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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
-------------------
Commission File Number 0-25498
CONCENTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2827026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803-3301
(Address of principal executive offices)
(617) 229-4600
(Registrant's telephone number, including area code)
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
--- ----
As of November 12, 1996, there were issued and outstanding 5,370,744 shares of
the Registrant's Common Stock.
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CONCENTRA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of September 30, 1996
and March 31, 1996............................................. 3
b) Condensed Consolidated Statements of Operations for the three
and six months ended September 30, 1996 and 1995............... 4
c) Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1996 and 1995....................... 5
d) Notes to Condensed Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders............... 9
ITEM 6. Exhibits and Reports on Form 8-K.................................. 10
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<CAPTION>
September 30, March 31,
------------- ---------
1996 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,120 $ 9,121
Accounts receivable, net of allowance for doubtful accounts of $190 9,704 8,284
Other current assets 823 628
------- -------
18,647 18,033
Property and equipment, net 2,978 3,241
Capitalized software costs, net 1,608 1,268
Intangible assets, net 1,728 2,232
Other assets 335 335
------- -------
Total assets $25,296 $25,109
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 682 $ 1,173
Accrued expenses 2,243 2,177
Income tax payable 363 200
Deferred revenue 1,862 1,941
Current portion of capital lease obligations 367 363
------- -------
Total current liabilities 5,517 5,854
Capital lease obligations 679 798
Deferred revenue 102 150
Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000 shares authorized, no
shares issued or outstanding -- --
Common stock - $.00001 par value; 40,000,000 shares authorized,
5,367,948 and 5,333,651 shares issued and outstanding at September
30, 1996 and March 31, 1996, respectively -- --
Additional paid-in capital 24,914 24,809
Accumulated deficit (5,583) (6,159)
Cumulative translation adjustment (333) (343)
------- -------
Total stockholders' equity 18,998 18,307
------- -------
Total liabilities and stockholders' equity $25,296 $25,109
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Software licenses $5,488 $3,315 $ 8,327 $5,219
Services 1,453 1,928 3,730 4,400
------ ------ ------- ------
Total revenues
6,941 5,243 12,057 9,619
Operating expenses:
Cost of software licenses 542 382 971 570
Cost of services 979 509 1,641 1,019
Sales and marketing 3,611 2,853 6,457 5,311
Research and development 873 796 1,454 1,491
General and administrative 735 680 1,294 1,194
------ ------ ------- ------
Total operating expenses 6,740 5,220 11,817 9,585
Income from operations 201 23 240 34
Interest income 80 170 175 404
Interest expense (27) (7) (53) (9)
Other (expense) income 438 (74) 407 69
------ ------ ------- ------
Income before income taxes 692 112 769 498
Provision for income taxes 173 22 193 99
------ ------ ------- ------
Net income $ 519 $ 90 $ 576 $ 399
====== ====== ======= ======
Net income per common and common
equivalent share $ 0.09 $ 0.02 $ 0.10 $ 0.07
====== ====== ======= ======
Weighted average number of common and
common equivalent shares outstanding 5,623 5,715 5,612 5,764
====== ====== ======= ======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Six Months Ended
September 30,
--------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 576 $ 399
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 1,107 569
Foreign exchange gain (6) (69)
Changes in operating assets and liabilities:
Accounts receivable (1,419) 250
Other assets (192) (358)
Accounts payable (490) (533)
Accrued expenses 76 (1,477)
Deferred revenue (131) (1,232)
Income taxes payable 163 (79)
------- -------
Net cash used in operating activities (316) (2,530)
------- -------
Cash flows from investing activities:
Capitalized software costs (520) (320)
Purchase of property and equipment (139) (1,351)
Purchase of intangible assets (21) (521)
------- -------
Net cash used in investing activities (680) (2,192)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 105 165
Principal payments under capital lease obligations (115) (82)
------- -------
Net cash (used in) provided by financing activities (10) 83
------- -------
Effects of exchange rates on cash and cash equivalents 5 32
Net decrease in cash and cash equivalents (1,001) (4,607)
Cash and cash equivalents at beginning of year 9,121 17,010
------- -------
Cash and cash equivalents at end of period $ 8,120 $12,403
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 53 $ 9
Income taxes paid $ 30 $ 179
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Concentra Corporation (the "Company") and its wholly-owned foreign subsidiaries.
