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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2001
COMMISSION FILE NUMBER: 0-26625
NOVAMED EYECARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4116193
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611
(Address of principal executive offices)
Registrant's telephone, including area code: (312) 664-4100
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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 and 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 May 9, 2001, there were outstanding 24,803,464 shares of the
registrant's common stock, par value $.01 per share.
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NOVAMED EYECARE, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 2001
INDEX
PART OR ITEM PAGE
Part I. FINANCIAL STATEMENTS 3
Item 1. Interim Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31,
2000 3
Condensed Consolidated Statements of Operations - Three months
ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows - Three months ended March
31, 2001 and 2000 5
Notes to the Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
Part I
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Item 1.
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
March 31, December 31,
2001 2000
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 2,035 $ 785
Accounts receivable, net 25,079 23,287
Due from affiliated providers, net 1,272 878
Notes receivable from affiliated providers 3,010 3,225
Inventory 3,125 3,651
Other current assets 2,333 2,263
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Total current assets 36,854 34,089
Property and equipment, net 21,853 22,536
Intangible assets, net 61,523 62,205
Other assets, net 2,749 2,083
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Total assets $ 122,979 $ 120,913
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,184 $ 5,432
Accrued expenses 4,798 4,680
Income taxes payable 682 --
Current maturities of long-term debt 589 249
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Total current liabilities 11,253 10,361
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Long-term debt, net of current maturities 25,964 26,187
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Deferred income tax liability 1,501 1,501
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Commitments and contingencies
Stockholders' equity:
Series E junior participating preferred stock ($.01 par value,
1,912,000 shares authorized, none outstanding at March 31,
2001 and December 31, 2000, respectively) -- --
Common stock ($.01 par value, 81,761,465 shares authorized,
24,803,464 and 24,679,357 shares outstanding at March 31, 2001
and December 31, 2000, respectively) 248 247
Additional paid-in capital 77,570 77,362
Retained earnings 6,443 5,255
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Total stockholders' equity 84,261 82,864
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Total liabilities and stockholders' equity $ 122,979 $ 120,913
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The notes to the interim condensed consolidated financial statements
are an integral part of these statements.
3
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data; unaudited)
Three months ended
March 31,
-----------------------------------------
2001 2000
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Net revenue:
Surgical facilities $ 10,657 $ 10,019
Management services 19,360 16,622
Product sales and other 6,861 4,975
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Total net revenue 36,878 31,616
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Operating expenses:
Salaries, wages and benefits 14,016 11,778
Cost of sales and medical supplies 9,837 8,200
Selling, general and administrative 8,022 7,203
Depreciation and amortization 2,238 1,699
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Total operating expenses 34,113 28,880
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Income from operations 2,765 2,736
Other expense, net 715 175
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Income before income taxes 2,050 2,561
Provision for income taxes 872 1,083
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Net income $ 1,178 $ 1,478
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Basic earnings per common share $ .05 $ .06
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Diluted earnings per common share $ .05 $ .06
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Basic weighted average common shares outstanding 24,693 24,234
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Diluted weighted average common shares outstanding 25,165 26,339
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The notes to the interim condensed consolidated financial statements
are an integral part of these statements.
4
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
March 31,
------------------------------------------
2001 2000
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Cash flows from operating activities:
Net income $ 1,178 $ 1,478
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of purchase transactions--
Depreciation and amortization 2,238 1,699
Deferred taxes -- --
Changes in working capital items--
Accounts receivable and due from affiliated providers, net (2,186) (2,405)
Inventory 526 576
Other current assets (62) (465)
Accounts payable, accrued expenses and income taxes payable 730 857
Other long-term assets (500) (1)
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Net cash provided by operating activities 1,924 1,739
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Cash flows from investing activities:
Purchases of property and equipment (846) (1,742)
Acquisitions of and affiliations with entities, net -- (6,354)
Receipt (issuance) of notes receivable from/(to) affiliated providers 215 (313)
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Net cash used in investing activities (631) (8,409)
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Cash flows from financing activities:
Borrowings under revolving line of credit 12,405 12,450
Payments under revolving line of credit (12,625) (6,850)
Proceeds from the issuance of common stock 191 453
Payments of other debt and capital lease obligations (14) (18)
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Net cash provided by (used in) financing activities (43) 6,035
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Net increase (decrease) in cash and cash equivalents 1,250 (635)
Cash and cash equivalents, beginning of period 785 1,828
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Cash and cash equivalents, end of period $ 2,035 $ 1,193
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The notes to the interim condensed consolidated financial statements
are an integral part of these statements.
