SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-21465
TALX CORPORATION
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(Exact name of registrant as specified in its charter)
MISSOURI
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(State or other jurisdiction of incorporation or organization)
43-0988805
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(I.R.S. Employer Identification No.)
1850 Borman Ct., St. Louis, Missouri 63146
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-434-0046
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(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 [ ]
Shares of Voting Common Stock outstanding at October 16, 1996: 5,238,975.
Exhibit Index is on page 17.
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TALX CORPORATION AND SUBSIDIARIES
Page No.
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
September 30, 1996 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended September 30, 1995 and 1996 4
Consolidated Statements of Cash Flow for the Six
Months Ended September 30, 1995 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
Part II - Other Information
Item 6. Exhibit(s) and Reports on Form 8-K 15
Signatures 16
2
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
<CAPTION>
March 31, September 30,
1996 1996
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................................. $ 56 $ 27
Trade receivables, net ................................................................ 5,918 6,392
Inventories ........................................................................... 1,389 1,419
Work in progress, less progress billings .............................................. 761 --
Prepaid expenses and other current assets ............................................. 306 379
Income tax refund receivable .......................................................... 260 --
Deferred tax assets, net .............................................................. 225 133
--------------- ---------------
Total current assets ............................................................... 8,915 8,349
Property and equipment, net ................................................................ 3,579 2,281
Capitalized software development costs, net of amortization of
$3,815 at March 31, 1996 and $4,350 at September 30, 1996 ............................. 2,621 2,843
Net assets of business held for sale ....................................................... -- 2,505
Deferred tax asset, net .................................................................... 466 341
Other assets ............................................................................... 263 491
--------------- ---------------
$ 15,844 $ 16,811
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank ................................................................. $ 4,243 $ 3,290
Current installments of obligations under capital leases .............................. 226 34
Current installments of long-term debt ................................................ 500 417
Accounts payable ...................................................................... 2,250 1,728
Accrued expenses and other liabilities ................................................ 1,742 1,158
Progress billings in excess of work in progress ....................................... 226 112
Deferred maintenance revenue .......................................................... 989 1,181
--------------- ---------------
Total current liabilities .......................................................... 10,176 7,920
Obligations under capital leases, less current installments ................................ 463 18
Long-term debt, less current installments .................................................. 167 --
Subordinated note payable, net of discount ................................................. -- 3,163
--------------- ---------------
Total liabilities .................................................................. 10,806 11,101
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; authorized 2,373,000
shares, issued and outstanding 1,776,479 shares at
March 31, 1996 and 1,776,441 at September 30, 1996 ................................. 18 18
Series B convertible preferred stock, $.01 par value; authorized
327,000 shares, issued and outstanding 236,873 shares at
March 31, 1996 and September 30, 1996 .............................................. 2 2
Series C convertible preferred stock, $.01 par value; authorized
6,000,000 shares, issued and outstanding 615,745 shares at
March 31, 1996 and September 30, 1996 .............................................. 6 6
Common stock, $.01 par valud; authorized 30,000,000 shares,
issued and outstanding 2,478,214 shares at March 31, 1996
and 2,487,881 at September 30, 1996 ................................................ 25 25
Additional paid-in capital ............................................................ 6,431 7,351
Accumulated deficit ................................................................... (1,444) (1,692)
--------------- ---------------
Total stockholders' equity ......................................................... 5,038 5,710
--------------- ---------------
$ 15,844 $ 16,811
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share information)
(unaudited)
<CAPTION>
Three Months Ended Sept. 30, Six Months Ended Sept. 30,
-------------------------------- --------------------------------
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
The Work Number ....................................... $ 51 $ 332 $ 93 $ 583
Outsourced services ................................... 254 660 359 990
Customer premises systems ............................. 2,637 2,643 4,762 5,487
Maintenance and support ............................... 634 916 1,274 1,784
-------------- -------------- -------------- --------------
Total revenues ..................................... 3,576 4,551 6,488 8,844
-------------- -------------- -------------- --------------
Cost of revenues:
The Work Number ....................................... 104 137 203 248
Outsourced services ................................... 121 215 227 343
Customer premises systems ............................. 1,173 1,325 2,157 2,772
Maintenance and support ............................... 144 244 310 481
-------------- -------------- -------------- --------------
Total cost of revenues ............................. 1,542 1,921 2,897 3,844
