SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 July 2, 2004
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 0-24343
Answerthink, Inc.
(Exact name of Registrant as specified in its charter)
| FLORIDA | 65-0750100 | |
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 1001 Brickell Bay Drive, Suite 3000 Miami, Florida |
33131 | |
| (Address of principal executive offices) | (Zip Code) | |
(305) 375-8005
(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 requirement for the past 90 days. YES x NO ¨
Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Securities Exchange Act of 1934). YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of July 30, 2004, there were 43,961,863 shares of common stock outstanding.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| July 2, 2004 |
January 2, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 43,184 | $ | 54,441 | ||||
| Accounts receivable and unbilled revenue, net of allowance of $2,176 and $1,757 at July 2, 2004 and January 2, 2004, respectively |
28,950 | 24,877 | ||||||
| Prepaid expenses and other current assets |
4,378 | 4,260 | ||||||
| Total current assets |
76,512 | 83,578 | ||||||
| Marketable investments |
9,888 | 10,000 | ||||||
| Restricted cash |
3,000 | 3,000 | ||||||
| Property and equipment, net |
9,294 | 8,714 | ||||||
| Other assets |
3,798 | 3,211 | ||||||
| Goodwill, net |
33,251 | 26,720 | ||||||
| Total assets |
$ | 135,743 | $ | 135,223 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,875 | $ | 3,793 | ||||
| Accrued expenses and other liabilities |
29,079 | 26,195 | ||||||
| Total current liabilities |
32,954 | 29,988 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity |
||||||||
| Preferred stock, $.001 par value, 1,250,000 authorized, none issued and outstanding |
— | — | ||||||
| Common stock, $.001 par value, authorized 125,000,000 shares; issued: 48,696,354 shares at July 2, 2004; 48,290,640 shares at January 2, 2004 |
49 | 48 | ||||||
| Additional paid-in capital |
276,796 | 274,481 | ||||||
| Unearned compensation |
(7,476 | ) | (8,367 | ) | ||||
| Treasury stock, at cost, 4,369,879 shares at July 2, 2004 and 3,550,279 shares at January 2, 2004 |
(13,020 | ) | (7,686 | ) | ||||
| Accumulated other comprehensive loss |
(77 | ) | — | |||||
| Accumulated deficit |
(153,483 | ) | (153,241 | ) | ||||
| Total shareholders’ equity |
102,789 | 105,235 | ||||||
| Total liabilities and shareholders’ equity |
$ | 135,743 | $ | 135,223 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Quarter Ended |
Six Months Ended |
|||||||||||||||
| July 2, 2004 |
July 4, 2003 |
July 2, 2004 |
July 4, 2003 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Revenues before reimbursements |
$ | 34,006 | $ | 27,987 | $ | 65,564 | $ | 60,843 | ||||||||
| Reimbursements |
3,643 | 3,510 | 7,174 | 7,439 | ||||||||||||
| Total revenues |
37,649 | 31,497 | 72,738 | 68,282 | ||||||||||||
| Costs and expenses: |
||||||||||||||||
| Project personnel and expenses: |
||||||||||||||||
| Project personnel and expenses before reimbursable expenses |
19,576 | 18,038 | 37,531 | 39,600 | ||||||||||||
| Reimbursable expenses |
3,643 | 3,510 | 7,174 | 7,439 | ||||||||||||
| Total project personnel and expenses |
23,219 | 21,548 | 44,705 | 47,039 | ||||||||||||
| Selling, general and administrative expenses |
12,060 | 11,036 | 24,041 | 23,576 | ||||||||||||
| Restructuring costs |
3,749 | 4,875 | 3,749 | 4,875 | ||||||||||||
| Stock compensation expense |
492 | — | 1,294 | — | ||||||||||||
| Total costs and operating expenses |
39,520 | 37,459 | 73,789 | 75,490 | ||||||||||||
| Loss from operations |
(1,871 | ) | (5,962 | ) | (1,051 | ) | (7,208 | ) | ||||||||
| Other income: |
||||||||||||||||
| Interest income |
196 | 138 | 386 | 362 | ||||||||||||
| Loss before income taxes and income from discontinued operations |
(1,675 | ) | (5,824 | ) | (665 | ) | (6,846 | ) | ||||||||
| Income tax expense (benefit) |
(96 | ) | 150 | (53 | ) | 150 | ||||||||||
| Loss from continuing operations |
