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UNITED STATES
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 March 31, 2001
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 0-25849
ONESOURCE INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3204522
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Baker Avenue, Concord, MA 01742
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(Address of principal executive offices, including Zip Code)
(978) 318-4300
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(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 ___
The number of shares of the issuer's Common Stock, $0.01 par value per share,
outstanding as of May 4, 2001 was 12,702,566.
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ONESOURCE INFORMATION SERVICES, INC.
CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
March 31, 2001 and December 31, 2000 3
Consolidated Statement of Operations for the
three months ended March 31, 2001 and 2000 4
Consolidated Statement of Cash Flows for the
three months ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 20
Exhibit Index 21
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PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(unaudited)
March 31, December 31,
2001 2000
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 21,876 $ 17,338
Accounts receivable, net of allowance for doubtful accounts
of $1,291 and $672 at March 31, 2001 and
December 31, 2000, respectively ......................... 12,358 19,373
Deferred subscription costs ............................... 6,332 7,281
Prepaid expenses and other current assets ................. 382 314
-------- --------
Total current assets .................................... 40,948 44,306
Property and equipment, net ................................. 4,887 5,118
Goodwill and other intangible assets, net ................... 7,663 8,103
Restricted time deposit ..................................... 603 603
Other assets ................................................ 841 702
-------- --------
Total assets .......................................... $ 54,942 $ 58,832
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations .............. $ 9 $ 33
Accounts payable .......................................... 998 1,859
Accrued expenses .......................................... 3,810 5,864
Accrued royalties ......................................... 3,794 5,494
Deferred revenues ......................................... 27,883 29,229
-------- --------
Total current liabilities ............................... 36,494 42,479
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value:
1,000,000 shares authorized; no shares issued and
outstanding ............................................. -- --
Common stock, $0.01 par value:
20,000,000 shares authorized; 12,633,999 and 12,158,467
shares issued and outstanding at March 31, 2001
and December 31, 2000, respectively ..................... 126 122
Additional paid-in capital .................................. 31,580 30,309
Unearned compensation ....................................... (150) (174)
Accumulated deficit ......................................... (13,402) (14,033)
Accumulated other comprehensive income ...................... 294 129
-------- --------
Total stockholders' equity .................................. 18,448 16,353
-------- --------
Total liabilities and stockholders' equity .................. $ 54,942 $ 58,832
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
For the three months ended
March 31,
---------------------------
2001 2000
---- ----
Revenues:
Web-based product ....................................... $ 13,726 $ 10,069
CD Rom product and other ................................ 748 1,489
-------- --------
14,474 11,558
-------- --------
Cost of revenues:
Web-based product ....................................... 4,013 3,961
CD Rom product and other ................................ 617 540
-------- --------
4,630 4,501
-------- --------
Gross profit ............................................ 9,844 7,057
-------- --------
Operating expenses:
Selling and marketing ................................... 5,274 4,609
Platform and product development ........................ 2,057 2,351
General and administrative .............................. 1,343 1,274
Amortization of goodwill and other intangible assets..... 376 376
-------- --------
Total operating expenses .............................. 9,050 8,610
-------- --------
Income (loss) from operations ......................... 794 (1,553)
Interest expense .......................................... (2) (26)
Interest income ........................................... 264 196
Other income .............................................. -- 500
-------- --------
Income (loss) before provision for income taxes ....... 1,056 (883)
Provision for income taxes ................................ 425 20
-------- --------
Net income (loss) ..................................... $ 631 $ (903)
======== ========
Basic and diluted earnings (loss) per share ............... $ 0.05 $ (0.08)
Weighted average common shares outstanding:
Basic ................................................... 12,338 10,862
Diluted ................................................. 13,631 10,862
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
For the three months ended
March 31,
----------------------------
2001 2000
---- ----
Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities:
Net income (loss).............................................. $ 631 $ (903)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ............................... 714 448
Amortization of goodwill and other intangible assets ........ 376 376
Amortization of unearned compensation relating to
grants of stock options .................................... 24 24
Changes in assets and liabilities:
Accounts receivable ....................................... 6,816 5,750
Deferred subscription costs ............................... 949 921
Prepaid expenses and other assets ......................... (98) (106)
Accounts payable .......................................... (821) (119)
Accrued expenses .......................................... (1,774) (259)
Accrued royalties ......................................... (1,649) (2,255)
Deferred revenues ......................................... (989) (818)
-------- --------
Net cash provided by operating activities ................... 4,179 3,059
-------- --------
Cash flows relating to investing activities:
Proceeds from restricted time deposits ........................ -- 100
Purchases of property and equipment ........................... (421) (784)
Capitalization of software development costs .................. (191) (40)
-------- --------
Net cash used by investing activities ....................... (612) (724)
-------- --------
Cash flows relating to financing activities:
Proceeds from issuance of common stock ........................ 1,032 284
Repayments of capital lease obligations ....................... (24) (56)
-------- --------
Net cash provided by financing activities ................... 1,008 228
-------- --------
Effect of exchange rate changes on cash and cash equivalents .... (37) (14)
-------- --------
Increase in cash and cash equivalents ........................... 4,538 2,549
Cash and cash equivalents, beginning of period .................. 17,338 13,598
-------- --------
Cash and cash equivalents, end of period ........................ $ 21,876 $ 16,147
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements as of March 31, 2001 and
for the three month periods ended March 31, 2001 and 2000 are unaudited. In the
opinion of OneSource's management, the March 31, 2001 and 2000 unaudited interim
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for those periods. The results of operations
for the three month period ended March 31, 2001 are not necessarily indicative
of the results of operations for the year ending December 31, 2001.