-------------- -------------- -------------- --------------
Gross margin ....................................... 2,034 2,630 3,591 5,000
-------------- -------------- -------------- --------------
Operating expenses:
Selling and marketing ................................. 937 1,509 1,821 2,878
General and administrative ............................ 821 658 1,480 1,295
-------------- -------------- -------------- --------------
Total operating expenses ........................... 1,758 2,167 3,301 4,173
-------------- -------------- -------------- --------------
Operating income ................................... 276 463 290 827
-------------- -------------- -------------- --------------
Other expense:
Interest expense ...................................... (71) (262) (159) (378)
Other, net ............................................ (24) (2) (25) (26)
-------------- -------------- -------------- --------------
Total other expense ................................ (95) (264) (184) (404)
-------------- -------------- -------------- --------------
Earnings from continuing operations
before income tax expense ....................... 181 199 106 423
Income tax expense ......................................... 73 74 43 157
-------------- -------------- -------------- --------------
Earnings from continuing operations ................ 108 125 63 266
-------------- -------------- -------------- --------------
Discontinued operations:
Earnings (loss) from operation of discontinued
operations, net of income taxes .................... 55 -- 17 (164)
Loss on disposal of discontinued operations,
net of income taxes ................................ -- -- -- (350)
-------------- -------------- -------------- --------------
Earnings (loss) from discontinued
operations, net of income taxes ................. 55 -- 17 (514)
-------------- -------------- -------------- --------------
Net earnings (loss) ........................................ $ 163 $ 125 $ 80 $ (248)
============== ============== ============== ==============
Pro forma net earnings (loss) per share:
Earnings from continuing operations ................... $ 0.03 $ 0.04 $ 0.02 $ 0.08
Loss from discontinued operations ..................... 0.02 -- -- (0.15)
-------------- -------------- -------------- --------------
Net earnings (loss) ................................... $ 0.05 $ 0.04 $ 0.02 $ (0.07)
============== ============== ============== ==============
See accompany notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<CAPTION>
Six Months Ended September 30,
------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................................................................... $ 80 $ (248)
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization ........................................................... 1,097 1,292
Loss on disposal of discontinued operations, net ........................................ -- 158
Deferred taxes .......................................................................... 52 (49)
Change in assets and liabilites:
Trade receivables ................................................................... (1,746) (2,225)
Inventories ......................................................................... (121) (137)
Work in progress, less progress billings ............................................ (122) (94)
Prepaid expenses and other current assets ........................................... 28 (220)
Income tax refund receivable ........................................................ 71 260
Other assets ........................................................................ 4 (389)
Accounts payable .................................................................... (87) 82
Accrued expenses and other liabilites ............................................... 310 337
Deferred maintenance revenue ........................................................ 368 192
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Net cash used in operating activities ............................................ (66) (1,041)
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Cash flows from investing activites:
Additions to property and equipment ........................................................... (410) (814)
Capitalized software development costs ........................................................ (825) (902)
------------ ------------
Net cash used in investing activities ............................................ (1,235) (1,716)
------------ ------------
Cash flows from financing activities
Change in notes payable to bank ............................................................... 1,658 (953)
Issuance of subordinated debt ................................................................. -- 4,000
Issuance of common stock ...................................................................... 8 42
Repurchase of common stock .................................................................... -- (1)
Repayments on long-term debt .................................................................. (250) (250)
Payments on capitalized lease obligations ..................................................... (63) (110)
------------ ------------
Net cash provided by financing activities ........................................ 1,353 2,728
------------ ------------
Net increase (decrease) in cash and cash equivalents ............................. 52 (29)
Cash and cash equivalents at beginning of period ................................................... 27 56
------------ ------------
Cash and cash equivalents at end of period ......................................................... $ 79 $ 27
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
5
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TALX Corporation
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated balance sheet of TALX Corporation ("TALX" or the "Company")
at March 31, 1996 was obtained from the Company's audited balance sheet as of
that date. All other financial statements contained herein are unaudited and,
in the opinion of management, contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. Operating
results for the three months and six months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1997. The Company's accounting policies and certain other
disclosures are set forth in the notes to the Company's audited consolidated
financial statements as of and for the year ended March 31, 1996.
