<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 March 31, 2000 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 0-19598
-------
infoUSA INC.
- --------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
DELAWARE 47-0751545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 593-4500
--------------
(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 at least 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.
50,264,309 shares of Common Stock at May 2, 2000
<PAGE> 2
infoUSA INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
2
<PAGE> 3
infoUSA INC.
Form 10-Q
For the Quarter
Ended March 31, 2000
PART I
FINANCIAL INFORMATION AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
3
<PAGE> 4
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 16,468 $ 10,846
Marketable securities................................................. 70 70
Trade accounts receivable, net of allowances of $6,744 and
$7,068, respectively .............................................. 64,152 65,812
List brokerage trade accounts receivable ............................. 14,170 16,734
Prepaid expenses ..................................................... 4,105 2,973
Deferred marketing costs ............................................. 3,125 2,957
------------- -------------
Total current assets ......................................... 102,090 99,392
------------- -------------
Property and equipment, net ............................................ 55,557 53,569
Intangible assets, net of accumulated amortization ..................... 311,247 315,889
Other assets ........................................................... 5,734 4,494
------------- -------------
$ 474,628 $ 473,344
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................... $ 12,802 $ 9,885
Accounts payable ..................................................... 13,045 8,370
List brokerage trade accounts payable ................................ 14,038 16,375
Accrued payroll expenses.............................................. 6,053 5,767
Accrued expenses ..................................................... 8,375 6,579
Income taxes payable ................................................. 1,400 3,699
Deferred revenue ..................................................... 7,745 7,556
Deferred income taxes ................................................ 532 262
------------- -------------
Total current liabilities .................................... 63,990 58,493
------------- -------------
Long-term debt, net of current portion ................................. 248,717 267,637
Deferred income taxes .................................................. 33,793 35,319
Other liabilities ...................................................... 12,000 --
Minority interest ...................................................... 1,049 1,084
Commitments and contingencies ..........................................
Stockholders' equity:...................................................
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; none issued or outstanding ................................. -- --
Common stock, $.0025 par value. Authorized 295,000,000 shares;
51,122,272 shares issued and 49,839,908 outstanding at March 31, 2000
and 50,719,548 shares issued and 49,390,058 shares outstanding at
December 31, 1999................................................... 127 127
Paid-in capital....................................................... 87,736 82,025
Retained earnings .................................................... 36,784 38,470
Treasury stock, at cost, 1,282,364 shares held at March 31, 2000 and
1,329,490 held at December 31, 1999 ............................... (8,934) (9,170)
Accumulated other comprehensive loss ................................. (634) (641)
------------- -------------
Total stockholders' equity ................................... 115,079 110,811
------------- -------------
$ 474,628 $ 473,344
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
Net sales ............................................. $ 80,960 $ 55,520
Costs and expenses:
Database and production costs ....................... 25,647 16,176
Selling, general and administrative ................. 38,781 22,336
Depreciation and amortization ....................... 12,356 6,033
Non-cash stock compensation expense ................. 1,222 --
Acquisition costs ................................... 1,368 --
------------- -------------
79,374 44,545
------------- -------------
Operating income ...................................... 1,586 10,975
Other income (expense):
Investment income ................................... 204 2,484
Gain on issuance of subsidiary stock ................ 2,429 --
Minority interest in subsidiary ..................... 274 --
Interest expense .................................... (6,784) (3,114)
------------- -------------
Income before income taxes and
extraordinary item .................................. (2,291) 10,345
Income taxes .......................................... (605) 4,160
------------- -------------
Income (loss) before extraordinary
item ................................................ (1,686) 6,185
Extraordinary item, net of tax ........................ -- 128
------------- -------------
Net income (loss) ..................................... $ (1,686) $ 6,313
============= =============
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary
item ............................................. $ (0.03) $ 0.13
Extraordinary item .................................. -- --
------------- -------------
Net income (loss) ................................... $ (0.03) $ 0.13
============= =============
Weighted average shares outstanding ................. 49,610 48,602
============= =============
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary
item ............................................. $ (0.03) $ 0.13
Extraordinary item .................................. -- --
------------- -------------
Net income (loss) ................................... $ (0.03) $ 0.13
============= =============
Weighted average shares outstanding ................. 49,610 48,662
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................... $ (1,686) $ 6,313