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NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Amounts in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The information contained in the interim consolidated financial statements
and notes is condensed from that which would appear in the annual consolidated
financial statements. Accordingly, the interim condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements as of and for the year ended December 31, 2000, filed by
NovaMed Eyecare, Inc. (the "Company") with the Securities and Exchange
Commission on Form 10-K. The unaudited interim condensed consolidated financial
statements as of March 31, 2001 include all normal recurring adjustments which
management considers necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire fiscal year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. EARNINGS PER COMMON SHARE
Diluted EPS is calculated by dividing net income by the weighted average
number of common shares, including the dilutive effect of potential common
shares outstanding during the period. Potential common shares consist of
outstanding options whose dilutive effect is calculated using the treasury stock
method.
Earnings per common share is calculated as follows (in thousands, except
per share):
Three months ended
March 31,
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2001 2000
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Income available to common stockholders-basic $ 1,178 $ 1,478
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Income available to common stockholders-diluted $ 1,178 $ 1,478
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Basic weighted average number of common shares
outstanding 24,693 24,234
Effect of dilutive securities--stock options 472 2,105
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Diluted weighted average number of shares outstanding 25,165 26,339
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Earnings per common share:
Basic $ .05 $ .06
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Diluted $ .05 $ .06
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3. OPERATING SEGMENTS
The table below presents information about operating data and segment
assets used by the chief operating decision maker of the Company as of and for
the three months ended March 31, 2001 and 2000 (in thousands):
Product
Surgical Management Sales and
Facilities Services Other Corporate Eliminations Total
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(in thousands)
Three months ended March 31, 2001
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Net revenue $ 10,657 $ 22,226 $ 6,861 $ -- $ (2,866) $ 36,878
Earnings before tax 4,017 1,674 673 (4,314) -- 2,050
Depreciation and amortization 483 434 55 1,266 -- 2,238
Interest income -- -- (2) (23) -- (25)
Interest expense -- -- -- 617 -- 617
Identifiable assets 14,950 23,576 5,322 79,131 -- 122,979
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Three months ended March 31, 2000
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Net revenue $ 10,019 $ 19,742 $ 4,975 $ -- $ (3,120) $ 31,616
Earnings before tax 4,172 1,801 450 (3,862) -- 2,561
Depreciation and amortization 363 342 46 948 -- 1,699
Interest income -- (5) (1) (21) -- (27)
Interest expense -- -- -- 227 -- 227
Identifiable assets 10,471 17,661 4,017 65,435 -- 97,584
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below contains forward-looking statements (as such term is
defined in Section 21E of the Securities Exchange Act of 1934) that are based on
the beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Our results, performance and
achievements in 2001 and beyond could differ materially from those expressed in,
or implied by, any such forward looking statements. See "Cautionary note
regarding forward-looking statements" on page 10.
Outlook
NovaMed Eyecare provides a comprehensive range of eye care services,
focused primarily around its surgical facilities, including its ownership and
operation of 15 ambulatory surgery centers (ASCs), and its operation of 15 laser
vision correction centers. Eye care professionals perform laser vision
correction, cataracts and other eye-related surgical procedures in the
facilities owned and/or operated by the Company. The revenue and earnings
results in the first quarter of 2001 were achieved despite an uncertain economic
environment in the US. We expect this environment to continue for the
foreseeable future.
The discussion set forth below analyzes certain factors and trends related
to the financial results for each of the three months ended March 31, 2001 and
2000. This discussion should be read in conjunction with the condensed
consolidated financial statements and notes to the condensed consolidated
financial statements above.