2. Initial Public Offering
On October 16, 1996, TALX completed its initial public offering. The Company
issued 2,000,000 shares of common stock, with a price to the public of
$18,000,000. Net proceeds to the Company were $16,740,000, before offering
expenses of approximately $850,000. The Company used approximately $7,500,000
of the proceeds to repay notes payable to bank, long-term debt, and
subordinated note payable.
3. Discontinued Operations
In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses. It is anticipated that the
divestiture will be by a sale of assets within one year. A provision of
$350,000 has been made to reflect the estimated losses from operations until
the time of disposal net of income tax benefits of $150,000. Management
anticipates the proceeds from the sales will approximate the value of net
assets held for sale. The Company has classified the database and document
services businesses as a discontinued operation and has reclassified the
prior periods financial statements to reflect this change.
Summary balance sheet data as of September 30, 1996 is as follows:
Current assets .................................. $2,752
Property and equipment .......................... 1,397
Other assets .................................... 492
------
Total assets ........................... 4,641
------
Current liabilities ............................. 1,804
Noncurrent liabilities .......................... 377
------
Total liabilities ...................... 2,136
------
Net assets of business held for sale ... $2,505
======
6
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4. Pro Forma Net Earnings (Loss) Per Share
Pro forma net earnings (loss) per share has been computed using the number of
shares of common stock and common stock equivalents outstanding, assuming
conversion of all outstanding preferred stock to 751,160 shares of common
stock. The number of shares used in computing pro forma net loss per share
was 3,394,321. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares issued and stock options and warrants
granted at prices below the initial public offering price of $9 per share
during the 12-month period preceding the date of the initial filing of the
Company's registration statement have been included in the calculation of
common stock equivalent shares, using the treasury stock method, as if they
were outstanding for all of 1996 and the first two quarters of 1997.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's revenues are derived from interactive communications, which
consists of The Work Number, outsourced services, the sale of customer premises
systems, and maintenance and support services related to those systems.
The Work Number service is in the early stage of its life cycle. Accordingly, no
meaningful relationship can be drawn between revenues recognized to date, or in
a given quarter, and the corresponding number of employers that have contracted
for the service or the number of employment records covered by the service.
Revenues derived from The Work Number include fees charged to mortgage lenders
and other verifiers for verification of employment history, including the past
three years of salary history of participating employers' current and former
employees, ongoing maintenance fees charged to employers and one-time conversion
fees from new employers. The lag between the time an employer enters into an
agreement with the Company for The Work Number and the time the employer
converts its records to the service and begins to routinely refer inquiries to
The Work Number can distort normal quarter to quarter revenue comparisons early
in the service's life cycle. Further, revenues to date primarily reflect the
relatively large percentage of conversion fees recognized early in the service's
life cycle as compared to fees from verifications, which can also distort normal
quarter to quarter revenue comparisons at this stage of the service's life
cycle. The Company expects that over time ongoing fees from verifications will
be a greater source of revenues than conversion fees. Additionally, due to the
early stage of the service and the attendant start-up costs, no meaningful
relationship can be drawn between historical gross margins and gross margins
that may be realized in the future.
The Company's customer premises systems business designs and implements customer
premises systems with interactive communications capabilities using computer
telephony to integrate technologies such as IVR, facsimile, e-mail, Internet and
corporate Intranet. The Company's interactive communications solutions enable an
organization's Users to access, input and update information without human
assistance. Revenues from customer premises systems are derived from the license
or sale of software, related hardware and custom applications and are generally
recognized upon shipment of the system. Sales are effected through a direct
sales force and in conjunction with strategic marketing alliances (including
third party resellers). The typical size of a system ranges from $35,000 to
$200,000 or more and averages approximately $75,000. In the case of a third
party reseller, revenues are recognized at the time of shipment to the reseller;
however, the Company does not have any future obligations related to these types
of sales. The Company provides maintenance and support services with respect to
installed customer premises systems. These services include a 24-hour per day,
7-day a week toll-free customer service line. Revenues from maintenance and
support are recognized ratably over the term of the maintenance agreement.