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 12,356 6,033
Amortization of deferred financing costs ......... 289 --
Deferred income taxes ............................ (1,256) 581
Net realized gains on sale of
marketable securities investments .............. -- (2,025)
Acquisition costs ................................ 1,368 --
Gain on issuance of subsidiary stock ............. (2,429) --
Non-cash stock compensation expense .............. 1,222 --
Minority interest in subsidiary .................. (274) --
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ...................... 1,839 3,065
List brokerage trade accounts receivable........ 2,564 4,910
Prepaid expenses and other assets .............. (1,245) (1,446)
Deferred marketing costs ....................... (168) 199
Accounts payable ............................... 4,665 250
List brokerage trade accounts payable .......... (2,337) (3,408)
Income taxes receivable and payable ............ (2,299) 3,652
Accrued expenses and other liabilities ......... 14,193 (4,663)
------------- -------------
Net cash provided by operating
activities ................................ 26,802 13,461
------------- -------------
Cash flows from investing activities:
Proceeds from sales of marketable securities......... -- 8,587
Purchases of marketable securities .................. -- (4,153)
Purchases of other investments ...................... (1,124) --
Purchases of property and equipment ................. (4,383) (700)
Acquisitions of businesses .......................... (2,775) --
Software development costs .......................... (3,494) (1,413)
------------- -------------
Net cash provided by (used in)
investing activities ...................... (11,776) 2,321
------------- -------------
Cash flows from financing activities:
Repayment of long-term debt ......................... (16,003) (550)
Proceeds on issuance of subsidiary stock ............ 2,668 --
Acquisitions of treasury stock ...................... -- (6,553)
Repurchase of senior subordinated notes ............. -- (8,370)
Proceeds from exercise of stock options ............. 3,931 --
------------- -------------
Net cash used in financing
activities ................................ (9,404) (15,473)
------------- -------------
Effect of exchange rate fluctuations on cash .......... -- (149)
------------- -------------
Net increase in cash and cash
equivalents ......................................... 5,622 160
Cash and cash equivalents, beginning .................. 10,846 29,603
------------- -------------
Cash and cash equivalents, ending ..................... $ 16,468 $ 29,763
============= =============
Supplemental cash flow information:
Interest paid ....................................... $ 3,361 $ 776
============= =============
Income taxes paid ................................... $ 2,893 $ 7
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments
necessary to fairly present the financial information included therein.
The Company suggests that this financial data be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's 1999 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Results for the interim
period presented are not necessarily indicative of results to be expected for
the entire year.
2. EARNINGS PER SHARE INFORMATION
The following table shows the amounts used in computing earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock. Options on 1.8 million shares of common stock were not included in
computing diluted earnings per share for the first quarter of 2000 because their
effects were antidilutive.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------
MARCH 31, MARCH 31,
2000 1999
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Weighted average number of shares outstanding
used in basic EPS.......................................... 49,610 48,602
Net additional common equivalent shares
outstanding after assumed exercise of stock
options ................................................... -- 60
------------- -------------
Weighted average number of shares outstanding
used in diluted EPS ....................................... 49,610 48,662
============= =============
</TABLE>
3. SEGMENT INFORMATION
The Company currently manages existing operations utilizing financial
information accumulated and reported for two business segments.
The small business segment principally engages in the selling of sales lead
generation and consumer CD-Rom products to small to medium sized companies,
small office and home office businesses and individual consumers. This segment
includes the sale of content via the Internet.
The large business segment principally engages in the selling of data
processing services, licensed databases, database marketing solutions and list
brokerage and list management services to large companies. This segment includes
the licensing of databases for Internet directory assistance services.
The small business and large business segments reflect actual net sales,
direct order production, and identifiable direct sales and marketing costs
related to their operations. The remaining indirect costs are presented as a
reconciling item in corporate activities.
Corporate activities principally represent the information systems
technology, database compilation, database verification, and administrative
functions of the Company. Investment income (loss), interest expense, income
taxes, amortization of intangibles, and depreciation expense are only recorded
in corporate activities. The Company does not allocate these costs to the two
business segments. The Company records unusual or non-recurring items including
acquisition-related and restructuring charges in corporate activities to allow
for the analysis of the sales business segments excluding such unusual or
non-recurring charges.
The Company accounts for property and equipment on a consolidated basis.
The Company's property and equipment is shared by the Company's business
segments. Depreciation expense is recorded in corporate activities.
7
<PAGE> 8
The Company has no intercompany sales or intercompany expense transactions.
Accordingly, there are no adjustments necessary to eliminate amounts between the
Company's segments.