Results of Operations
Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31,
2000
Net Revenue. Net revenue for first quarter 2001 increased 16.6% to $36.9
million from $31.6 million in the prior year period. Surgical facilities net
revenue increased 6.4% from $10.0 million to $10.7 million, primarily as a
result of a 34% increase in laser vision correction procedures, compared to the
first quarter of 2000. The increase in laser vision correction procedures
mainly resulted from our new fixed-site laser services agreements. We also
experienced a 10% increase in the number of cataract surgery procedures
performed in our facilities, compared to the three months ended March 31, 2000.
Management services net revenue increased 16.5% from $16.6 million to $19.4
million. The increase in management services revenue was primarily a result of
overall increases in laser vision correction, cataract and other ophthalmic
procedures performed by our affiliated eye care professionals as well as new
affiliations with eye care professionals. Product sales revenue increased 37.9%
from $5.0 million to $6.9 million, reflecting strong product demand and revenue
contributed by our eye care marketing products and services group that we
acquired in May, 2000.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
increased 19% from $11.8 million to $14.0 million. As a percentage of revenue,
salaries, wages and benefits expense increased from 37.3% to 38.0%. The
absolute increase in salaries, wages and benefits expense primarily reflects
costs associated with increased staffing levels to accommodate organic procedure
volume growth, along with increased costs as a result of new acquisitions and
affiliations.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased 20.0% from $8.2 million to $9.8 million. As a percentage of
revenue, cost of sales and medical supplies expense increased to 26.7% from
25.9%, the result of increased sales in our low margin Optical Product Sales
business. The absolute increase in cost of sales and medical supplies expense
is primarily attributable to the higher volumes at our Optical Product Sales
business, along with costs incurred at new acquisitions and affiliations.
Supply costs associated with the increase in laser vision correction and
cataract procedures also contributed to the absolute increase during the period.
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Selling, General and Administrative. Selling, general and administrative
("SG&A") expense increased 11.4% from $7.2 million to $8.0 million. As a
percentage of revenue, SG&A expense decreased from 22.8% to 21.8%. The absolute
increase in SG&A expense related primarily to costs incurred at new acquisitions
and affiliations, specifically increased rent and insurance expense. Selling
and marketing expenses decreased 12.5% from the first quarter of 2000.
Depreciation and Amortization. Depreciation and amortization expense
increased 31.7% from $1.7 million to $2.2 million. Acquisitions, affiliations
and increased capital expenditures have increased overall depreciation and
amortization expense.
Other Expense. Other expense increased from $175,000 to $715,000. The
increase in other expense was primarily related to an increase in interest
expense as a result of higher average outstanding indebtedness during the first
quarter of 2001 as compared to the 2000 period. We also recognized $130,000 as
our share of losses incurred at a laser vision correction center that we operate
through a joint venture.
Provision for Income Taxes. Our effective tax rate reflects the impact of
nondeductible goodwill amortization expense. Our effective tax rate increased
slightly to 42.5% from 42.3%.
Liquidity and Capital Resources
Net cash provided by operating activities during the first quarter, 2001
increased $185,000 over the comparable 2000 period to $1.92 million. The
Company used $631,000 of cash for investing activities during the first three
months of 2001, primarily for the purchase of equipment. During the first three
months of 2001, the Company's net borrowings under its revolving credit line
decreased slightly from the December 31, 2000 level. At March 31, 2001, the
Company had working capital of $25.6 million.
On June 28, 2000, the Company entered into a three-year, $50 million
revolving credit agreement, replacing its previously existing agreement.
Interest on borrowings under the credit agreement is payable at an annual rate
equal to our lender's published base rate plus the applicable borrowing margin
ranging from 0 to 0.75% or LIBOR plus a range from 1.5% to 2.25%, varying upon
our ability to meet financial covenants. The weighted average interest rate on
credit line borrowings for the three months ended March 31, 2001 was
approximately 7.9%. The credit agreement contains covenants that include
limitations on indebtedness, liens, capital expenditures, acquisitions and
affiliations and ratios that define borrowing availability and restrictions on
the payment of dividends. As of March 31, 2001, we were in compliance with all
of our credit agreement covenants. We had $24 million available on our line of
credit as of March 31, 2001. We also had $2 million of cash available at that
date.