The Company's outsourced services business provides interactive communication
services to organizations that choose not to purchase a customer premises
system. The Company maintains a system on its premises that contains a customer
database and receives incoming requests for access to the information. Revenues
from outsourced services include fees derived from establishment of the service
and transaction-based fees.
In addition to providing interactive communication systems, the Company has
historically provided database and document services. The Company offers
database services, including sales leads and pre-press services for directory
publishers, and document services, including the preparation and mailing of
invoices, statements and confirmation letters for organizations with high volume
requirements. Revenues from database and document services are recognized as the
services are performed through progress billings. These customers' contracts
cover periods generally from one to six months and progress billings are made in
accordance with individual customer contract terms. In August 1996, the Company
determined to pursue the divestiture of the database and document services
businesses and, accordingly, has reflected the results of operations of such
businesses as discontinued operations.
In connection with the issuance of a $4.0 million subordinated promissory note
(the "Subordinated Note") which bears interest at 13.25% (with an effective
interest rate of 19.25%), the Company issued to Petra Capital, LLC (the
8
<PAGE>
"Lender") and other participants warrants for the purchase of Common Stock at
$.01 per share. For financial reporting purposes, the warrants have been valued
based on a $7.00 per share value of the underlying Common Stock on the date the
Subordinated Note was issued. The $837,000 difference between the face amount of
the Subordinated Note at September 30, 1996 and the amount reflected in the
financial statements as of that date represents the value of the warrants issued
to the Lender and other participants in connection with such Subordinated Note,
which has been treated as a discount on the Subordinated Note, less the
amortization of the discount. This unamortized discount and costs associated
with the issuance of the Subordinated Note and warrants amount to approximately
$1.2 million. Upon repayment of this Subordinated Note, the Company will expense
the unamortized discount and deferred costs associated with the issuance of the
Subordinated Note and warrants. This amount, net of income tax effect, will be
approximately $730,000 and will be treated as an extraordinary item.
This discussion and analysis contains certain statements that may be considered
forward looking statements ("Forward Looking Statements") within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the Forward Looking Statements as a result of
risks facing the Company. Such risks include, but are not limited to, the
Company's ability to successfully market and expand The Work Number for Everyone
[Registered] and its other products and services, the successful divestiture of
the database and document services businesses, the continuing development of its
strategic marketing alliances, and the development of new and enhanced
technologies which are attractive to the marketplace.
9
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations, expressed as a percentage
of total revenues, and the percentage change in the dollar amount of such items
compared to the prior comparable period.
<TABLE>
<CAPTION>
Percentage Increase
(Decrease)
---------------------------
Three Six
Months Months
Ended Ended
Three Months Six Months Sept. 30, Sept. 30,
Ended September 30, Ended September 30, 1996 1996
--------------------------- --------------------------- over over
1995 1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
The Work Number ........................ 1.4% 7.3% 1.4% 6.6% 553.7% 526.9%
Outsourced services .................... 7.1 14.5 5.5 11.2 159.6 175.8
Customer premises systems .............. 73.8 58.1 73.4 62.0 0.2 15.2
Maintenance and support ................ 17.7 20.1 19.7 20.2 44.6 40.0
------------ ------------ ------------ ------------
Total revenues ..................... 100.0 100.0 100.0 100.0 27.3 36.3
------------ ------------ ------------ ------------
Cost of revenues
The Work Number ........................ 2.9 3.0 3.1 2.8 31.7 22.2
Outsourced services .................... 3.4 4.7 3.5 3.9 77.7 51.1
Customer premises systems .............. 32.8 29.1 33.3 31.3 13.0 28.5
Maintenance and support ................ 4.0 5.4 4.7 5.5 69.4 55.2
------------ ------------ ------------ ------------
Total cost of revenues ............. 43.1 42.2 44.6 43.5 24.6 32.7
------------ ------------ ------------ ------------
Gross margin ............................. 56.9 57.8 55.4 56.5 29.3 39.2
------------ ------------ ------------ ------------
Operating expenses
Selling and marketing .................. 26.2 33.1 28.1 32.5 61.0 58.0
General and administrative ............. 23.0 14.5 22.8 14.6 (19.9) (12.5)
------------ ------------ ------------ ------------
