540,925) (293,286)
Accrued liabilities (1,428,583) (48,076)
-------------------- -------------------
Net cash provided by operating activities 3,499,086 891,272
Cash Flow From Investing Activities:
Capital expenditures (2,417,103) (1,153,879)
Proceeds from sale of equipment -- 175,000
Proceeds from exercise of stock options 2,118,975 --
-------------------- -------------------
Net cash used in investing activities (298,128) (978,879)
Cash Flow From Financing Activities:
Net proceeds from (payments on) line of credit (2,367,586) --
Payments on capital leases (403,116) (307,072)
Payments on long-term debt (166,667) (579,059)
-------------------- -------------------
Net cash used in financing activities (2,937,369) (886,131)
Net change in cash 263,589 (973,738)
Cash at beginning of the period 1,723,702 2,481,170
-------------------- -------------------
Cash at end of the period $ 1,987,291 $ 1,507,432
==================== ===================
Supplemental information on non-cash transactions is as follows:
Tax benefit of stock options exercised $ 636,640 $ --
</TABLE>
See accompanying note.
6
<PAGE> 7
ATC COMMUNICATIONS GROUP, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Earnings per share:
Primary and fully diluted earnings per common share are computed by dividing
net income applicable to common stock by the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding during the
period. Common stock equivalents consist of common stock issuable under the
assumed exercise of stock options and warrants, computed based on the treasury
stock method, and the assumed conversion of the Company's issued and
outstanding preferred stock. Net income applicable to common stock for the
three and six month periods ended December 31, 1996 and 1995 were adjusted to
reflect the income attributable to stock options issued to key employee and
officers by Advanced Telemarketing Corporation ("Advanced"), the operating
subsidiary of the Company. Primary and fully diluted weighted average shares
outstanding for the three month period ending December 31, 1996 and 1995 was
computed as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 16,485,199 13,563,361
Common stock equivalents:
Net effect of dilutive stock options and warrants 1,757,156 2,920,741
Net effect of assumed conversion of dilutive preferred stock 4,259,556 4,259,556
---------- ----------
Primary and fully diluted shares 22,501,911 20,743,658
========== ==========
FULLY DILUTED
Weighted average shares outstanding 16,485,199 13,563,361
Common stock equivalents:
Net effect of dilutive stock options and warrants 1,757,156 3,168,407
Net effect of assumed conversion of dilutive preferred stock 4,259,556 4,259,556
---------- ----------
Primary and fully diluted shares 22,501,911 20,991,324
========== ==========
</TABLE>
7
<PAGE> 8
Primary and fully diluted weighted average shares outstanding for the six month
period ending December 31, 1996 and 1995 was computed as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 15,827,372 13,563,361
Common stock equivalents:
Net effect of dilutive stock options and warrants 2,322,897 2,811,516
Net effect of assumed conversion of dilutive
preferred stock 4,259,556 4,259,556
---------- ----------
Primary and fully diluted shares 22,409,825 20,634,433
========== ==========
FULLY DILUTED
Weighted average shares outstanding 15,827,372 13,563,361
Common stock equivalents:
Net effect of dilutive stock options and warrants 2,387,174 3,168,407
Net effect of assumed conversion of dilutive
preferred stock 4,259,556 4,259,556
---------- ----------
Primary and fully diluted shares 22,474,102 20,991,324
========== ==========
</TABLE>
Net income applicable to common stock for the six month periods ended
December 31, 1996 and 1995 were computed as follows:
<TABLE>
<CAPTION>
Three months ended December 31 Six months ended December 31
------------------------------ ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $850,530 $1,069,143 $2,971,791 $1,888,971
Less: income applicable to Advanced
stock options 59,837 112,625 264,334 199,478
------------------------- --------------------------
Net Income applicable to common stock $790,693 $956,518 $2,707,457 $1,689,493
========================= ==========================
</TABLE>
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements, in the opinion of
the Company's management, contain all material, normal and recurring
adjustments necessary to present accurately the consolidated financial
condition of the Company and the consolidated results of its operations for the
quarter and six months ended December 31, 1996. The consolidated results of
operations for the period reported are not necessarily indicative of the
results to be experienced for the entire current fiscal year.