The balance sheet as of December 31, 2000 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in OneSource's
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
on March 28, 2001.
2. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings (loss)
per share is computed using sum of the weighted average number of common stock
outstanding during the period and the weighted average number of potential
common stock from the assumed exercise of stock options using the treasury stock
method.
Shares used in calculating basic and diluted earnings (loss) per share
are as follows (in thousands):
Three months ended
March 31,
--------------------
2001 2000
---- ----
Weighted average shares outstanding
used for basic earnings (loss) per share .......... 12,338 10,862
Stock options ....................................... 1,293 --
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Weighted average shares outstanding
used for diluted earnings (loss) per share......... 13,631 10,862
====== ======
Options to purchase 1,123,062 shares of common stock were outstanding at
March 31, 2001 but were not included in the computation of diluted earnings
(loss) per share because the exercise prices of the options were greater than
the average market price of the Company's common stock during the three months
ended March 31, 2001.
All potential common stock were excluded from the calculation of
diluted loss per share for the three months ended March 31, 2000 since its
inclusion would be anti-dilutive. Total
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potential common stock consisted of 3,748,967 stock options outstanding with a
weighted average exercise price of $3.33 per share as of March 31, 2000.
3. Comprehensive Income (Loss)
Total comprehensive income (loss), which includes net income (loss) and the
cumulative foreign currency translation adjustment, was $796,000 and ($868,000)
for the three months ended March 31, 2001 and 2000, respectively.
4. Geographic Information
Revenue was distributed geographically as follows (in thousands):
Three months ended
March 31,
------------------------
2001 2000
---- ----
United States...................... $11,003 $ 9,248
United Kingdom..................... 3,471 2,310
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$14,474 $11,558
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Substantially all of OneSource's identifiable assets are located in the United
States.
5. Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of
FASB Statement No. 133", which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. OneSource, to
date, has not engaged in derivative and hedging activities, and accordingly
adoption of SFAS No. 133 as required in the first quarter of 2001 did not have a
material impact on the Company's financial reporting and related disclosures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below contain trend analysis and other
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below under "Certain Factors That May Affect Future Results" and in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 28, 2001.
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OVERVIEW
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. OneSource was formed as a division of Lotus Development
Corporation in 1987 and became an independent company when it was purchased in a
management buy-out in 1993. Until December 1996, our business was to provide
business information to the financial community using CD Rom technology as the
primary method of distribution. The introduction of Business Browser in December
1996 marked a fundamental shift in our business as we began a transition away
from our legacy CD Rom business and toward Web-based products. OneSource's
Business Browser product line is designed to be a comprehensive and easy-to-use
business and financial information resource, integrating over 2,500 sources of
business information from more than 25 category-leading business and financial
information providers.
On October 1, 1999, OneSource acquired Corporate Technology, a Delaware
corporation located in Woburn, Massachusetts. Corporate Technology is a provider
of high technology company profiles with a focus on emerging private companies.
For financial statement purposes, this acquisition was accounted for as a
purchase and, accordingly, the results of operations of Corporate Technology
subsequent to October 1, 1999 have been included in OneSource's consolidated
statements of operations.
In May 1998, we sold our CD-Insurance division to allow us to focus more
completely on our new Web-based product line. In connection with the
disposition, we licensed certain of our CD Rom software to the acquiror in
exchange for $4.0 million of license fees. These license fees were paid in eight
equal quarterly installments beginning January 1, 1999 and ending on December
31, 2000 and were recognized ratably as other income. During the three-month
period ended March 31, 2000, OneSource recorded $0.5 million of other income
related to the software license agreement.