The following table summarizes segment information:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 2000
--------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales .............................. $ 39,544 $ 41,416 $ -- $ 80,960
Non stock compensation expense ......... -- -- 1,222 1,222
Acquisition costs ...................... -- -- 1,368 1,368
Operating income (loss) ................ 10,394 17,792 (26,600) 1,586
Investment income ...................... -- -- 204 204
Interest expense ....................... -- -- 6,784 6,784
Income (loss) before income taxes ...... 10,394 17,792 (30,477) (2,291)
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1999
--------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales .............................. $ 33,178 $ 22,342 $ -- $ 55,520
Operating income (loss) ................ 16,676 10,287 (15,988) 10,975
Investment income ...................... -- -- 2,484 2,484
Interest expense ....................... -- -- 3,114 3,114
Income (loss) before income taxes
and extraordinary item ................. 16,676 10,287 (16,618) 10,345
</TABLE>
4. COMPREHENSIVE INCOME
Comprehensive income, including the components of other comprehensive
income, is as follows:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------
MARCH 31, MARCH 31,
2000 1999
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss) .......................................... $ (1,686) $ 6,313
Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized gains ....................................... -- 3,733
Related tax expense .................................... -- (1,799)
------------- -------------
Net .................................................... -- 2,314
------------- -------------
Reclassification adjustment for net gains
(losses) realized on sale of marketable
securities:
Unrealized gains ....................................... -- 1,206
Related tax expense .................................... -- (458)
------------- -------------
Net .................................................... -- 748
------------- -------------
Foreign currency translation adjustments ................. 7 (634)
------------- -------------
Total other comprehensive income ........................... 7 2,428
------------- -------------
Comprehensive income (loss) ................................ $ (1,679) $ 8,741
============= =============
</TABLE>
8
<PAGE> 9
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION GAINS ON COMPREHENSIVE
ADJUSTMENTS SECURITIES INCOME
------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at March 31, 2000 ..................... $ (634) $ -- $ (634)
============= ============= =============
Balance at March 31, 1999 ..................... $ (634) $ 6,376 $ 5,742
============= ============= =============
</TABLE>
5. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
During the first quarter of 2000, infoUSA.com, a subsidiary of the Company,
completed additional venture capital financing. As a result of the issuance of
common stock of this subsidiary, the Company recorded a non-taxable gain of $2.4
million on the transaction.
6. ACQUISITION
Effective March 2000, the Company acquired all issued and outstanding
common stock of American Church Lists, a national proprietary database of
religious institutions, organizations and affiliations. Total consideration for
the acquisition was $2.0 million, funded using cash provided by operations. The
acquisition has been accounted for under the purchase method of accounting, and
accordingly, the operating results of American Church Lists have been included
in the Company's financial statements since the date of acquisition. Intangibles
recorded as part of the purchase included goodwill of $2.1 million, which is
being amortized over 15 years. No pro forma operating results have been included
as the Company has determined that the results of operations for American Church
Lists are not material.
7. ACQUISITION COSTS
During the first quarter of 2000, the Company recorded acquisition costs of
$1.4 million associated with the Company's bid to acquire the consumer database
division of R.L. Polk. This entity was acquired by Equifax Inc. in May 2000.
8. NON-CASH STOCK COMPENSATION EXPENSE
The Company's partially-owned subsidiary, infoUSA.com, sponsors an Equity
Incentive Plan in which shares of common stock are reserved for issuance to
officers, directors, employees and consultants of the subsidiary. Options
granted during the quarter ended March 31, 2000 were generally with an option
price less than the stock's fair market value on the date of grant. The Company
uses Accounting Principles Bulletin (APB) Opinion No. 25 to account for
stock-based compensation and, as such, has recorded a non cash charge of $1.2
million during the quarter ended March 31, 2000 related to the issuance of stock
options for infoUSA.com. The charge was recorded as an addition to
paid-in-capital.
9. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
10. SUBSEQUENT EVENT
Effective May 2000, the Company acquired certain assets and assumed certain
liabilities of idEXEC, a Thomson Financial company. idEXEC provides a worldwide
database of 60,000 large businesses and 400,000 executives for
business-to-business prospecting, marketing, and research applications. Total
consideration for the acquisition is estimated to be approximately $7.5 million,
consisting of $5.0 million in cash, funded using cash provided by operations,
and 391,000 shares of common stock, funded using shares of treasury stock held
by the Company.
9
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infoUSA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of business and consumer marketing information
and data processing services. The Company's products and services help its
clients generate new customers more effectively at lower cost. The Company's key
assets include a proprietary database of over 11 million businesses and a
consumer database of over 115 million households and 195 million individuals in
the United States and Canada, which the Company believes are among the most
comprehensive and accurate available. The Company leverages these key assets by
selling a broad range of marketing information products and data processing
services through targeted distribution channels primarily to small and medium
size businesses and also to consumers and large corporations.
This discussion and analysis contains forward-looking statements, including
without limitations statements in the discussion of net sales, database and
production costs and liquidity and capital resources, within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933, which are subject to the "safe harbor" created by those
sections. The Company's actual future results could differ materially from those
projected in the forward-looking statements. Some factors which could cause
future actual results to differ materially from the company's recent results or
those projected in the forward-looking statements are described in "Factors
Affecting Operating Results" below. The Company assumes no obligation to update
the forward-looking statement or such factors.