All significant intercompany transactions and balances have been eliminated. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly such information. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain fiscal year 1996 balances have been reclassified to conform to fiscal
year 1997 presentation.
B. LINE OF CREDIT
The Company amended it's line of credit agreement adjusting certain convenant
amounts and definitions during the three month period ended June 30, 1996. At
September 30, 1996 the Company was in compliance with these covenants.
C. OTHER INCOME (EXPENSE)
Other income (expense) for the three and six month periods ended September
30, 1996 included income of $431,000 from the sale of securities held by a
subsidiary.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements about the Company's
business and new products, revenues, expenditures and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts and investors from
time to time. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. The Company discusses such risks in
detail in its Annual Report on Form 10-K for the year ended March 31, 1996.
RESULTS OF OPERATIONS
TOTAL REVENUES. Substantially all of the Company's revenues are derived from
the licensing of software products and the performance of related services. The
Company's total revenues increased 32% to $6.9 million for the three month
period ended September 30, 1996 from $5.2 million for the three month period
ended September 30, 1995. The Company's total revenues increased 25% to $12.1
million for the six month period ended September 30, 1996 from $9.6 million for
the six month period ended September 30, 1995. The increases resulted primarily
from an increase in software revenues.
SOFTWARE LICENSES. Software license fees increased 66% to $5.5 million for
the three month period ended September 30, 1996 from $3.3 million for the three
month period ended September 30, 1995 and increased as a percentage of revenues
to 79% from 63%. Software license fees increased 60% to $8.3 million for the six
month period ended September 30, 1996 from $5.2 million for the six month period
ended September 30, 1995 and increased as a percentage of revenues to 69% from
54%. Contributing to the increases were the increased adoption of the Company's
products by both new and existing customers and revenues from the new sales
force automation product, Selling Point.
SERVICES. Service fees decreased 25% to $1.4 million for the three month
period ended September 30, 1996 from $1.9 million for the three month period
ended September 30, 1995, and decreased as a percentage of revenues to 21% from
37%. Service fees decreased 15% to $3.8 million for the six month period
September 30, 1996 from $4.4 million for the six month period ended September
30, 1995, and decreased as a percentage of revenues to 31% from 46%. Service
revenues are derived from consulting, training and customer support services.
The decreases were primarily due to a decrease in the consulting services
provided in the three and six month periods ended September 30, 1996.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third party suppliers and
software duplication and fulfillment costs, increased 42% to $0.5 million for
the three month period ended September 30, 1996 from $0.4 million for the three
month period ended September 30, 1995, and decreased as a percentage of software
revenues to 10% from 12%. The percentage decrease was due to a lower mix of
software licenses requiring the payment of third party fees. Cost of software
licenses increased 70% to $1.0 million for the six month period ended September
30, 1996 from $0.6 million for the six month period ended September 30, 1995,
and increased as a percentage of software revenues to 12% from 11%. The dollar
increases were primarily due to increased software license revenues, a greater
mix of software licenses requiring the payment of third party fees, and
additional amortizations of intangible assets.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 92% to
$1.0 million for the three month period ended September 30, 1996 from $0.5
million for the three month period ended September 30, 1995, and increased as a
percentage of service revenues to 67% from 26%. Cost of services increased 61%
to $1.6 million for
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the six month period ended September 30, 1996 from $1.0 million for the six
month period ended September 30, 1995, and increased as a percentage of service
revenues to 44% from 23%. The increases were due primarily to the outsourcing of
additional personnel at higher rates to support consulting services previously
provided by Company personnel who were transferred to sales and marketing.