Revenues from Web-based products accounted for $13.7 million, or 95% of
total revenues, for the three months ended March 31, 2001, an increase from
$10.1 million, or 87% of total revenues, for the three months ended March 31,
2000. CD Rom product and other revenues, which consist of licensing royalties,
printed directories and mailing lists (products acquired as part of the
Corporate Technology acquisition) decreased to $0.7 million, or 5% of total
revenues, from $1.5 million, or 13% of total revenues for the three months ended
March 31, 2001. The printed directories product line was discontinued at the end
of 2000. As of March 31, 2001, 859 organizations subscribed to our Business
Browser(SM) product line, and the annualized contract value for these
organizations was $59.7 million.
Our revenues for both CD Rom and Web-based products consist of monthly
subscription fees from customer contracts. Customer contracts span varying
periods of time but are generally for one year, are renewable for like periods,
and are payable in advance. Subscription fees generally are quoted to clients on
an annual basis but are earned as revenues on a monthly basis over the
subscription period. Invoices are recorded as accounts receivable until paid and
as deferred revenues until earned. Deferred revenues attributable to Web-based
products decreased 3% to $27.5 million as of March 31, 2001 from $28.5 million
as of December 31, 2000 and increased 26% from $21.9 million as of March 31,
2000. Other revenues are recognized when goods and services are delivered.
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Cost of revenues consists primarily of royalties to information providers
and, to a lesser extent, employee salaries and benefits, facilities allocation
and related expenses, software amortization, depreciation associated with
computers for data processing and on-line requirements and Web hosting expenses.
We enter into contracts with our information providers which are generally for a
term of at least one year and are automatically renewable if not canceled with
advance notice. These contracts may be terminated under certain circumstances.
Under these arrangements, royalties are generally paid on a quarterly basis to
information providers. Royalties are generally calculated either as a flat
percentage of our revenues, as a per-user fee that declines as the number of
authorized users of the product increases, as a fixed fee per period, or in some
cases, we pay a calculated fee based upon product growth compared to like
periods from the prior year.
Selling and marketing expense consists primarily of employee salaries and
benefits and sales commissions paid to our sales force, customer support
organization and marketing personnel, as well as facilities allocation and
related expenses, direct marketing promotional materials, trade show exhibitions
and advertising. Sales commissions are paid when customers are invoiced and are
recorded as deferred subscription costs, which are amortized ratably over the
term of the contract, typically one year, as the associated revenues are
recognized. All other selling and marketing costs are expensed as incurred.
Platform and product development expense consists primarily of employee
salaries and benefits, facilities allocation and related expenses, as well as
outside contractor expenses, relating to the development of our "platform" of
core software supporting our products and the development of new products based
upon that platform. Platform and product development expense includes expenses
relating to the editorial staff that implements our KeyID technology to
integrate disparate information sources into our Web-based products.
General and administrative expense consists primarily of employee salaries
and benefits, facilities allocation and related expenses associated with
OneSource's management, finance, human resources, management information systems
and administrative groups.
COMPARISON OF RESULTS FOR THE QUARTERS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Revenues. Total revenues increased 25% to $14.5 million for the quarter
ended March 31, 2001 from $11.6 million for the quarter ended March 31, 2000.
Web-based product revenues increased 36% to $13.7 million for the quarter
ended March 31, 2001 from $10.1 million for the quarter ended March 31, 2000.
The increase was attributable to the addition of new customers, an increase in
the number of user seats purchased by existing customers and the sale of new
products to existing customers. At the same time, CD Rom product and other
revenues, which consist of licensing royalties, printed directories and mailing
lists, decreased by 50% to $0.7 million in the first quarter of 2001 from $1.5
million in the first quarter of 2000, primarily as a result of discontinuing the
printed directories product line.
Cost of Revenues. Total cost of revenues increased 3% to $4.6 million for
the quarter ended March 31, 2001 from $4.5 million for the quarter ended March
31, 2000. As a percentage of total revenues, total cost of revenues decreased to
32% for the quarter ended March 31, 2001 from 39% for the quarter ended March
31, 2000. The increase in total cost of revenues was principally due to
increased depreciation expense associated with computers used for data
processing and
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on-line requirements. The decrease as a percentage of total revenues is
primarily the result of lower effective royalty rates paid to information
providers.
