<PAGE> 1
================================================================================
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 DECEMBER 31, 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 February 12, 1996, there were issued and outstanding 5,478,243 shares of
the Registrant's Common Stock.
================================================================================
<PAGE> 2
CONCENTRA CORPORATION
<TABLE>
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of December 31, 1996 and March 31,
1996 ................................................................................... 3
b) Condensed Consolidated Statements of Operations for the three and nine months ended
December 31, 1996 and 1995 ............................................................. 4
c) Condensed Consolidated Statements of Cash Flows for the nine months ended
December 31, 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 6. Exhibits and Reports on Form 8-K ........................................................... 9
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<CAPTION>
December 31, March 31,
------------ ---------
ASSETS 1996 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,232 $ 9,121
Accounts receivable, net of allowance for doubtful accounts of $190 13,755 8,284
Other current assets 733 628
------- -------
19,720 18,033
Property and equipment, net 2,950 3,241
Capitalized software costs, net 1,718 1,268
Intangible assets, net 1,513 2,232
Other assets 350 335
------- -------
Total assets $26,251 $25,109
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 807 $ 1,173
Accrued expenses 2,305 2,177
Income tax payable 629 200
Deferred revenue 1,356 1,941
Current portion of capital lease obligations 366 363
------- -------
Total current liabilities 5,463 5,854
Capital lease obligations 605 798
Deferred revenue 84 150
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,
5,432,405 and 5,333,651 shares issued and outstanding at December
31, 1996 and March 31, 1996, respectively - -
Additional paid-in capital 25,216 24,809
Accumulated deficit (4,780) (6,159)
Cumulative translation adjustment (337) (343)
------- -------
Total stockholders' equity 20,099 18,307
------- -------
Total liabilities and stockholders' equity $26,251 $25,109
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ -------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Software licenses $6,329 $ 3,077 $14,656 $ 8,296
Services 1,605 1,197 5,336 5,597
------ ------- ------- -------
Total revenues 7,934 4,274 19,992 13,893
Operating expenses:
Cost of software licenses 531 318 1,502 888
Cost of services 1,000 686 2,641 1,705
Sales and marketing 3,839 3,077 10,297 8,388
Research and development 972 756 2,426 2,247
General and administrative 627 712 1,921 1,906
Restructuring charge - 196 - 196
------ ------- ------- -------
Total operating expenses 6,969 5,745 18,787 15,330
Income (loss) from operations 965 (1,471) 1,205 (1,437)
Interest income 75 188 250 592
Interest expense (26) (22) (79) (31)
Other (expense) income 55 (8) 462 61
------ ------- ------- -------
Income (loss) before income taxes 1,069 (1,313) 1,838 (815)
Provision (benefit) for income taxes 267 (99) 460 -
------ ------- ------- -------
Net income (loss) $ 802 $(1,214) $ 1,378 $ (815)
====== ======= ======= =======
Net income (loss) per common and common
equivalent share $ 0.14 $ (0.23) $ 0.24 $ (0.15)
====== ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding 5,852 5,315 5,700 5,283
====== ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
CONCENTRA CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Nine Months Ended
December 31,
---------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,378 $ (815)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,708 874
Foreign exchange gain (62) (32)
Changes in operating assets and liabilities:
Accounts receivable (5,140) (695)
Other current assets and other assets (105) (451)
Accounts payable (370) (268)
Accrued expenses 172 (1,428)
Deferred revenue (672) (1,928)
Income taxes payable 429 (208)
------- -------
Net cash used in operating activities (2,662) (4,951)
------- -------
Cash flows from investing activities:
Capitalized software costs (720) (445)
Purchase of property and equipment (326) (1,412)
Purchase of intangible assets (96) (745)
------- -------
Net cash used in investing activities (1,142) (2,602)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 407 210
Principal payments under capital lease obligations (190) (149)
------- -------
Net cash (used in) provided by financing activities 217 61
------- -------
Effects of exchange rates on cash and cash equivalents (302) 53
Net decrease in cash and cash equivalents (3,889) (7,439)
Cash and cash equivalents at beginning of year 9,121 17,010
------- -------
Cash and cash equivalents at end of period $ 5,232 $ 9,571
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 79 $ 31
Income taxes paid $ 31 $ 208
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
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 December 31, 1996 the Company was in compliance with these covenants.
C. OTHER INCOME (EXPENSE)
Other income (expense) for the nine month period ended December 31, 1996
included income of $431,000 from the sale of securities held by a subsidiary.
6
<PAGE> 7
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 86% to $7.9 million for the three month
period ended December 31, 1996 from $4.3 million for the three month period
ended December 31, 1995. The Company's total revenues increased 44% to $20.0
million for the nine month period ended December 31, 1996 from $13.9 million for
the nine month period ended December 31, 1995. The increases resulted from an
increase in software revenues.
SOFTWARE LICENSES. Software license fees increased 106% to $6.3 million for
the three month period ended December 31, 1996 from $3.1 million for the three
month period ended December 31, 1995 and increased as a percentage of revenues
to 80% from 72%. Software license fees increased 77% to $14.7 million for the
nine month period ended December 31, 1996 from $8.3 million for the nine month
period ended December 31, 1995 and increased as a percentage of revenues to 73%
from 60%. 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 increased 34% to $1.6 million for the three month
period ended December 31, 1996 from $1.2 million for the three month period
ended December 31, 1995, and decreased as a percentage of revenues to 20% from
28%. Service revenues are derived from customer support, consulting, and
training services. The dollar increase was primarily due to an increase in
consulting services provided in the three month period ended December 31, 1996.