10
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information and other data. The amounts and related percentages may
not be fully comparable due to the acquisitions of Donnelley Marketing
(Donnelley) during July 1999 and American Church Lists during March 2000:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
CONSOLIDATED STATEMENT OF OPERATIONS DATA: MARCH 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales ................................................................. 100% 100%
Costs and expenses:
Database and production costs ........................................... 32 29
Selling, general and administrative ..................................... 48 40
Depreciation and amortization ........................................... 15 11
Non-cash stock compensation expense ..................................... 1 --
Acquisition costs ....................................................... 2 --
-------- --------
Total costs and expenses ............................................. 98 80
-------- --------
Operating income .......................................................... 2 20
Other income (expense), net ............................................... (5) (1)
-------- --------
Income before income taxes and extraordinary item ......................... (3) 19
Income taxes .............................................................. (1) 8
-------- --------
Income (loss) before extraordinary item ................................... (2) 11
Extraordinary item, net of tax ............................................ -- --
-------- --------
Net income (loss) ......................................................... (2)% 11%
======== ========
OTHER DATA:
SALES BY SEGMENT:
(amounts in thousands)
Small business ..................................................... $ 39,544 $ 33,178
Large business ..................................................... 41,416 22,342
-------- --------
Total .............................................................. $ 80,960 $ 55,520
======== ========
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business ..................................................... 49% 60%
Large business ..................................................... 51 40
-------- --------
Total .............................................................. 100% 100%
======== ========
(amounts in thousands)
Amortization expense of goodwill and related intangibles (1) ....... $ 7,959 $ 3,280
======== ========
Earnings before interest, taxes, depreciation and
amortization (EBITDA), as adjusted (2) ............................. $ 15,164 $ 17,008
======== ========
EBITDA, as adjusted as a percentage of net sales ..................... 19% 31%
======== ========
</TABLE>
(1) This represents amortization expense recorded by the Company on all
intangibles recorded as part of the acquisition of other companies, and excludes
amortization related to deferred financing costs, software development costs,
and other intangible assets not recorded as part of an acquisition of another
company.
(2) "EBITDA, as adjusted" is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets and non-cash
acquisition-related and restructuring charges. EBITDA is presented because it is
a widely accepted indicator of a company's ability to incur and service debt and
of the Company's cash flows from operations excluding any non-recurring items.
However, EBITDA, as adjusted, does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements of
cash flows, is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP. Also,
the measure of EBITDA, as adjusted, may not be comparable to similar measures
reported by other companies.
11
<PAGE> 12
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed thirteen acquisitions since mid-1996.
Through these acquisitions, the Company has increased its presence in the
consumer marketing information industry, greatly increased its ability to
provide data processing solutions, added two consumer CD-Rom product lines,
increased its presence in list management and list brokerage services and
broadened its offerings of business marketing information.
The Company has previously made certain disclosures relative to the
continuing results of operations of acquired companies where appropriate and
possible, although the Company has in the case of all acquisitions since 1996,
immediately integrated the operations of the acquired companies into existing
operations of the Company. Generally, the results of operations for these
acquired activities are no longer separately accounted for from existing
activities. The Company cannot report on the results of operations of acquired
companies upon completion of the integration as the results are "commingled"
with existing results. Additionally, upon integration of acquired operations,
the Company frequently combines acquired products or features with existing
products, and experiences significant cross-selling of products between business
units, including sales of acquired products by existing business units and sales
by acquired business units of existing products. Due to recent and potential
future acquisitions, future results of operations will not be comparable to
historical data. While the results cannot be accurately quantified, acquisitions
have had a significant impact on net sales.
Since 1996, database and production costs have increased as a percentage of
net sales as a result of higher costs associated with data processing services
and CD-Rom production. To the extent that data processing and CD-Rom sales
constitute a greater percentage of net sales, the Company expects database and
production costs to increase as a percentage of net sales in the future.
Since 1997, net sales of the Company's large business segment have increased
as a percentage of the Company's total net sales, due to the acquisition of the
Database America Companies, Walter Karl, JAMI Marketing and Donnelley Marketing.
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
Net sales
Net sales for the quarter ended March 31, 2000 were $81.0 million, an
increase of 46% from $55.5 million for the same period of 1999. The increase in
net sales is principally due to the acquisition of Donnelley in July 1999.
Net sales of the small business segment for the quarter ended March 31,
2000 were $39.5 million, a 19% increase from $33.2 million for the same period
of 1999. The small business segment principally engages in the selling of sales
lead generation and consumer CD-Rom products to small to medium sized companies,
small office and home office businesses and individual consumers. This segment
includes the sale of content via the Internet. The increase in the net sales of
the small business segment is principally due to the acquisition of Donnelley in
July 1999 and the related sale of Donnelley's consumer data by the Company.