Total operating expenses ........... 49.2 47.6 50.9 47.1 23.3 26.4
------------ ------------ ------------ ------------
Operating income ......................... 7.7 10.2 4.5 9.4 67.7 185.2
Other expense, net ....................... (2.7) (5.8) (2.9) (4.6) 177.9 119.6
------------ ------------ ------------ ------------
Earnings from continuing operations before
income tax expense ..................... 5.0 4.4 1.6 4.8 9.9 299.1
Income tax expense ....................... 2.0 1.6 .6 1.8 .9 265.1
------------ ------------ ------------ ------------
Earnings (loss) from continuing
operations ............................. 3.0 2.8 1.0 3.0 16.0 322.2
Discontinued operations, net ............. 1.5 -- .2 (5.8) (100.0) (3,123.5)
------------ ------------ ------------ ------------
Net earnings (loss) ...................... 4.5% 2.8% 1.2% (2.8)% (23.1)% (410.0)%
============ ============ ============ ============
</TABLE>
10
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Three Months Ended September 30, 1995 and 1996
Revenues. Total revenues increased by 27.3%, from $3.6 million for the three
months ended September 30, 1995 to $4.6 million for the three months ended
September 30, 1996. Revenues from The Work Number increased from $51,000 for the
three months ended September 30, 1995 to $332,000 for the three months ended
September 30, 1996, due to the completion of the pilot phase during fiscal 1996
and commencement of marketing on a nationwide basis. The Company has commenced,
and is continuing, the process of hiring and establishing a sales force
dedicated to The Work Number. Revenues from outsourced services increased from
$254,000 for the three months ended September 30, 1995 to $660,000 for the three
months ended September 30, 1996, due to the Company capitalizing on the trend of
some corporations to outsource their non-core functions. Revenues from customer
premises systems remained constant at $2.6 million for the three months ended
September 30, 1995 and 1996. The constant revenue reflects that in the quarter
ended September 30, 1995, revenues were unusually high, due to significant
revenues from the Company's largest customer. Revenues from maintenance and
support related to the customer premises systems increased by 44.6%, from
$634,000 for the three months ended September 30, 1995 to $916,000 for the three
months ended September 30, 1996, reflecting the support provided to an increased
installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 24.6%, from $1.5 million
for the three months ended September 30, 1995 to $1.9 million for the three
months ended September 30, 1996. Cost of revenues from The Work Number increased
from $104,000 for the three months ended September 30, 1995 to $137,000 for the
three months ended September 30, 1996, due to increased costs incurred with
respect to this service as it moved from the pilot phase to a national service,
offset by a reduction in start-up costs. Due to the early stage of the service
in its life cycle and the attendant start up costs, no meaningful relationship
can be drawn between historical gross margins and gross margins that may be
realized in the future. Cost of revenues from outsourced services increased by
77.7%, from $121,000 for the three months ended September 30, 1995 to $215,000
for the three months ended September 30, 1996. This increase in cost is
attributable to the revenue growth described above. Cost of revenues from
outsourced services as a percentage of revenues from outsourced services
decreased from 47.6% for the three months ended September 30, 1995, to 32.6% for
the three months ended September 30, 1996, reflecting the better utilization of
the fixed personnel and equipment costs incurred starting in 1995. Cost of
revenues from customer premises systems increased by 13.0%, from $1.2 million
for the three months ended September 30, 1995 to $1.3 million for the three
months ended September 30, 1996. Further, cost of revenues for customer premises
systems as a percentage of customer premises system revenue increased from 44.5%
for the three months ended September 30, 1995 to 50.1% for the three months
ended September 30, 1996. These increases are due to an increase in fixed labor
costs as the Company continued to increase staffing to support possible future
increases in revenue. Cost of revenues from maintenance and support related to
customer premises systems increased by 69.4%, from $144,000 for the three months
ended September 30, 1995 to $244,000 for the three months ended September 30,
1996, principally due to an increase in personnel costs to provide a higher
level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 61.0%
from $937,000 for the three months ended September 30, 1995 to $1.5 million for
the three months ended September 30, 1996. As a percentage of revenues, such
expenses increased from 26.2% for the three months ended September 30, 1995 to
33.1% for the three months ended September 30, 1996. The increase reflects
continuing expansion of the Company's sales and marketing efforts, including
development of distribution channels both in domestic and international markets.