We expect that our funds from operations, our cash and our access to bank
credit lines will be sufficient to fund our operations and capital expenditures
for at least the next 12 months. Our future capital requirements and the
adequacy of available funds will depend on many factors, including the timing of
our acquisition activities, new affiliations with eye care professionals,
capital requirements associated with our surgical facilities, expansions and the
future cost of surgical equipment.
On June 15, 2000, we entered into an agreement to acquire two ASCs,
contingent upon the resolution of certain requirements associated with the
seller (the "Contingencies"). Certain of these Contingencies were satisfied in
2000 with respect to one of the ambulatory surgery centers, which we acquired in
December 2000. Upon the resolution of the Contingencies affecting the other
ambulatory surgery center and other conditions to closing, which could occur by
May 31, 2001, we will be required to purchase the other ambulatory surgery
center for approximately $9.3 million in cash consideration. We may elect to
fund up to approximately $2.3 million of this purchase price in the form of
common stock. This transaction is excluded from the acquisition limitations of
the new Credit Agreement discussed above.
One of our affiliated eye care professionals has the option, exercisable
through November 1, 2002, to acquire up to a 25% interest in one of our ASCs.
Effective March 1, 2001, we entered into a new five-year supply agreement
with Alcon Laboratories, Inc. setting forth the terms upon which we can procure
and utilize excimer lasers manufactured by Alcon. This agreement amended and
superseded our previous agreement originally entered into with Summit
Technology, Inc., which was acquired by Alcon in 2000. During the five-year
term, we will pay Alcon monthly based on the number of procedures performed on
9
each of our APEX/Infinity lasers and LADARVision Systems. We are required to
pay for a minimum number of annual procedures on each LADARVision System during
the five-year term, whether or not these procedures are performed. As of March
31, 2001, we have entered into commitments to pay Alcon up to approximately $1.4
million annually during the five-year term. The minimum commitment will
increase as additional laser systems are deployed.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Form 10-Q contains
certain forward-looking statements that reflect our current expectations about
our future results of operations, performance and achievements. When used in
the Form 10-Q, the words "anticipates," "believes," "estimates," "plans,"
"intends," and similar expressions, as they relate to us or our management, are
intended to identify such forward-looking statements. These forward-looking
statements reflect our current beliefs and are based on information currently
available to us. Accordingly, these statements are subject to certain risks,
and uncertainties which could cause our actual results, performance or
achievements in 2001 and beyond to differ materially from those expressed in, or
implied by, such statements. These risks and uncertainties include: our ability
to acquire, develop and manage profitable surgical facilities; the acceptance of
laser vision correction and other refractive surgical procedures by eye care
professionals and the general public; our ability to establish and maintain
profitable affiliations with eye care professionals; the adoption of competing
new technologies for eye surgical procedures, including vision correction
surgery; reductions in prices and reimbursement rates for surgical procedures,
including prices for laser vision correction procedures; the application of
existing or proposed government regulations; and our failure to grow or manage
our growth. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2000 for further discussion. We undertake no
obligation to update or revise any such forward-looking statements that may be
made to reflect events or circumstances after the date of this Form 10-Q or to
reflect the occurrence of unanticipated events.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A - Exhibits
Exhibit 10.23* Alcon Laboratories, Inc. Agreement
B - Reports on Form 8-K
We did not file any reports on Form 8-K during the first quarter of 2001.
* Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment of this document; omitted portions have been
separately filed with the Commission.
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SIGNATURE
Pursuant to the requirement 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.
NOVAMED EYECARE, INC.
/s/ Ronald G. Eidell May 9, 2001
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Ronald G. Eidell Date
Executive Vice President,
Chief Financial Officer and Secretary
(on behalf of Registrant and as Principal Financial Officer)
/s/ Robert L. Hiatt May 9, 2001
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Robert L. Hiatt Date
Vice President Finance
(Principal Accounting Officer)
12