Net sales of the large business segment for the quarter ended March 31, 2000
were $41.4 million, an 85% increase from $22.3 million for the same period of
1999. The large business segment principally engages in the selling of data
processing services, licensed databases, database marketing solutions and list
brokerage and list management services to large companies. This segment includes
the licensing of databases for Internet directory assistance services. The
Company recorded net sales of data processing services of $19.9 million for the
quarter ended March 31, 2000, compared to $14.5 million for the same period of
1999. The increase in net sales of data processing services is principally due
to the acquisition of Donnelley in July 1999. Net sales of Internet-based
database licenses were $4.1 million, a 58% increase from $2.6 million for the
same period of 1999. Since mid-1999, the Company has been successfully renewing
and signing new Internet license agreements using a variable CPM model, no
longer entering into Internet-based license agreements on a flat fee basis.
12
<PAGE> 13
Database and production costs
Database and production costs for the quarter ended March 31, 2000 were
$25.6 million, or 32% of net sales, compared to $16.2 million, or 29% of net
sales for the same period of 1999.
The increase in database and production costs as a percentage of net sales
is principally due to the acquisition of Donnelley in July 1999. Database and
production costs as a percentage of net sales associated with the Donnelley
operations are higher than database and production costs as a percentage of net
sales associated with the remainder of the Company's operations.
Additionally, the increase in database and production costs as a percentage
of net sales is partially due to the execution of the Company's planned
expansion related to various Internet initiatives. Database and production costs
related to the various Internet divisions increased $1.0 million, or 1% of net
sales, from the first quarter of 1999 to the first quarter of 2000.
Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter ended March 31,
2000 were $38.8 million, or 48% of net sales, compared to $22.3 million, or 40%
of net sales for the same period of 1999.
The increase in selling, general and administrative expenses as a percentage
of net sales is principally due to the Company's planned expansion related to
various Internet initiatives. Selling, general and administrative expenses
related to the various Internet divisions increased $5.8 million, or 7% of net
sales, from the first quarter of 1999 to the first quarter of 2000.
Depreciation and amortization expenses
Depreciation and amortization expenses for the quarter ended March 31, 2000
were $12.4 million, or 15% of net sales, compared to $6.0 million, or 11% of net
sales for the same period of 1999. The increase in depreciation and amortization
expenses is principally due to the acquisition of Donnelley in July 1999.
Non cash stock compensation expense
During the quarter ended March 31, 2000, the Company recorded a non cash
charge of $1.2 million, or 1% of net sales, related to the issuance of stock
options for infoUSA.com, a subsidiary of the Company. The charge was recorded as
an addition to paid-in-capital.
Acquisition costs
During the quarter ended March 31, 2000, the Company recorded acquisition
costs of $1.4 million, or 2% of net sales, associated with the Company's bid to
acquire the consumer database division of R.L. Polk. This entity was acquired by
Equifax Inc. in May 2000.
Operating income
Including the factors previously described, the Company had operating income
of $1.6 million, or 2% of net sales for the quarter ended March 31, 2000, as
compared to operating income of $11.0 million, or 20% of net sales for the same
period of 1999.
Operating income for the small business segment for the quarter ended March
31, 2000 was $10.4 million, or 26% of net sales, as compared to $16.7 million,
or 50% of net sales for the same period of 1999. The decrease in operating
income as a percentage of net sales is principally due to the Company's
execution of the planned expansion related to various Internet initiatives.
Certain costs related to the Internet divisions are included in the small
business segment. See the section "Selling, general and administrative expenses"
and "database and production costs" for additional information.
Operating income for the large business segment for 1999 was $17.8 million,
or 43% of net sales, as compared to $10.3 million, or 46% of net sales for the
same period of 1999. The decrease in operating income as a percentage of net
sales is principally due to the acquisition of Donnelley in July 1999. The
operating margins associated with Donnelley are slightly lower than the
operating margins associated with the remainder of the Company's large business
segment.
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<PAGE> 14
Other income (expense), net
Other income (expense), net was $(3.9) million, or 5% of net sales, and
$(0.6) million, or 1% of net sales, for the quarters ended March 31, 2000 and
1999, respectively. Other income (expense) is comprised of interest expense,
investment income, minority interest in subsidiary and other income or expense
items which do not represent components of operating income (expense) of the
Company.
Interest expense was $6.8 million and $3.1 million for the quarters ended
March 31, 2000 and 1999, respectively. The increase in interest expense is
principally the result of the addition of the Deutsche Bank Credit Facilities
used to finance the acquisition of Donnelley in July 1999.
Investment income was $0.2 million and $2.5 million for the quarters ended
March 31, 2000 and 1999, respectively. The Company recorded realized gains on
the sale of marketable securities totaling $2.0 million for the quarter ended
March 31, 1999.