Results of Operations
The Company earned income from operations of $1,286,353 on revenues of
$25,114,364 for the quarter ended December 31, 1996 and for the six months
ended December 31, 1996 earned income from operations of $4,599,949 on revenues
of $51,659,438. In the previous fiscal year the Company earned income from
operations of $1,786,522 and $3,195,511 in comparable three and six month
periods, respectively. The quarter ended December 31, 1996 was a period of
transition and investment in the future as the Company brought in new senior
management and invested in new proprietary, internal reporting systems. While
such moves reduced the Company's operating margins in the quarter and are
expected to continue to do so in the near term, management believes they were
necessary to enhance the level of service provided to the Company's customers
and to position the Company for continued and increasing growth in the future.
For the quarter ended December 31, 1996 revenues increased $2,153,168
(9.4%) over revenues generated in the corresponding quarter of the previous
fiscal year and increased $10,660,432 (26.0%) for the six months ended December
31, 1996 versus the comparable prior year six month period. The Company's
revenue growth rate for the current year quarter was impacted by the transition
in the Company's senior management and by other factors including a seasonal
slowdown in business volumes by one of the Company's larger customers .
Revenue levels for the quarter with certain major customers remained constant
with the prior current year quarter while these customers became comfortable
with the new senior management. Since December 31, 1996 the Company has again
been given opportunities to grow revenues with these major customers.
Approximately 49% of the Company's revenues during the six months ended
December 31, 1996 were generated by one customer. The Company is continuing
efforts to increase revenues and reduce the concentration of business with this
customer by pursuing a strategy to secure recurring revenues through long-term
relationships with targeted, large corporate customers that use
telecommunications as an integral part of their customer service and marketing
programs. The Company also continues to meet its customers' demands by
performing project-based services; however, there can be no assurance that
these customers will continue existing projects or provide new ones.
Gross profit earned on revenues increased for the three months ended
December 31, 1996 $248,529 (3.8%) from the prior year's quarter while for the
six month period ended December 31, 1996 gross profits increased $3,592,471
(29.1%). These increases were due primarily to the increase in revenues in the
current year. As a percentage of revenues, gross profits for the three and six
month periods ended December 31, 1996 were 27.4% and 30.9% , respectively,
versus
9
<PAGE> 10
28.8% and 30.1% in the comparable three and six month periods of the prior
year, respectively. The gain in operating efficiency in the six month period
of the current year compared to the prior year period was due primarily to the
cost savings resulting from the renegotiation of the Company's
telecommunications tariff. During the current year quarter, such savings were
offset by the costs associated with the implementation of the new internal
reporting systems discussed above. These systems revealed certain operating
inefficiencies during the quarter which the Company has since corrected. In
addition the costs associated with training personnel on the use of the new
systems contributed to a reduction in the gross profit margin. The Company has
implemented operational changes to improve the gross profit margin and
management believes gross profit should return to historic levels during the
current fiscal year.
Selling, general and administrative expenses ("SG&A") increased
$628,076 (15.3%) in the quarter ended December 31, 1996 and increased
$1,948,661 (25.2%) in the current year's six month period then ended versus
comparable prior year periods. The increase in SG&A was primarily the result
of the addition of personnel and infrastructure and the increase in agent
recruiting costs relating to the revenue gains in the current year. Management
is continuing its efforts to improve efficiencies by controlling SG&A while
maintaining the Company's high quality standards and improving its growth rate.
The increase in depreciation and amortization expense of $239,372
(16.7%) in the six months ended December 31, 1996 versus the comparable prior
year period is primarily the result of the expansion of operating capacity
during the fiscal year ended June 30, 1996 and continuing in the current fiscal
year. The increase in revenues generated in the current year necessitating
such expansion mitigated the impact of the increase in depreciation expense on
the Company's operating margin. As a percentage of revenues, the expense for
the six months ended December 31, 1996 was 3.2% versus 3.5% in the comparable
prior year period.
Net interest expense decreased for the three and six month periods
ended December 31, 1996 $58,791 (35.3%) and $126,057 (37.8%), respectively
versus the same periods in the previous fiscal year due primarily to the
reduction in long-term debt from $4,425,072 at December 31, 1995 to $3,041,786
at December 31, 1996 and the interest expense associated with such debt.