Cost of Web-based product revenues was $4.0 million for each of the
quarters ended March 31, 2001 and 2000. As a percentage of Web-based product
revenues, cost of Web-based product revenues decreased to 29% for the quarter
ended March 31, 2001 from 39% for the quarter ended March 31, 2000, and was
principally due to lower costs of acquiring data from information providers.
Cost of CD Rom product and other revenues increased 14% to $0.6 million for
the quarter ended March 31, 2001 from $0.5 million for the quarter ended March
31, 2000. This increase was solely due to costs associated with the acquired
Corporate Technology business, but was partially offset by a decrease in CD Rom
costs attributable to OneSource's discontinuance of its legacy CD Rom product
line at the end of 2000. As a percentage of CD Rom product and other revenues,
cost of CD Rom product and other revenues increased to 82% for the quarter ended
March 31, 2001 from 36% for the quarter ended March 31, 2000, primarily due to
costs associated with the expansion of our proprietary database.
Selling and Marketing Expense. Selling and marketing expense increased 14%
to $5.3 million for the quarter ended March 31, 2001 from $4.6 million for the
quarter ended March 31, 2000, principally due to increased compensation related
expenses and marketing expenses. Selling and marketing expense decreased as a
percentage of total revenues to 36% for the quarter ended March 31, 2001 from
40% for the quarter ended March 31, 2000. We expect to see modest increases in
selling and marketing expense.
Platform and Product Development Expense. Platform and product development
expense decreased 13% to $2.1 million for the quarter ended March 31, 2001 from
$2.4 million for the quarter ended March 31, 2000. This decrease was primarily
the result of higher recruiting costs incurred in the first quarter of 2000
related to personnel hired for platform and product development. Platform and
product development expense decreased as a percentage of total revenues to 14%
for the quarter ended March 31, 2001 from 20% for the quarter ended March 31,
2000.
General and Administrative Expense. General and administrative expense
increased 5% to $1.3 million for the quarter ended March 31, 2001 from $1.2
million for the quarter ended March 31, 2000. This increase was due principally
to higher compensation related expenses and recruiting costs. General and
administrative expense decreased as a percentage of total revenues to 9% for the
quarter ended March 31, 2001 from 11% for the quarter ended March 31, 2000.
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets for each of the quarters ended March 31,
2001 and 2000 was $0.4 million. This expense is the result of the acquisition of
Corporate Technology and the associated amortization of goodwill and other
intangible assets acquired as part of that transaction.
Interest Income, Net. Interest income, net of interest expense, increased
54% to $0.26 million for the quarter ended March 31, 2001 from $0.17 million for
the quarter ended March 31, 2000. The increase is the result of higher invested
cash balances and lower interest expense.
Other Income. Other income was $0.5 million for the quarter ended March 31,
2000 and was attributable to revenue from a software license agreement entered
into in conjunction with the sale of our CD-Insurance division which expired on
December 31, 2000.
Provision for Income Taxes. Provision for income taxes increased to $0.43
million for the quarter ended March 31, 2001 from $0.02 million for the quarter
ended March 31, 2000. This increase was
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due to pre-tax income of $1.06 million at the applicable tax rates for the
quarter ended March 31, 2001 as compared to a pre-tax loss of $0.09 million for
the quarter ended March 31, 2000.
ANNUALIZED CONTRACT VALUE
One measure of the performance of our business is "annualized contract
value." This is a measurement we use for normalized period-to-period comparisons
to indicate business volume and growth in terms of new customers, upgrades and
expansions for existing customers. Our presentation and calculation of
annualized contract value may not be comparable to similarly titled measures
used by other companies. It is not an absolute indicator and we cannot guarantee
that any annualized contract value will be ultimately realized as revenues.
We use annualized contract value as a measure of our business because it
shows the growth or decline in our customer base in a way that revenues cannot.
Since our business is subscription-based, revenues are recognized not when a
sale is made, but in ratable portions over the term of the subscription (which
is usually twelve months). As a result, from a revenue viewpoint the addition or
loss of even a major customer contract may not have a dramatic impact on a
quarter-to-quarter basis. On the other hand, by looking at the overall value of
customer contracts in place at the end of each quarter, we can more readily see
trends in our business. For example, the addition of a one-year subscription
contract with total payments of $1.0 million may only increase revenues by
approximately $250,000 ($1.0 million divided by four) in the quarter in which
the sale is made, but would increase annualized contract value by $1.0 million.
Similarly, if the customer did not renew that contract, revenues in the next
quarter would only decrease by $250,000, while annualized contract value would
decrease by $1.0 million.