During the quarter ended March 31, 2000, infoUSA.com, a subsidiary of the
Company, completed additional venture capital financing. As a result of the
issuance of stock of this subsidiary, the Company recorded a gain of $2.4
million on the transaction.
Minority interest in subsidiary of $274 thousand for the quarter ended March
31, 2000 represents the unaffiliated investors' share of infoUSA.com's net loss
for the period then ended.
Income taxes
A provision for income taxes of $(0.6) million and $4.2 million was recorded
for the quarters ended March 31, 2000 and 1999, respectively. The gain the
Company recorded during the quarter ended March 31, 2000 of $2.4 million on the
issuance of subsidiary stock is not subject to income tax expense. The
provisions for these periods also reflect the inclusion of amortization of
certain intangibles in taxable income not deductible for tax purposes.
Amortization expenses of $3.1 million and $793 thousand were not deductible for
tax purposes for the quarters ended March 31, 2000 and 1999, respectively.
Extraordinary item, net of tax
During the quarter ended March 31, 1999, the Company repurchased $9.0
million of its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection
with the repurchase of the Notes, the Company recorded a gain of $0.1 million,
net of deferred financing costs of $0.4 million written-off in proportion to the
face amount of Notes purchased and retired.
EBITDA, as adjusted
Excluding the non cash stock compensation expense previously described, the
Company's EBITDA, as adjusted, was $15.2 million, or 19% of net sales for the
quarter ended March 31, 2000, and $17.0 million, or 31% of net sales for the
same period of 1999.
YEAR 2000 READINESS DISCLOSURE
The total estimated costs associated with the Company's Year 2000
remediation plan were $5.0 million. As of the date of this Form 10-Q, the
Company has not experienced any material business disruptions as a result of
Year 2000 issues arising from its information systems, nor is it aware of any
material Year 2000 related business interruptions impacting its clients or
service providers. However, the Company cannot be certain that it will not
suffer business interruptions, either due to its own Year 2000 issues that may
develop or those of third parties. Accordingly, there can be no assurance the
Company or third parties will not have ongoing Year 2000 issues that may have a
material adverse effect on the Company.
14
<PAGE> 15
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
their fair value. If certain conditions are met, a derivative may be
specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-currency denominated forecasted transaction. SFAS 133, as
amended by Statement of Financial Accounting Standards No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect the effect of SFAS 133 to be significant to its financial
reporting.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's principal sources of liquidity included
cash and cash equivalents of $16.5 million. As of March 31, 2000, the Company
had working capital of $38.1 million.
During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a new credit arrangement which includes a Revolving Credit Facility
of $30.0 million. As of March 31, 2000, the Company had no borrowings under the
Revolving Credit Facility, with the exception of one outstanding letter of
credit in the amount of $5.0 million reducing the availability under the
Revolving Credit Facility to $25.0 million.
Net cash provided by operating activities during the three month period
ended March 31, 2000, totaled $26.8 million compared to $13.5 million during the
same period of 1999. The increase is principally the result of the receipt of
$14.0 million during the quarter ended March 31, 2000 which represented a
customer deposit on a long-term data license arrangement.
During the three month period ended March 31, 2000, the Company spent $4.4
million for additions of property and equipment and $3.5 million related to
internal software development costs.
The Company acquired American Church Lists effective March 2000 for $2.0
million in cash.
During the three month period ended March 31, 2000, the Company received
cash proceeds of $2.7 million on the issuance of stock in its subsidiary
infoUSA.com and $3.9 million from the exercise of stock options.
The Company made repayments on long-term debt totaling $16.0 million during
the three month period ended March 31, 2000.
Other liabilities at March 31, 2000 of $12.0 million represent a customer
deposit on a long-term data license arrangement.
The Company believes that its existing sources of liquidity and cash
generated from operations, assuming no major acquisitions, will satisfy the
Company's projected working capital and other cash requirements for at least the
next 12 months. To the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash.
Any such future growth and any acquisitions of other technologies, products or
companies may require the Company to obtain additional equity or debt financing,
which may not be available or may be dilutive.
FACTORS THAT MAY AFFECT OPERATING RESULTS
Our Internet strategy -- to be an incubator of Internet database companies -- is
untested.
Our Internet strategy is to be an incubator of Internet database companies.
With this strategy, we are seeking to leverage our proprietary content into
multiple vertical market applications and provide marketing solutions for
electronic commerce applications. We recently introduced this strategy and it is
relatively untested. We cannot guarantee that our Internet ventures will attract
the number of visitors or advertisers that we project, or that our customers
will choose to have our products and services delivered to them over the
Internet. If we are successful in these ventures, we may face strong competition
from current and potential competitors, including other Internet companies and
other providers of business and consumer databases.
Implementation of our Internet strategy is dependent on our ability to attract
and retain senior management.