The Company's effective federal income tax rate was approximately
32.3% for the six months ended December 31, 1996 versus 34% for the comparable
prior year six month period. The decrease in the tax rate emanates from
federal tax credits generated by a federal program, effective October, 1 1996,
which encourages the hiring of certain qualifying individuals. This federal
program should have the effect of lowering the Company's effective tax rate
during the remainder of the 1997 fiscal year from the prior year levels.
Management knows of no trends or uncertainties other than those
mentioned above that are expected to have a material favorable or unfavorable
impact on operating results.
10
<PAGE> 11
Liquidity and Capital Resources
The Company currently has the liquidity and access to working capital
to meet its near-term growth demands as a result of its increased profitability
over the last two years and its $15 million working capital line of credit with
a major bank. Currently the Company is completing the reconfiguration of
certain production and administrative areas in its existing facilities which
will add approximately 300 workstations. This expansion has been funded with
operating cash flow and will be sufficient to meet near-term growth demands.
However, the Company operates in a dynamic, fast- growing industry. As the
Company's growth continues, additional call center facilities will be needed
and such facilities will require furniture, equipment and technological
enhancements consistent with its existing facilities.
In addition, management is currently pursuing opportunities for growth
through the acquisition of other call center companies. The Company recently
signed a non-binding letter of intent to acquire such a company. Although
there can be no assurances that this proposed acquisition will be successfully
completed, management believes this acquisition candidate would bring to ATC an
increase in revenue and capacity, diversity of its client base and an
experienced management team.
Although no assurances can be made in this regard, management
anticipates that, based on the Company's recent profitability and its ability
to secure such financing to date, the Company should be able to secure debt or
equity funding for the capital equipment requirements of future call center
facilities or for acquisition opportunities.
The $15 million accounts receivable credit facility and a $1.5 million
equipment term loan with the same major bank contain various covenants which
limit, among other things, the operating subsidiary's indebtedness, capital
expenditures, investments, payments and dividends to the Company and requires
the operating subsidiary to meet certain financial covenants. Similarly, under
the terms of the guaranty arrangement, the Company is subject to certain
covenants limiting, among other things, its ability to incur indebtedness,
enter into guaranties, and acquire other companies. These credit facilities
are secured by liens on the operating subsidiary's accounts receivables,
furniture and equipment, and are guaranteed by the Company.
The following is a "safe harbor" statement under the Private
Securities Litigation Reform Act of 1995: Statements contained in this Form
10-Q that are not based on historical facts are forward-looking statements
subject to uncertainties and risks, including but not limited to, the Company's
reliance on certain major customers; government regulation and tax policy;
competition; dependence on the Company's labor force; reliance on technology;
telephone service dependence; and other operational, financial or legal risks
or uncertainties detailed in the Company's SEC filings.
11
<PAGE> 12
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE (FILED HEREWITH).
(B) Reports of Form 8-K
None.
12
<PAGE> 13
SIGNATURES
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, hereunto duly authorized.
ATC COMMNICATIONS GROUP, INC.
By: /s/ Jerry L. Sims Jr.
-----------------------------
Dated: Jerry L. Sims, Jr.
February 13, 1997 Chief Financial Officer
13
<PAGE> 14
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
Exhibit 27.1 Financial Data Schedule, filed herewith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,987,291
<SECURITIES> 0
<RECEIVABLES> 19,507,230
<ALLOWANCES> 100,016
<INVENTORY> 0
<CURRENT-ASSETS> 24,374,907
<PP&E> 20,320,290
<DEPRECIATION> 8,660,028
<TOTAL-ASSETS> 37,888,012
<CURRENT-LIABILITIES> 10,642,699
<BONDS> 0
0
8,698
<COMMON> 170,076
<OTHER-SE> 24,990,415
<TOTAL-LIABILITY-AND-EQUITY> 37,888,012
<SALES> 0
<TOTAL-REVENUES> 51,659,438
<CGS> 35,708,530
<TOTAL-COSTS> 11,350,959
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,376
<INCOME-PRETAX> 4,392,573
<INCOME-TAX> 1,420,782
<INCOME-CONTINUING> 2,971,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,971,791
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
