SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange act of 1934 For the Quarterly Period Ended March 31, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____________________________ to
___________________.
Commission File Number 0-25378
HCIA Inc.
(Exact name of registrant as specified in its charter)
Maryland . 52-1407998
-------- - ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
300 East Lombard Street, Baltimore, Maryland 21202.
- -------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 895-7470
-----------------------
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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, at May 1, 1997:
Class: Common Stock Number of Shares: 11,883,656
--------------
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(in thousands)
Part 1
Item 1. Financial Statements
<TABLE>
<CAPTION>
1997 1996
(Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $ 9,339 $ 13,302
Short-term investments............................................. -- 510
Trade accounts receivable, net of allowance for doubtful accounts
of $1,251 in 1997 and $1,042 in 1996.............................. 37,978 32,122
Prepaid expenses and other current assets.......................... 3,435 3,886
Income tax receivable.............................................. 125 339
Deferred compensation funds held in trust.......................... 5,321 5,321
-------- --------
Total current assets.............................................. 56,198 55,480
Furniture and equipment, net......................................... 13,247 12,188
Computer software costs, net......................................... 23,287 20,425
Other intangible assets, net......................................... 113,567 115,601
Net deferred tax asset............................................... 15,860 17,074
Other................................................................ 123 123
Deferred compensation funds held in trust............................ 2,305 2,305
-------- --------
Total assets...................................................... $224,587 $223,196
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 2,202 $ 1,315
Accrued salaries, benefits and other liabilities.................... 6,595 8,078
Notes payable....................................................... 534 1,718
Deferred revenue.................................................... 1,666 2,052
Acquired deferred compensation liability ........................... 5,321 5,321
-------- --------
Total current liabilities......................................... 16,318 18,484
Acquired deferred compensation liability............................ 2,305 2,305
-------- --------
Total liabilities................................................. 18,623 20,789
-------- --------
Stockholders' equity:
Common stock-$.01 par value;50,000,000 shares authorized;
issued and outstanding 11,833,656 as of March 31,
1997 and 11,781,458 as of December 31, 1996................... 118 118
Additional paid-in capital........................................... 250,602 249,591
Accumulated deficit.................................................. (44,692) (47,220)
Cumulative unrealized appreciation of short-term investments ........ 40 4
Cumulative effect of currency translation adjustment ................ (104) (86)
-------- --------
Total stockholders' equity....................................... 205,964 202,407
-------- --------
Total liabilities and stockholders' equity........................... $224,587 $223,196
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 1997 and 1996
(in thousands, except per share data)
(Unaudited)
1997 1996
Revenue.............................................. $25,725 $14,229
Salaries, wages and benefits ........................ 10,875 6,686
Other operating expenses ............................ 6,054 3,303
Depreciation ........................................ 932 518
Amortization ........................................ 3,740 1,792
------- -------
Operating income .............................. 4,124 1,930
Interest income ..................................... 181 282
Interest expense .................................... 98 83
------- -------
Income before income taxes ................... 4,207 2,129
Provision for income taxes .......................... 1,679 838
------- -------
Net income................................... $ 2,528 $ 1,291
======= =======
Net income per share................................. $ 0.21 $ 0.14
======= =======
Shares used in per share calculation ................ 12,259 9,460
======= =======
See accompanying notes to consolidated financial statements.