15
<PAGE> 16
The demand for senior management for Internet companies currently exceeds
the supply of qualified candidates. The management team for our Internet
ventures will include senior managers who have been with us for many years as
well as newly hired senior managers. If we are unable to retain these managers
or to attract other qualified senior management, the implementation of our
Internet strategy may be delayed or impaired.
Our markets are highly competitive and many of our competitors have greater
resources than we do.
The business and consumer marketing information industry in which we operate
is highly competitive. Intense competition could harm us by causing, among other
things, price reductions, reduced gross margins, and loss of market share. Our
competition includes:
o In consumer sales lead generation products, Acxiom, Experian (a
subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax, both
directly and through reseller networks.
o In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications,
Inc. and Harte-Hanks Communications, Inc.
o In business sales lead generation products, Experian and Dun's Marketing
Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon
information compiled from Dun & Bradstreet's credit database, tends to
focus on marketing to large companies.
o In business directory publishing, Regional Bell Operating Companies and
many smaller, regional directory publishers.
o In consumer products, certain smaller producers of CD-Rom products.
o Technologies which companies may install and implement in-house as part
of their internal IS functions, instead of purchasing or outsourcing
such functions.
In addition, we may face competition from new entrants to the business and
consumer marketing information industry as a result of the rapid expansion of
the Internet, which creates a substantial new channel for distributing business
information to the market. Many of our competitors have longer operating
histories, better name recognition and greater financial resources than we do,
which may enable them to implement their business strategies more readily than
we can.
We are highly leveraged. If we are unable to service our debt as it becomes due,
our business would be harmed.
As of March 31, 2000, we had total indebtedness of approximately $261.5
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $139.8 million under a $195 million Senior Secured Credit Agreement.
Substantially all of our assets are pledged as security under the terms of the
Credit Agreement. The indebtedness under the Credit Agreement was incurred in
connection with our acquisition of Donnelley Marketing in 1999. Our ability to
pay principal and interest on the Notes issued under the Indenture and the
indebtedness under the Credit Agreement and to satisfy our other debt
obligations will depend upon our future operating performance. Our performance
will be affected by prevailing economic conditions and financial, business and
other factors. Certain of these factors are beyond the our control. The future
availability of revolving credit under the Credit Agreement will depend on,
among other things, our ability to meet certain specified financial ratios and
maintenance tests. We expect that our operating cash flow should be sufficient
to meet our operating expenses, to make necessary capital expenditures and to
service our debt requirements as they become due. If we are unable to service
our indebtedness, however, we will be forced to take actions such as reducing or
delaying acquisitions and/or capital expenditures, selling assets, restructuring
or refinancing our indebtedness (including the Notes issued under the Indenture
and the Credit Agreement) or seeking additional equity capital. We may not be
able to obtain any such remedies on terms that are favorable or satisfactory to
us, if at all.
The terms of our current indebtedness restrict our ability to take certain
actions that fit our business strategy.
Our existing credit facilities contain certain covenants which restrict our
ability to:
o Incur additional indebtedness;
o Pay dividends and make certain other similar payments;
16
<PAGE> 17
o Guarantee indebtedness of others;
o Enter into certain transactions with affiliates;
o Consummate certain asset sales, certain mergers and consolidations, sales
or other dispositions of all or substantially all of our assets; and
o Obtain dividends or certain other payments from our subsidiaries.
These restrictions may impair our ability to take certain actions that fit
our business strategy. A breach of any of these covenants could result in an
event of default under the terms of our existing credit facilities. Upon the
occurrence of an event of default, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the payment of any such indebtedness is accelerated, our assets may
not be sufficient to repay in full the indebtedness under our credit facilities
and our other indebtedness. Moreover, if we were unable to repay amounts owed to
the lenders under our credit facilities, the lenders could foreclose on our
assets that secure the indebtedness.
Under the terms of our current indebtedness, the occurrence of a change of
control of infoUSA could have serious adverse financial consequences to us.
If a change of control of infoUSA were to occur, we would in certain
circumstances be required to make an offer to purchase all outstanding Notes
under the Indenture at a purchase price equal to 101% of the principal amount of
the Notes, together with accrued and unpaid interest. There can be no guarantee
that, if this were to happen, we would have sufficient funds to purchase the
Notes. In addition, a change of control and any repurchase of the Notes upon a
change of control may constitute an event of default under our other current or
future credit facilities. In that event, our obligations under such credit
facilities could be declared due and payable by the lenders, and the lenders may
also have the right to be paid for all outstanding obligations under such credit
facilities before we repurchase any of the Notes.
Fluctuations in our operating results may result in decreases in the market
price of our common stock.
Our operating results may fluctuate on a quarterly and annual basis. Our
expense levels are relatively fixed and are based, in part, on our expectations
as to future revenues. As a result, unexpected changes in revenue levels may
have a disproportionate effect on operating performance in any given period. In
some period or periods our operating results may be below the expectations of
public market analysts and investors. Our failure to meet analyst or investor
expectations could result in a decrease in the market price of our common stock.