Service fees decreased 5% to $5.3 million for the nine month period December 31,
1996 from $5.6 million for the nine month period ended December 31, 1995, and
decreased as a percentage of revenues to 27% from 40%. The decreases were
primarily due to a decrease in the consulting services provided in the nine
month periods ended December 31, 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 67% to $0.5 million for
the three month period ended December 31, 1996 from $0.3 million for the three
month period ended December 31, 1995, and decreased as a percentage of software
revenues to 8% from 10%. Cost of software licenses increased 69% to $1.5 million
for the nine month period ended December 31, 1996 from $0.9 million for the nine
month period ended December 31, 1995, and decreased as a percentage of software
revenues to 10% 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 46% to
$1.0 million for the three month period ended December 31, 1996 from $0.7
million for the three month period ended December 31, 1995, and increased
7
<PAGE> 8
as a percentage of service revenues to 62% from 57%. Cost of services increased
55% to $2.7 million for the nine month period ended December 31, 1996 from $1.7
million for the nine month period ended December 31, 1995, and increased as a
percentage of service revenues to 49% from 30%. 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. The Company expects the utilization of outsourcing to continue in
the near future.
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, increased 25% to $3.8
million for the three month period ended December 31, 1996 from $3.1 million for
the three month period ended December 31, 1995, and decreased as a percentage of
revenues to 48% from 72%. Sales and marketing expenses increased 23% to $10.3
million for the nine month period ended December 31, 1996 from $8.4 million for
the nine month period ended December 31, 1995, and decreased as a percentage of
revenues to 52% from 60%. 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 29%
to $1.0 million for the three month period ended December 31, 1996 from $0.8
million for the three month period ended December 31, 1995, and decreased as a
percentage of revenues to 12% from 18%. Research and development expenses
increased 8% to $2.4 million for the nine month period ended December 31, 1996
from $2.2 million for the nine month period ended December 31, 1995, and
decreased as a percentage of revenues to 12% from 16%. 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.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, decreased 12% to $0.6 million for the three month
period ended December 31, 1996 from $0.7 million for the three month period
ended December 31, 1995, and decreased as a percentage of revenues to 8% from
17%. General and administrative expenses remained the same at $1.9 million for
the nine month period ended December 31, 1996 and December 31, 1995, and
decreased as a percentage of revenues to 10% from 14%. The dollar decrease was
primarily due to a decrease in legal fees and investor relations expenses.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three and nine month period ended December 31, 1996 was
$75,000 and $250,000, respectively. Interest income, for the three and nine
month period ended December 31, 1995 was $188,000 and $592,000, respectively.
These decreases were attributable to lower cash balances during the current
periods.
INTEREST EXPENSE. Interest expense for the three and nine month period
ended December 31, 1996 was $26,000 and $79,000, respectively. Interest expense
for the three and nine month period ended December 31, 1995 was $22,000 and
$31,000, 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 December 31, 1996, was income of $55,000 compared with
an expense of $8,000 for the three month period December 31, 1995. Other income,
for the nine month period ended December 31, 1996 was $462,000 compared with
$61,000 for the nine month period December 31, 1995. During the nine month
period ending December 31, 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 nine
month periods ended December 31, 1996 was $267,000 and $460,000, respectively,
representing an effective tax rate of approximately 25%. The income tax benefit
for the three and nine month periods ended December 31, 1995 was $99,000 and $0,
respectively, representing an effective tax rate of approximately 8% and 0%
8
<PAGE> 9
respectively. 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 December 31, 1996, the Company had cash and cash equivalents of $5.2
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 December 31, 1996, the Company had borrowings under the equipment line of
credit of approximately $1.2 million.
During the nine month period ended December 31, 1996, the Company generated
net income of $1.4 million and used cash of $3.9 million. The decrease in cash
and cash equivalents was due primarily to $2.7 million used in cash from
operations and by $1.1 million used in investing activities. The Company's
operating activities included a decrease in accounts payable of $0.4 million, an
increase in taxes payable of $0.4 million, a decrease in deferred revenue of
$0.7 million and an increase in accounts receivable of $5.1 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 $0.7 million and the purchase
of property and equipment for $0.3 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
(1) The Company filed a current report on Form 8-K dated November 21, 1996
announcing the appointment of Alex Braverman as the Company's new Vice President
and Chief Financial Officer.
9
<PAGE> 10
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: February 14, 1996
By: /s/ Alex Braverman
--------------------------------------------
Alex Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,332
<SECURITIES> 0
<RECEIVABLES> 13,755
<ALLOWANCES> 190
<INVENTORY> 0
<CURRENT-ASSETS> 733
<PP&E> 2,950
<DEPRECIATION> 4,486
<TOTAL-ASSETS> 26,251
<CURRENT-LIABILITIES> 5,463
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,099
<TOTAL-LIABILITY-AND-EQUITY> 26,251
<SALES> 7,934
<TOTAL-REVENUES> 7,934
<CGS> 1,531
<TOTAL-COSTS> 1,531
<OTHER-EXPENSES> 5,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 1,069
<INCOME-TAX> 267
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,232
<SECURITIES> 0
<RECEIVABLES> 13,755
<ALLOWANCES> 190
<INVENTORY> 0
<CURRENT-ASSETS> 733
<PP&E> 2,950
<DEPRECIATION> 4,486
<TOTAL-ASSETS> 26,251
<CURRENT-LIABILITIES> 5,463
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,099
<TOTAL-LIABILITY-AND-EQUITY> 26,251
<SALES> 19,992
<TOTAL-REVENUES> 19,992
<CGS> 4,143
<TOTAL-COSTS> 4,143
<OTHER-EXPENSES> 14,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 1,838
<INCOME-TAX> 460
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,378
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