The Company anticipates that selling and marketing expenses will continue to
increase in dollar amount as the Company expands its sales and marketing
efforts.
General and Administrative Expenses. General and administrative expenses
decreased 19.9% from $821,000 for the three months ended September 30, 1995 to
$658,000 for the three months ended September 30, 1996. As a percentage of
revenues, such expenses decreased from 23.0% for the three months ended
September 30, 1995 to 14.5% for the three months ended September 30, 1996. The
decrease reflects the cost control efforts implemented by the Company throughout
fiscal 1996. The Company does not anticipate that general and administrative
expenses will decrease in dollar amount in future periods.
11
<PAGE>
Other Expense. Interest expense, which is the primary component of other
expense, net, increased from $71,000 for the three months ended September 30,
1995 to $262,000 for the three months ended September 30, 1996. This increase is
due principally to a higher level of borrowings caused by the net loss incurred
during fiscal 1996 and a higher interest rate on the subordinated note payable
issued in June 1996. The Company repaid most of its outstanding borrowings
October 22, 1996, with the proceeds of its initial public offering.
Income Tax Expense. The Company's effective income tax rate was 40.0% for the
three months ended September 30, 1995 and 37.1% for the three months ended
September 30, 1996.
Six Months Ended September 30, 1995 and 1996
Revenues. Total revenues increased by 36.3%, from $6.5 million for the six
months ended September 30, 1995 to $8.8 million for the six months ended
September 30, 1996. Revenues from The Work Number increased from $93,000 for the
six months ended September 30, 1995 to $583,000 for the six months ended
September 30, 1996, due to the completion of the pilot phase during fiscal 1996
and commencement of marketing on a nationwide basis. The Company has commenced,
and is continuing, the process of hiring and establishing a sales force
dedicated to The Work Number. Revenues from outsourced services increased from
$359,000 for the six months ended September 30, 1995 to $990,000 for the six
months ended September 30, 1996, due to the Company capitalizing on the trend of
some corporations to outsource their non-core functions. Revenues from customer
premises systems increased by 15.2%, from $4.8 million for the six months ended
September 30, 1995 to $5.5 million for the six months ended September 30, 1996.
This revenue growth is due to increases in sales and marketing resources
effected in prior periods and continuing in the current period, reflecting the
Company's efforts to increase historic revenue generation. The continuing
development of strategic marketing alliances also contributed to increased
revenues. Revenues from maintenance and support related to the customer premises
systems increased by 40.0%, from $1.3 million for the six months ended September
30, 1995 to $1.8 million for the six months ended September 30, 1996, reflecting
the support provided to an increased installed base of customer premises
systems.