If we do not adapt our products and services to respond to changes in
technology, they could become obsolete.
We provide marketing information and services to our customers in a variety
of formats, including printed formats, electronic formats such as CD-Rom and
DVD, and over the Internet. Advances in information technology may result in
changing customer preferences for products and product delivery formats. If we
do not successfully adapt our products and services to take advantage of changes
in technology and customer preferences, our business, financial condition and
results of operations would be adversely affected.
We have adopted an Internet strategy because we believe that the Internet
represents an important and rapidly evolving market for marketing information
products and services. Our business, financial condition and results of
operations would be adversely affected if we:
o Fail to develop products and services that are well suited to the
Internet market;
o Experience difficulties that delay or prevent the successful development,
introduction and marketing of these products and services; or
o Fail to achieve sufficient traffic to our Internet sites to generate
significant revenues, or to successfully implement electronic commerce
operations.
17
<PAGE> 18
Changes in laws and regulations relating to data privacy could adversely affect
our business.
We engage in direct marketing, as do many of our customers. Certain data and
services provided by us are subject to regulation by federal, state and local
authorities. In addition, growing concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
self-regulation of such practices by the direct marketing industry through
guidelines suggested by the Direct Marketing Association and to increased
federal and state regulation. There is increasing awareness and concern among
the general public regarding marketing and privacy concerns, particularly as it
relates to the Internet. This concern is likely to result in new laws and
regulations. Compliance with existing federal, state and local laws and
regulations and industry self-regulation has not to date seriously affected our
business, financial condition or results of operations. Nonetheless, federal,
state and local laws and regulations designed to protect the public from the
misuse of personal information in the marketplace and adverse publicity or
potential litigation concerning the commercial use of such information may
increasingly affect our operations. This could result in substantial regulatory
compliance or litigation expense or a loss of revenue.
Our business would be harmed if we do not successfully integrate future
acquisitions.
Our business strategy includes continued growth through acquisitions of
complementary products, technologies or businesses. We have made thirteen
acquisitions since mid-1996. We continue to evaluate strategic opportunities
available to us and intend to pursue opportunities that we believe fit our
business strategy. Acquisitions of companies, products or technologies may
result in the diversion of management's time and attention from day-to-day
operations of our business and may entail numerous other risks, including
difficulties in assimilating and integrating acquired operations, databases,
products, corporate cultures and personnel, potential loss of key employees of
acquired businesses, difficulties in applying our internal controls to acquired
businesses, and particular problems, liabilities or contingencies related to the
businesses being acquired. To the extent our efforts to integrate future
acquisitions fail, our business, financial condition and results of operations
would be adversely affected.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to significant future earnings or cash flow
exposures from changes in interest rates on long-term debt as a significant
portion of the Company's debt is at fixed interest rates and the Company has
entered into long-term interest rate swap agreements used to reduce the
potential impact of changes in interest rates on floating rate debt. The Company
is not exposed to material future earnings or cash flow exposures from
fluctuations in foreign currency exchange rates as operating results related to
foreign operations are not material.
18
<PAGE> 19
Info USA INC.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 2000
PART II
OTHER INFORMATION
19
<PAGE> 20
Info USA INC.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 2000
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2000 Annual Meeting of Stockholders of the Company held on April 28,
2000, the stockholders voted and approved the following items:
1. Elected the following directors to the Board of Directors for a term of three
years.
Vinod Gupta FOR: 45,009,388
George Haddix FOR: 45,014,778
2. The stockholders also ratified the appointment of KPMG LLP as the Company's
independent auditors to examine the financial statements of the Company for
the fiscal year 2000.
FOR: 44,991,090 AGAINST: 45,176
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Report on Form 8-K
No reports on Form 8-K have been filed during the quarter ended March 31,
2000
20
<PAGE> 21
S I G N A T U R E S
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.
infoUSA INC.
Date: May 15, 2000 /s/ STORMY L. DEAN
----------------------------
Stormy L. Dean,
Chief Financial Officer
(principal financial officer)
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,468
<SECURITIES> 70
<RECEIVABLES> 64,152
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,090
<PP&E> 95,366
<DEPRECIATION> 39,809
<TOTAL-ASSETS> 474,628
<CURRENT-LIABILITIES> 63,990
<BONDS> 248,717
0
0
<COMMON> 127
<OTHER-SE> 114,952
<TOTAL-LIABILITY-AND-EQUITY> 474,628
<SALES> 80,960
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 79,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,784
<INCOME-PRETAX> (2,291)
<INCOME-TAX> (605)
<INCOME-CONTINUING> (1,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,686)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