In calculating annualized contract value, we include only those contracts
where the customer has actually been invoiced. Since amounts invoiced are
included in deferred revenues on our balance sheet for all customer contracts
with terms extending beyond the month of invoice, this demonstrates that
annualized contract value is based on actual customer contracts reflected in our
historical financial statements. To compute annualized contract value, we
multiply by twelve the total amount of fees invoiced for one month and included
in deferred revenues. Annualized contract value is not intended to be an
absolute indicator of future revenues. We only annualize existing, invoiced
contracts, but we do so without regard to the remaining term of those contracts.
Most of our contracts are for twelve months, but as of the date that we
calculate annualized contract value, the remaining term of nearly all of our
contracts will be less than twelve months. If a customer fails to pay its
invoiced fees or terminates the contract or if we are unable to renew a
contract, our revenues in subsequent periods may be less than expected based
solely on annualized contract values. Conversely, if we add additional customers
or renew existing contracts at higher rates, our revenues in future periods may
exceed expectations based solely on annualized contract value.
The calculation of annualized contract value for our Web-based products is
illustrated below:
ONE MONTH
OF INVOICED
WEB-BASED FEES IN
DEFERRED DEFERRED ANNUALIZED
MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE
- ---------------- --------- ----------- --------------
(IN THOUSANDS)
March 31, 2000................................. $21,921 $ 3,632.1 $43,585
March 31, 2001................................. 27,528 4,972.2 59,666
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We have increased annualized contract value attributable to Web-based
products 37% to $59.7 million as of March 31, 2001 from $43.6 million as of
March 31, 2000. The number of Web-based customers has increased 29% to 859 at
March 31, 2001 from 667 at March 31, 2000. At the same time, the average
annualized contract value of all Web-based product customers has increased to
$69,500 per customer at March 31, 2001 from $65,300 per customer at March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Since acquiring our business from Lotus Development Corporation in 1993, we
have funded our operations through a combination of seller financing, proceeds
received from the sale of Class P common stock and common stock in connection
with the purchase of the business from Lotus Development Corporation, bank debt,
proceeds received from the sale of non-strategic lines of business, capitalized
equipment leases, cash flows from operations and our initial public offering
which closed in May 1999.
Our cash and cash equivalents totaled $21.9 million at March 31, 2001,
compared to $17.3 million at December 31, 2000, and $16.1 million at March 31,
2000. The increase of $4.6 million from December 31, 2000 is primarily due to
cash provided by operating activities.
Net cash provided by operating activities was $4.2 million for the three
months ended March 31, 2001, compared to $3.1 million for the three months ended
March 31, 2000. The net change of $1.1 million period to period is the result of
a net income of $0.6 million compared to a net loss of $0.9 million, increased
depreciation and amortization, partially offset by an unfavorable net change of
assets and liabilities of $1.0 million.
Net cash used in investing activities was $0.6 million for the three months
ended March 31, 2001, compared to $0.7 million for the three months ended March
31, 2000. Cash used in investing activities was primarily used for the purchase
of property and equipment of $0.4 million and $0.8 million during the three
months ended March 31, 2001 and 2000, respectively, as well as $0.2 million used
for software development costs during the three months ended March 31, 2001.
Net cash provided by financing activities was $1.0 million for the three
months ended March 31, 2001, compared to $0.2 million for the three months ended
March 31, 2000. Net cash provided by financing activities consisted of proceeds
from the sale of common stock of $1.0 million and $0.3 million during the three
months ended March 31, 2001 and 2000, respectively, offset in part by repayments
of capital lease obligations.
We do not currently have a line of credit but intend to enter into a
revolving line of credit for letters of credit and general working capital.
We believe that our current cash and cash equivalents and funds anticipated
to be generated from operations will be sufficient to satisfy working capital
and capital expenditure requirements for at least the next twelve months.
In April 2001, the Company announced that its board of directors has
authorized the repurchase of up to 1,000,000 shares of the Company's Common
stock over the next twelve
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months, at such times when the Company deems such purchases to be an effective
use of cash. Under the stock repurchase program, shares may be repurchased, at
management's discretion, from time to time at prevailing prices in the open
market. Since the commencement of the repurchase program through May 4, 2001,
the Company has repurchased 35,800 shares of its common stock for approximately
$285,306. The Company intends to leverage its existing cash and cash equivalents
balances to execute the repurchases.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133," which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. OneSource, to
date, has not engaged in derivative and hedging activities, and accordingly
adoption of SFAS No. 133 as required in the first quarter of 2001 did not have a
material impact on the Company's financial reporting and related disclosures.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements,
which involve risks and uncertainties. OneSource's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including without limitation, those set forth in the
following risk factors discussed below and in our Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission on March 28, 2001. The
following risk factors should be considered carefully in evaluating OneSource
and its business.