(1,579 | ) | (5,974 | ) | (612 | ) | (6,996 | ) | ||||||||
| Income from discontinued operations |
370 | — | 370 | — | ||||||||||||
| Net loss |
$ | (1,209 | ) | $ | (5,974 | ) | $ | (242 | ) | $ | (6,996 | ) | ||||
| Basic and Diluted net income (loss) per common share: |
||||||||||||||||
| Loss from continuing operations |
$ | (0.04 | ) | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.15 | ) | ||||
| Income from discontinued operations |
$ | 0.01 | $ | — | $ | 0.01 | $ | — | ||||||||
| Net loss per common share |
$ | (0.03 | ) | $ | (0.13 | ) | $ | (0.01 | ) | $ | (0.15 | ) | ||||
| Weighted average common shares outstanding |
44,555 | 45,326 | 44,690 | 45,811 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended |
||||||||
| July 2, 2004 |
July 4, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (242 | ) | $ | (6,996 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,386 | 2,400 | ||||||
| Provision for doubtful accounts |
607 | 159 | ||||||
| Non-cash compensation expense |
1,294 | — | ||||||
| Changes in assets and liabilities, net of effects from acquisitions: |
||||||||
| Decrease (increase) in accounts receivable and unbilled revenue |
(2,886 | ) | 750 | |||||
| Decrease in prepaid expenses and other assets |
67 | 9,569 | ||||||
| Decrease in accounts payable |
(294 | ) | (1,429 | ) | ||||
| Decrease in accrued expenses and other liabilities |
(545 | ) | (867 | ) | ||||
| Net cash provided by operating activities |
387 | 3,586 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(2,113 | ) | (670 | ) | ||||
| Increase in restricted cash |
— | (5 | ) | |||||
| Purchases of marketable investments |
(5,000 | ) | — | |||||
| Proceeds from calls, sales and maturities of marketable investments |
5,000 | — | ||||||
| Cash used in acquisition of business, net of cash acquired |
(6,109 | ) | — | |||||
| Net cash used in investing activities |
(8,222 | ) | (675 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
1,912 | 422 | ||||||
| Repurchases of common stock |
(5,334 | ) | (4,295 | ) | ||||
| Net cash used in financing activities |
(3,422 | ) | (3,873 | ) | ||||
| Net decrease in cash and cash equivalents |
(11,257 | ) | (962 | ) | ||||
| Cash and cash equivalents at beginning of period |
54,441 | 63,419 | ||||||
| Cash and cash equivalents at end of period |
$ | 43,184 | $ | 62,457 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements of Answerthink, Inc. (“Answerthink” or the “Company”) include the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 2, 2004 included in the Form 10-K filed by the Company with the Securities and Exchange Commission. The consolidated results of operations for the quarter and six months ended July 2, 2004 are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.
2. Revenue Recognition
The Company principally derives revenues from fees for services generated on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by the Company’s consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee or capped-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed the Company’s original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, the Company’s project delivery, office of risk management and finance personnel review hours incurred and estimated total labor hours to complete projects and any revisions in these estimates are reflected in the period in which they become known.
Unbilled revenues represent revenues for services performed that have not been invoiced. If the Company does not accurately estimate the scope of the work to be performed, or does not manage the projects properly within the planned periods of time or does not meet the clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to the Company’s results of operations. Revenues before reimbursements exclude reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses is included in project personnel and expenses.
The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow the Company’s clients to terminate early due to breach or for conv