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, increased 27% to $3.6
million for the three month period ended September 30, 1996 from $2.9 million
for the three month period ended September 30, 1995, and decreased as a
percentage of revenues to 52% from 54%. Sales and marketing expenses increased
22% to $6.5 million for the six month period ended September 30, 1996 from $5.3
million for the six month period ended September 30, 1995, and decreased as a
percentage of revenues to 54% from 55%. The dollar increases were primarily due
to the transfer and addition of sales and marketing employees and increased
marketing and promotional activities, all of which occurred in anticipation of
increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development costs, increased 10%
to $0.9 million for the three month period ended September 30, 1996 from $0.8
million for the three month period ended September 30, 1995, and decreased as a
percentage of revenues to 13% from 15%. The dollar increase was primarily due to
the addition of research and development employees associated with the
development of the Company's new product, Selling Point. Research and
development expenses decreased 2% to $1.4 million for the six month period ended
September 30, 1996 from $1.5 million for the six month period ended September
30, 1995, and decreased as a percentage of revenues to 12% from 16%. The dollar
decrease was primarily due to an increase in capitalization of software
development.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 8% to $0.7 million for the three month
period ended September 30, 1996 from $0.6 million for the three month period
ended September 30, 1995, and decreased as a percentage of revenues to 11% from
13%. General and administrative expenses increased 8% to $1.3 million for the
six month period ended September 30, 1996 from $1.2 million for the six month
period ended September 30, 1995, and decreased as a percentage of revenues to
11% from 12%. The dollar increases were primarily due to an increase in investor
relations costs.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three and six month period ended September 30, 1996 was
$80,000 and $175,000, respectively. Interest income, for the three and six month
period ended September 30, 1995 was $170,000 and $404,000, respectively. These
decreases were attributable to lower cash balances during the current periods.
INTEREST EXPENSE. Interest expense for the three and six month period ended
September 30, 1996 was $27,000 and $53,000, respectively. Interest expense for
the three and six month period ended September 30, 1995 was $7,000 and $9,000,
respectively. The increase was attributable to interest associated with the
capital leases initiated during the last nine months of fiscal 1996.
OTHER INCOME (EXPENSE). Other income (expense), consisting primarily of
foreign exchange gains (losses) and gains from the sale of securities, for the
three month period ended September 30, 1996, was income of $438,000 compared
with an expense of $74,000 for the three month period September 30, 1995. Other
income, for the six month period ended September 30, 1996 was $407,000 compared
with $69,000 for the six month period September 30, 1995. During the three month
period ending September 30, 1996 the Company sold securities held by a
subsidiary resulting in income of $431,000.
PROVISION FOR INCOME TAXES. The income tax provision for the three and six
month periods ended September 30, 1996 was $173,000 and $193,000, respectively,
representing an effective tax rate of approximately 25%. The income tax
provision for the three and six month periods ended September 30, 1995 was
$22,000 and $99,000, respectively, representing an effective tax rate of
approximately 20%. The
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rate increase during the three and six month periods ended September 30, 1996 is
primarily due to the usage of available net operating loss carryforwards. The
effective tax rates are lower than the statutory rate principally due to the
utilization of foreign tax credits and other temporary differences that were not
previously benefited.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company raised $17.7 million (net of expenses) from an
initial public offering ("IPO") of its common stock. Prior to the IPO, the
Company funded its operations primarily through cash generated from operations,
loans and three private equity transactions.
As of September 30, 1996, the Company had cash and cash equivalents of $8.1
million. The Company also has a line of credit with a commercial lender. Under
this credit line, as amended, the Company has a $2.5 million unsecured working
capital line of credit. This line of credit bears interest at the bank's base
lending rate, and expires on June 30, 1997. The Company also has an equipment
line of credit of approximately $1.8 million, collateralized by the equipment,
bearing interest at the bank's base lending rate and expires on March 31, 1997.
As of September 30, 1996, the Company had borrowings under the equipment line of
credit of approximately $1.2 million.