WE HAVE A LIMITED OPERATING HISTORY WITH BUSINESS BROWSER AND THE PRODUCTS
ACQUIRED FROM CORPORATE TECHNOLOGY ON WHICH TO EVALUATE OUR PROSPECTS. We began
operations as an independent company in 1993. We began to migrate our business
to the Web from CD Rom-based products in early 1996, and launched the Web-based
Business Browser product line in December 1996. In 1999, we acquired several
products, primarily consisting of CD Rom, printed directories and mailing lists
from Corporate Technology. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies
transitioning to a new product line, particularly companies in the new and
rapidly evolving market for Internet and Web-based business information
products.
WE HAVE A CUMULATIVE DEFICIT AND EXPECT TO CONTINUE TO HAVE A CUMULATIVE
DEFICIT FOR THE FORESEEABLE FUTURE. We incurred losses from operations of
approximately $1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998,
$6.4 million in 1999, and $2.0 million in 2000, and had net income of $0.8
million for the three months ended March 31, 2001. In addition, we have not
reached the critical mass of users of Web-based products that we believe is
necessary to effectively leverage our royalty payments and
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infrastructure expenses, which may not allow OneSource to sustain and increase
profits. As of March 31, 2001, we had an accumulated deficit of $13.4 million.
WE RELY ON OUR BUSINESS BROWSER PRODUCT LINE, AND WE WILL NOT SUCCEED
UNLESS DEMAND FOR OUR BUSINESS BROWSER PRODUCTS CONTINUES TO GROW. Subscription
revenues from our Business Browser product line accounted for 95% of total
revenues for the three months ended March 31, 2001, 91% of total revenues in
2000, 90% of total revenues in 1999, 53% of total revenues in 1998 and 11% of
total revenues in 1997. At the end of 2000 we phased out our legacy CD Rom
products that were not part of the Business Browser product line. As a result,
our future financial condition will depend heavily on the success or failure of
our Business Browser product line. Business Browser products were introduced in
December 1996 and it is difficult to predict demand and market acceptance for
these products in the new and rapidly evolving Web-based business information
services market. If the demand for Business Browser products does not continue
to grow, whether due to competition, lack of market acceptance, failure of
Internet or Web use to grow in general, technological change or other factors,
our business would suffer significantly.
ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATION OF OUR
PERFORMANCE. We use "annualized contract value" as a measurement for normalized
period-to-period comparisons to indicate business volume and growth. Our
presentation and calculation of annualized contract value may not be comparable
to similarly titled measures used by other companies. It is not an absolute
indicator and we cannot guarantee that any annualized contract value will be
ultimately realized as revenues.
COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE
GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR
FINANCIAL RESULTS. The business information services industry is intensely
competitive. We face direct or indirect competition from the following types of
companies:
- large, well-established business and financial information providers
such as Dow Jones, Lexis-Nexis, Pearson, Reuters, Factiva, Thomson,
Primark and McGraw-Hill
- on-line information services or Websites targeted to specific markets
or applications, such as NewsEdge, Factset and Bloomberg
- providers of sales, marketing and credit information such as Dun &
Bradstreet, InfoUSA and Siebel
- Web retrieval, Web "portal" companies and other free or low-cost mass
market on-line services such as Excite, Infoseek, Terra Lycos, Yahoo!
and AOL/Time Warner
- free or low-cost specialized business and financial information
Websites such as Hoovers.com, Marketwatch.com, Multex.com and
TheStreet.com
Based on reported operating results, industry reports and other publicly
available information, we believe that many of our existing competitors, as well
as a number of prospective competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. As a result, they
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may be able to respond more quickly to new or emerging technologies and changes
in user requirements, or to devote greater resources to the research,
development, promotion and sale of their products than we can. These competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, customers and information providers. Our competitors also may develop
products that are equal or superior to our products or that achieve greater
market acceptance than our products.