Cost of Revenues. Total cost of revenues increased by 32.7%, from $2.9 million
for the six months ended September 30, 1995 to $3.8 million for the six months
ended September 30, 1996. Cost of revenues from The Work Number increased from
$203,000 for the six months ended September 30, 1995 to $248,000 for the six
months ended September 30, 1996, due to increased costs incurred with respect to
this service as it moved from the pilot phase to a national service, offset by a
reduction in start-up costs. Due to the early stage of the service in its life
cycle and the attendant start up costs, no meaningful relationship can be drawn
between historical gross margins and gross margins that may be realized in the
future. Cost of revenues from outsourced services increased by 51.1%, from
$227,000 for the six months ended September 30, 1995 to $343,000 for the six
months ended September 30, 1996. This increase in cost is attributable to the
revenue growth described above. Cost of revenues from outsourced services as a
percentage of revenues from outsourced services decreased from 63.2% for the six
months ended September 30, 1995, to 34.6% for the six months ended September 30,
1996, reflecting the better utilization of the fixed personnel and equipment
costs incurred starting in 1995. Cost of revenues from customer premises systems
increased by 28.5%, from $2.2 million for the six months ended September 30,
1995 to $2.8 million for the six months ended September 30, 1996. This increase
is due to the increase in customer premises systems revenue. Additionally, cost
of revenues for customer premises systems as a percentage of customer premises
system revenue increased from 45.3% for the six months ended September 30, 1995
to 50.5% for the six months ended September 30, 1996. This increase is due to an
increase in fixed labor costs as the Company continued to increase staffing to
support possible future increases in revenue. Cost of revenues from maintenance
and support related to customer premises systems increased by 55.2%, from
$310,000 for the six months ended September 30, 1995 to $481,000 for the six
months ended September 30, 1996, principally due to an increase in personnel
costs to provide a higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 58.0%
from $1.8 million for the six months ended September 30, 1995 to $2.9 million
12
<PAGE>
for the six months ended September 30, 1996. As a percentage of revenues, such
expenses increased from 28.1% for the six months ended September 30, 1995 to
32.5% for the six months ended September 30, 1996. The increase reflects
continuing expansion of the Company's sales and marketing efforts, including
development of distribution channels both in domestic and international markets.
The Company anticipates that selling and marketing expenses will continue to
increase in dollar amount as the Company expands its sales and marketing
efforts.
General and Administrative Expenses. General and administrative expenses
decreased 12.5% from $1.5 million for the six months ended September 30, 1995 to
$1.3 million for the six months ended September 30, 1996. As a percentage of
revenues, such expenses decreased from 22.8% for the six months ended September
30, 1995 to 14.6% for the six months ended September 30, 1996. The decrease
reflects the cost control efforts implemented by the Company throughout fiscal
1996. The Company does not anticipate that general and administrative expenses
will decrease in dollar amount in future periods.
Other Expense. Interest expense, which is the primary component of other
expense, net, increased from $159,000 for the six months ended September 30,
1995 to $378,000 for the six months ended September 30, 1996. This increase is
due principally to a higher level of borrowings caused by the net loss incurred
during fiscal 1996 and a higher interest rate on the subordinated note payable
issued in June 1996. The Company repaid most of its outstanding borrowings
October 22, 1996, with the proceeds of its initial public offering.
Income Tax Expense. The Company's effective income tax rate was 40.0% for the
six months ended September 30, 1995 and 37.1% for the six months ended
September 30, 1996.
Discontinued Operations
In August 1996, the Company determined to pursue the divestiture of the database
and document services businesses and, accordingly, has reflected the results of
operations of such businesses as discontinued operations. While no specific
transaction has been approved, the Company has contacted several strategic
buyers and received several unsolicited inquiries, which management is
evaluating, and anticipates divestiture will occur within 12 months. A provision
of $350,000 was made as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. The Company estimates that the proceeds
from divestiture will approximate the net assets held for sale as of
September 30, 1996.
Liquidity and Capital Resources
On October 16, 1996, the Company completed its initial public offering of
2,000,000 shares of common stock at a price of $9 per share, for gross proceeds
of $18,000,000, and proceeds net of underwriting discounts and expenses of
approximately $15,900,000.
The Company used a portion of the net proceeds of its initial public offering to
repay its outstanding indebtedness represented by (i) the Subordinated Note in
the aggregate principal amount of $4.0 million as of September 30, 1996, which
was due and payable in July 2001 and accrued interest at an annual rate of
13.25%, with an effective interest rate of 19.25%, (ii) a promissory note in the
principal amount of approximately $417,000 as of September 30, 1996, and which
is due and payable through August 1997 and accrued interest at the bank's prime
rate (8.25% as of September 30, 1996) plus 0.75%, and (iii) a demand note
representing borrowings under a revolving line of credit (approximately $3.3
million as of September 30, 1996) which accrued interest at the bank's prime
rate (8.25% as of September 30, 1996) plus 0.875%.