Page 2
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 1996 and the three months ended
March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Cumulative
Unrealized Cumulative
Appreciation/ Effect of
Additional (Depreciation) of Currency Total
Common Paid-In Accumulated Short-term Translation Stockholders'
Stock Capital Deficit Investments Adjustment Equity
------ ---------- ----------- ----------------- ----------- ------------
<S> <C>
BALANCE AT
DECEMBER 31,
1995 90 102,882 (4,953) 44 (19) 98,044
------ ---------- ----------- ----------------- ----------- ------------
Exercise of stock
options -- 638 -- -- -- 638
Sale of common
stock to the public 23 116,233 -- -- -- 116,256
Tax benefits related
to exercise of stock
options -- 1,128 -- -- -- 1,128
Issuance of stock in
connection with an
acquisition 5 28,710 -- -- -- 28,715
Net loss -- -- (42,267) -- -- (42,267)
Effect of currency
translation
adjustment -- -- -- -- (67) (67)
Unrealized
depreciation of short-
term investments -- -- -- (40) -- (40)
------ ---------- ----------- ----------------- ----------- ------------
BALANCE AT
DECEMBER 31,
1996 $ 118 $249,591 $(47,220) $ 4 $(86) $202,407
------ ---------- ----------- ----------------- ----------- ------------
Exercise of stock
options -- 453 -- -- -- 453
Tax benefits related
to exercise of stock
options -- 558 -- -- -- 558
Net income -- -- 2,528 -- -- 2,528
Effect of currency
translation
adjustment -- -- -- 36 -- 36
Unrealized
depreciation of short-
term investments -- -- -- -- (18) (18)
------ ---------- ----------- ----------------- ----------- ------------
BALANCE AT
MARCH 31, 1997
(Unaudited) $118 $250,602 $(44,692) $ 40 $(104) $205,964
====== ========== ============ ================== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
1997 1996
Cash flows from operating activities:
Net income.......................................... $ 2,528 $ 1,291
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 4,672 2,310
Income tax benefit related to stock options... 558 --
Deferred tax provision........................ 1,214 150
Changes in operating assets and liabilities:
Accounts receivable........................ (5,856) (1,263)
Income taxes payable/receivable............ 214 596
Prepaid expenses and other current assets.. 451 (553)
Accounts payable........................... 887 403
Accrued salaries, benefits and other
liabilities.............................. (1,483) (366)
Deferred revenue........................... (386) 1,114
------- ---------
Net cash provided by operating
activities.......................... 2,799 3,682
------- ---------
Cash flows from investing activities:
Purchases of furniture and equipment................ (1,991) (892)
Cost of acquisitions, net of cash acquired.......... -- (613)
Computer software purchased or capitalized.......... (4,095) (2,095)
Other intangible assets purchased or capitalized.... (473) (352)
Purchases of short-term investments................. -- (15,112)
Proceeds from disposals of short-term investments... 546 17,744
Other............................................... -- (721)
------- --------
Net cash used in investing
activities.......................... (6,013) (2,041)
------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options............. 453 265
Repayments of notes payable......................... (1,184) (736)
------- --------
Net cash used in financing
activities......................... (731) (471)
------- --------
Impact of currency fluctuations on cash and cash
equivalents............................................. (18) (1)
------- --------
Increase(Decrease) in cash and cash equivalents ......... (3,963) 1,169
Cash & cash equivalents - beginning of period............. 13,302 3,190
------- --------
Cash & cash equivalents - end of period................... $ 9,339 $ 4,359
======= ========
Supplemental cash flow information
- cash paid during period for interest....... $ 111 $ 65
======= ========
- cash paid during period for income taxes... $ 306 $ 93
======= ========
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, these statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
Company's financial condition, results of operations, changes in stockholders'
equity and cash flows for the periods presented. The results of operations for
the period ended March 31, 1997 may not be indicative of the results that may be
expected for the full year ending December 31, 1997. These financial statements
and notes should be read in conjunction with the financial statements and notes
included in the audited consolidated financial statements of the Company for the
year ended December 31, 1996 as contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (1934 Act File No. 0-25378).
(2) Cash Equivalents
As of March 31, 1997, cash equivalents consist of highly liquid securities with
original maturities of three months or less at the date acquired by the Company.
(3) New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS No. 128")
which becomes effective December 15, 1997. Early adoption of SFAS No. 128 is not
permitted. Under SFAS No. 128, the Company will be required to disclose basic
earnings per share (with the principal difference from current disclosure being
that common stock equivalents will not be considered in the compilation for
basic earnings per share) and diluted earnings per share. The pro forma
computation of earnings per share, under SFAS No. 128 is as follows.
Three Months Ended
----------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
Basic Earnings Per Share $0.21 $0.14
Diluted Earnings Per Share $0.21 $0.14
Page 5
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared to three months ended March 31, 1996
Revenue. Revenue for the three months ended March 31, 1997 was $25.7 million, an
increase of $11.5 million or 81% over the three months ended March 31, 1996. The
increase was primarily the result of a 97% increase in revenue from the sale of
Decision Support Systems. Revenue from the sale of Decision Support Systems
represented 91% of revenue for the three months ended March 31, 1997 and
Syndicated Products represented the remaining 9% of revenue.
The increase in Decision Support Systems revenue was primarily the result of the
Company's continued success in expanding its customer relationships in the
supplier and provider markets, and as a result of the acquisition of LBA
Healthcare Management, Inc. ("LBA").