EXPANSION INTO INTERNATIONAL MARKETS IN WHICH WE HAVE LIMITED PRIOR
EXPERIENCE COULD CAUSE MATERIAL AND ADVERSE EFFECTS ON OUR BUSINESS. We
presently have offices in the United Kingdom, but look to expand our business
opportunities into new markets, particularly throughout Europe. Expanding into
diverse international markets exposes us to certain risks of conducting business
that include but are not limited to the following: potential higher costs,
unanticipated regulatory changes, political instability, difficulties in
staffing and managing operations, adverse tax consequences, currency and
exchange rate fluctuations, and seasonal reductions in business activity. In
addition, the impact of language and other cultural differences could result in
product and service offerings that might not satisfy the needs of our customers
and might not be profitable. Further, strategic relationships might be necessary
to facilitate expansion into certain markets, and our business might be
adversely affected if we misallocate our resources and ultimately fail to gain
new or effective alliances in this area.
IF OUR INFORMATION PROVIDERS STOPPED DOING BUSINESS WITH US, WE COULD NOT
CONTINUE TO SELL BUSINESS BROWSER. We do not own or create all of the original
content distributed through our products. We depend significantly on information
providers to supply information and data feeds to us on a timely basis. Our
products could experience interruptions due to any failure or delay in the
transmission or receipt of this information.
IF OUR SOFTWARE IS DEFECTIVE, IT MIGHT BE COSTLY TO CORRECT; WE COULD GET
SUED AND OUR REPUTATION COULD BE HARMED. Complex software like the software we
develop for our products may contain errors or defects, especially when first
implemented, that may be very costly to correct. Defects or errors also could
result in downtime and our business could suffer significantly from potential
adverse customer reaction, negative publicity and harm to our reputation.
WE MAY HAVE DIFFICULTY IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES. Our business strategy includes the pursuit of strategic
acquisitions. From time to time we may engage in discussions with third parties
concerning potential acquisitions of niche expertise, business and proprietary
rights. In executing our acquisition strategy, we may be unable to identify
suitable companies as acquisition candidates, making it more difficult to
acquire suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT
ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS
RESULTS. If we pursue any acquisition, our management could spend a significant
amount of time and management and financial resources in the acquisition process
and to integrate the acquired business with our existing business. To pay for an
acquisition, we may use capital stock, cash, or a combination of both.
Alternatively,
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we may borrow money from a bank or other lender. If we use cash or debt
financing, our financial liquidity will be reduced. In addition, from an
accounting perspective, an acquisition may involve nonrecurring charges or
involve amortization of significant amounts of goodwill that could adversely
affect our results of operations.
Despite the investment of these management and financial resources and
completion of due diligence with respect to these efforts, an acquisition may
not produce the revenue, earnings or business synergies that we anticipated, and
an acquired technology or proprietary right may not perform as expected for a
variety of reasons, including:
- difficulty in the assimilation of the operations, technologies,
rights, products and personnel of the acquired company
- risks of entering markets in which we have no or limited prior
experience
- expenses of any undisclosed or potential legal liabilities of the
acquired company
- the potential loss of key employees of the acquired company
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH
MAKES IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS
AND CONTRIBUTES TO VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK. Our
quarterly revenues, gross profits and results of operations have fluctuated
significantly in the past and we expect them to continue to fluctuate
significantly in the future. In addition, we believe that an important measure
of our business is the annualized contract value at the end of each period,
which also may fluctuate. Causes of such fluctuations have included and may
include, among other factors:
- changes in demand for our products
- the dollar value and timing of both new and renewal subscriptions
- competition (particularly price competition)
- increases in selling and marketing expenses, as well as other
operating expenses
- technical difficulties or system downtime affecting our products or
the Web generally
- economic conditions specific to the Web, as well as general economic
conditions
- consolidation of our customers
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our projected revenue does not meet our expectations,
then we are likely to experience an even larger shortfall in our operating
profit (loss) relative to our expectations. Further, although we are not
presently a party to a lawsuit, any potential claims, even if not meritorious,
against us could result in the expenditure of significant financial and
managerial resources on our part, which could materially impact our results of
operations.