Prior to this offering, the Company has had limited liquidity, due in part to
net losses in the prior two fiscal years. The Company had financed its
operations primarily through cash flow from operations, private placements of
equity and debt securities and bank lines of credit. The Company had a current
ratio of 1.02 to 1, 0.87 to 1, and 1.05 to 1 at March 31, 1995, March 31, 1996
and September 30, 1996, respectively. The Company's working capital was
13
<PAGE>
$183,000, $(1,261,000) and $429,000 at March 31, 1995, March 31, 1996 and
September 30, 1996, respectively. Working capital at September 30, 1996 reflects
the reclassification of the working capital of the discontinued operations to
net assets of businesses held for sale. Total working capital decreased in
fiscal 1996 principally due to current year operating losses and discontinued
operations. Working capital increased during the six months ended September 30,
1996, due to the issuance of a long-term subordinated note payable.
At September 30, 1996, the Company maintained bank lines of credit of up to
$4,000,000 for working capital purposes. Amounts outstanding under available
lines of credit, which mature in December 1996, were $3,290,000 and $4,243,000
at September 30, 1996 and March 31, 1996, respectively. The decrease was
principally the result of the issuance in June 1996 of a subordinated note
payable and the application of the proceeds therefrom to repay a portion of the
outstanding lines of credit.
At September 30, 1996, the Company's accounts receivable increased from
$5,918,000 at March 31, 1996 to $6,392,000, which represented 140% of revenues
for the quarter then ended. This increase is attributable principally due to
increased revenues for the quarter ended September 30, 1996 compared to March
31, 1996, a greater percentage of revenues occurring later in the quarter ended
September 30, 1996, offset by the reclassification of the working capital of the
discontinued operations to net assets of businesses held for sale.
The Company's capital expenditures were $814,000 for the first six months of
fiscal 1997. The Company currently has no specific commitments with regard to
capital expenditures, but anticipates spending approximately $1,500,000 in
fiscal 1997 for capital requirements, including expansion of the Company's
computer room facilities, acquisition of additional computer equipment,
installation of leasehold improvements, and establishment of a disaster recovery
facility.
The Company's net increase to capitalized software development costs was
$528,000 in fiscal 1996 and $222,000 in the first six months of fiscal 1997. See
Notes 1 and 5 of Notes to Consolidated Financial Statements. The Company intends
to continue to make investments in software solutions at comparable or
increasing levels in fiscal 1997.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which this
report is filed.
15
<PAGE>
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 thereunto duly authorized.
TALX CORPORATION
(Registrant)
Date: November 19, 1996 By /s/ William W. Canfield
-------------------------------------
(Chief Executive Officer)
Date: November 19, 1996 By /s/ Craig N. Cohen
-------------------------------------
(Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------------------------------------------------------------------
11 Computation of Earnings Per Share
27 Financial Data Schedule (provided for the information of the Securities
and Exchange Commission only)
17
EXHIBIT 11
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Six Months Ended September 30, 1996
Shares outstanding - beginning of period ........................ 3,228,483
Weighted average number of common and common equivalent shares
issued (1) .................................................... 165,838
-----------
Weighted average number of common and common equivalent shares
outstanding - end of period ................................... 3,394,321
Six months ended September 30, 1996:
Earnings from continuing operations ............................. $ 266,000
Loss from discontinued operations ............................... (514,000)
-----------
Net loss ........................................................ $ (248,000)
===========
Pro forma loss per common and common equivalent share:
Earnings from continuing operations ............................. $ .08
Loss from discontinued operations ............................... (.15)
-----------
Net loss ........................................................ $ (.07)
===========
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options, warrants, and preferred stock. Common
equivalent shares from convertible preferred stock (using the if-converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock which will be
automatically converted at the date of issuance is included even though
inclusion may be antidilutive. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares issued and stock options
and warrants granted by the Company at prices below the public offering
price during the 12-month period preceding the date of the initial filing of
the Registration Statement have been included in the calculation of common
stock equivalent shares, using the treasury stock method, as if they were
outstanding for all of fiscal 1996 and the six months ended September 30,
1996.
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR TALX CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> TALX CORPORATION
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