Salaries Wages and Benefits. Salaries, wages and benefits decreased to 42% of
revenue for the three months ended March 31, 1997 from 47% for the three months
ended March 31, 1996. The decrease was a result of the continued leveraging of
the Company's historical investments in technology and basic infrastructure as
revenue increased.
Other Operating Expenses. Other operating expenses, which include occupancy,
travel and marketing expenses, increased to 24% of revenue for the three months
ended March 31, 1997 from 23% for the three months ended March 31, 1996. This
increase was a result of certain of these expenses, primarily marketing and
travel, growing at a faster rate than revenue.
Depreciation and Amortization. Depreciation and amortization increased to 18% of
revenue for the three months ended March 31, 1997 from 16% for the three months
ended March 31, 1996. This increase was a result of the additional amortization
and depreciation associated with the acquisitions of HealthChex, Inc., Response
Healthcare Information Management, Inc., and LBA.
Interest Income and Expense. Net interest income was $83,000 for the three
months ended March 31, 1997 compared with net interest income of $199,000 for
the three months ended March 31, 1996. This change was the result of a lower
invested balance in 1997.
Income Taxes. The Company's effective tax rate was 39.9% for the three months
ended March 31, 1997 compared with 39.4% for the three months ended March 31,
1996. This higher rate was due to an increase in non-deductible goodwill.
Page 6
<PAGE>
Liquidity and Capital Resources
The Company maintains a $50 million (subject to certain borrowing
limitations) revolving line of credit with First Union National Bank of North
Carolina ("First Union") for general corporate purposes including future
acquisitions and working capital requirements. Borrowings under this line are
collateralized by substantially all of the Company's assets, and bear interest
at varying rates based on an index tied to First Union's prime rate or LIBOR.
The Company is required to pay a commitment fee on the average daily unused
portion of the facility at a rate from 0.25% to 0.375% per annum, depending on
the Company's debt/cash flow ratio. The credit facility also contains financial
covenants applicable to HCIA, including debt/cash flow ratios and ratios of debt
to capital. As of March 31, 1997, the Company was in compliance with all such
financial covenants and had a maximum borrowing capacity of $50 million, and
there were no borrowings outstanding under the facility. The credit facility
reduces to $37.5 million in July 1999, $25 million in July 2000 and expires on
July 31, 2001.
Page 7
<PAGE>
PART II Other Information
Item 6-Exhibits and Reports on Form 8-K
(a) The following are annexed as exhibits:
Exhibit Number Description
- -------------- -----------
11 Statement Re: Computation of earnings per share.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 8
<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.
HCIA Inc.
(Registrant)
Date: May 14, 1997
By: ________________________________
Barry C. Offutt
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Page 9
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
- -------------- ----
11 Statement Re: Computation of Earnings per share 11
Page 10
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In Thousands Except Per Share Amounts)
Primary (1) Fully Diluted(1)
-------------------------------------
(In thousands, except per share data)
Three months ended March 31, 1997
Weighed average shares outstanding............ 11,800 N/A
Effect of dilutive common stock equivalents... 459
-------
Weighted average shares outstanding for
EPS purposes ............................... 12,259
Net income ................................... $ 2,528
-------
Net income per share (2) ..................... $0.21
=======
(1) As of March 31, 1997, options to purchase 1,554,929 shares of common stock
were outstanding. In the calculation of primary net income per share, these
options were included in the average number of common shares outstanding using
the treasury stock method based on the average price of the common stock for the
period.
As the price of the Company's common stock as of March 31, 1997 was less than
the average price for the three months ended March 31, 1997, fully diluted
earnings per share is not applicable.
(2) In accordance with Accounting Principles Board Opinion No. 15, any reduction
of less than 3% need not be considered dilutive. Accordingly, the consolidated
statements of operations reflect net income per share and the weighted average
number of shares used in the calculation on a primary basis only.
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,339
<SECURITIES> 0
<RECEIVABLES> 37,978
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,198
<PP&E> 13,247
<DEPRECIATION> 0
<TOTAL-ASSETS> 224,587
<CURRENT-LIABILITIES> 16,318
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 205,846
<TOTAL-LIABILITY-AND-EQUITY> 224,587
<SALES> 25,725
<TOTAL-REVENUES> 25,725
<CGS> 0
<TOTAL-COSTS> 21,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (83)
<INCOME-PRETAX> 4,207
<INCOME-TAX> 1,679
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,528
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0
</TABLE>