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IF WE CONTINUE TO LOSE KEY PERSONNEL AND ARE UNABLE TO ATTRACT ADDITIONAL
AND RETAIN EXISTING KEY PERSONNEL, IT COULD CAUSE A MATERIAL AND ADVERSE EFFECT
ON OUR BUSINESS. Our future success will depend, in substantial part, on the
continued services of our senior management, including Daniel J. Schimmel, our
President and Chief Executive Officer; William G. Schumacher, our Senior Vice
President, Content Development; Philip J. Garlick, our Senior Vice President,
Global Sales; Dileep Hurry, our Senior Vice President, Business Development; Roy
D. Landon, our Senior Vice President and Chief Financial Officer; Michael
Buzzell, our Senior Vice President, Engineering; and Mary F. McCabe, our Senior
Vice President, Product Development. None of our senior management has entered
into employment agreements with us, and we do not maintain key-person life
insurance on any of our employees. In the first quarter of 2001, two members of
our senior management team resigned. We may experience difficulty in
transitioning their replacements into these key management roles. In addition,
the loss of the services of one or a group of our other key personnel could have
a material, adverse effect on development of new products and services, our
ability to manage the business, and our financial condition. Further, our future
success will also depend on our continuing ability to attract, retain, and
motivate highly qualified technical, customer support, sales, financial,
accounting, and managerial personnel. Competition for such key personnel is
intense, and we cannot assure you that we will be able to retain such personnel
or that we will be able to attract, assimilate, or retain other highly qualified
personnel in the future. Moreover, competition for highly qualified key
personnel may lead to increased costs of retaining the services of such
personnel, thus potentially hindering our financial condition.
MAINTENANCE OF REPUTATION AND NAME RECOGNITION. We believe that
establishing and maintaining a solid reputation and name recognition are
critical for attracting and retaining customers as well as employees. We believe
that the importance of reputation and name recognition is increasing and will
continue to increase due to the growing number of providers of Web-based
business and financial information. If our reputation is damaged or if potential
customers and employees are not familiar with our services, we may not be able
to attract new, or retain existing, customers and employees. Promotion and
enhancement of our name will depend largely on our success in continuing to
provide quality services and successfully market our services. If customers do
not perceive our services to be effective or of high quality, our brand name and
reputation will suffer.
Any one or more of these factors could affect our business, financial condition
and results of operations, and this makes the prediction of results of
operations on a quarterly basis unreliable. As a result, we believe that
period-to-period comparisons of our historical results of operations and
annualized contract values are not necessarily meaningful and should not be
relied upon as an indication for future performance. Also, due to these and
other factors, it is possible that our quarterly results of operations
(including the annualized contract value) may be below expectations. If this
happens, the price of our common stock would likely decrease.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OneSource is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. However, our exposure to currency
exchange rate fluctuations has been and is expected to continue to be modest due
to the fact that the operations of our United Kingdom subsidiary are almost
exclusively conducted in local currency. Operating results are translated into
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United States dollars and consolidated for reporting purposes. The impact of
currency exchange rate movements on intercompany transactions was not
significant for the three months ended March 31, 2001.
OneSource also owns financial instruments that are sensitive to market
risks as part of its investment portfolio. The investment portfolio is used to
preserve OneSource's capital until it is required to fund operations, including
the Company's marketing and product development activities. None of these
market-risk sensitive instruments are held for trading purposes. The investment
portfolio contains instruments that are subject to the risk of a decline in
interest rates. We do not enter into derivatives or any other financial
instruments for trading or speculative purposes.
PART II- OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 19, 1999, we commenced an initial public offering of 3,636,000
shares of common stock, $0.01 par value per share, pursuant to a final
prospectus dated May 19, 1999. The prospectus was contained in OneSource's
registration statement on Form S-1, which was declared effective by the
Securities and Exchange Commission (SEC File No. 333-73263) on May 18, 1999. Of
the 3,636,000 shares of common stock offered, 2,500,000 shares were offered and
sold by OneSource and 1,136,000 shares were offered and sold by certain
stockholders of OneSource. The offering closed on May 24, 1999 upon the sale of
all 3,636,000 shares. The aggregate offering price of the offering to the public
was $43,632,000, with proceeds to OneSource and the selling stockholders, after
deduction of the underwriting discount, of $27,900,000 and $12,677,760,
respectively. The aggregate amount of expenses incurred by OneSource in
connection with the issuance and distribution of the shares of common stock sold
in the offering were approximately $3.9 million, including approximately $3.0
million in underwriting discounts and commissions and $0.9 million in other
offering expenses.
The net proceeds to OneSource from the offering, after deducting
underwriting discounts and commissions and other offering expenses was
approximately $27.0 million.
The net proceeds from the offering, less $6.8 million used to pay off
long-term debt and $7.6 million used to acquire Corporate Technology Information
Services, Inc., have been invested in interest bearing, investment grade
securities.
Since the initial public offering, OneSource has produced positive cash
flow and has not needed to further draw from these funds for day-to-day
operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Description
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None.
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(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by OneSource for the quarter ending
March 31, 2001.
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SIGNATURE
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.
ONESOURCE INFORMATION SERVICES, INC.
Date: May 11, 2001 By: /s/ Roy D. Landon
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Roy D. Landon
Senior Vice President, Chief Financial
Officer (Principal Financial Officer)
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