During the six month period ended September 30, 1996, the Company generated
net income of $0.6 million and used cash of $1.0 million. The decrease in cash
and cash equivalents was due primarily to $0.3 million used in cash from
operations and by $0.7 million used in investing activities. The Company's
operating activities included a decrease in accounts payable of $0.5 million and
an increase in accounts receivable of $1.4 million. The increase in accounts
receivable and days sales outstanding was primarily due to extended payment
terms given to customers while entering new markets. Investing activities
included capitalized software costs of $0.5 million and the purchase of property
and equipment for $0.1 million consisting primarily of computer equipment.
During fiscal 1996 the Company entered into a $5.0 million five year
applications consulting services contract with a significant customer of the
Company. The five year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 of outside applications services that will be
used by the Company over a five year period. The minimum commitment of
$2,500,000 will be paid in five yearly payments commencing December 31, 1996.
These yearly payments are $250,000, $500,000, $550,000, $600,000 and $600,000
for the five calendar years beginning December 31, 1996, respectively.
The Company believes that existing sources of liquidity and anticipated funds
from operations will satisfy the Company's working capital and capital
expenditure requirements through at least fiscal 1997.
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On August 31, 1996, the Annual Meeting of the Shareholders of the Company
was held at the Renaissance Bedford Hotel, 44 Middlesex Turnpike, Bedford,
Massachusetts.
(b) The Board of Directors is divided into three classes serving staggered
terms in accordance with the Company's Restated Certificate of Incorporation.
The Board of Directors has determined that the number of directors constituting
the full board of directors shall be six. A. William Berkman, Jr. and William E.
Kelly were reelected as directors at the Annual Meeting to serve a three year
term ending in 1999. The term of office of each Lawrence W. Rosenfeld, Vincenzo
Cannatelli, Stephen J. Cucchiaro and Alberto de Benedictis continued after the
Annual Meeting.
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(c) At the Annual Meeting, the Shareholders also voted (a) to approve an
amendment to increase by 250,000 the number of shares of common stock authorized
for issuance under the Company's 1993 Stock Plan, and (b) to ratify the
selection of Coopers & Lybrand L.L.P. as the Company's independent accountants
for the fiscal year ending March 31, 1997.
<TABLE>
The following votes were tabulated on the aforementioned proposals:
1. Election of Directors.
<CAPTION>
Number of Shares
----------------
For Withheld Authority
--- ------------------
<S> <C> <C>
A. William Berkman, Jr. 3,907,122 106,410
William E. Kelly 3,906,922 106,610
2. Approval of an amendment to increase by 250,000 the number of shares of
common stock authorized for issuance under the Company's 1993 Stock Plan.
<CAPTION>
Number of Shares
----------------
<S> <C>
For 3,675,648
Against 219,752
Abstain 45,775
Broker non-votes 72,357
3. Ratification of the selection of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the fiscal year ending March 31, 1997.
<CAPTION>
Number of Shares
----------------
<S> <C>
For 3,995,798
Against 12,700
Abstain 5,034
</TABLE>
(d) Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fiscal quarter
covered by this report.
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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.
CONCENTRA CORPORATION
Date: November 14, 1996
By: /s/ Gerald M. Schimmoeller
---------------------------
Gerald M. Schimmoeller
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 8,120 8,120
<SECURITIES> 0 0
<RECEIVABLES> 9,704 9,704
<ALLOWANCES> 190 190
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,647 18,647
<PP&E> 2,978 2,978
<DEPRECIATION> 3,885 3,885
<TOTAL-ASSETS> 25,296 25,296
<CURRENT-LIABILITIES> 5,517 5,517
<BONDS> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 18,998 18,998
<TOTAL-LIABILITY-AND-EQUITY> 25,296 25,296
<SALES> 6,941 12,057
<TOTAL-REVENUES> 6,941 12,057
<CGS> 1,521 2,612
<TOTAL-COSTS> 1,521 2,612
<OTHER-EXPENSES> 5,219 9,205
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27 53
<INCOME-PRETAX> 692 769
<INCOME-TAX> 173 193
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 519 576
<EPS-PRIMARY> .09 .10
<EPS-DILUTED> .09 .10
</TABLE>
