SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
January 30, 2003
----------------
Date of Report
(Date of earliest event reported)
MEMBERWORKS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 0-21527 06-1276882
------------------------ ------------------------ ---------------------
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
680 Washington Blvd
Stamford, Connecticut 06901
-----------------------------
(Address of principal executive offices,
including zip code)
(203) 324-7635
-------------------------------
(Registrant's telephone number,
including area code)
1
MEMBERWORKS INCORPORATED
Item 5. Other Events.
On January 30, 2003, MemberWorks, Incorporated issued a press release regarding
fiscal year 2003 second quarter and six month results, a copy of which is filed
hereto as Exhibit 99.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
99 Press Release dated January 30, 2003.
2
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 hereunto duly authorized.
MEMBERWORKS INCORPORATED
(Registrant)
Date: January 31, 2003 By: /s/ Gary A. Johnson
----------------------------------
Gary A. Johnson, President and
Chief Executive Officer
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Exhibit 99
MEMBERWORKS REPORTS FISCAL 2003
SECOND QUARTER AND SIX MONTH FINANCIAL RESULTS
- Reported revenues were $114.0 million versus guidance of $108.0 million to
$110.0 million.
- Earnings per share was $0.40 versus guidance of $0.13 to $0.16.
- Operating cash flow before changes in assets and liabilities was $16.1
million versus guidance of $9.0 million to $11.0 million.
STAMFORD, Connecticut-January 30, 2003 - MemberWorks Incorporated (Nasdaq:MBRS),
a leading provider of consumer and membership services through affinity
marketing and online channels, announced today its financial results for the
fiscal 2003 second quarter.
The Company reported revenues of $114.0 million, an increase of 11% from $102.7
million reported in the fiscal 2002 second quarter, and an increase of 9%
sequentially from $105.0 million reported in the fiscal 2003 first quarter.
Net income for the current quarter was $5.4 million, or $0.40 per diluted share,
versus a net loss of $9.2 million, or $0.62 per diluted share, for last year's
second fiscal quarter. Net income for the fiscal 2003 second quarter included a
tax provision based on an estimated effective rate of approximately 12%. Fiscal
2002 second quarter results included a restructuring charge of $6.9 million and
a $9.0 million charge related to the realized loss on marketable securities.
Excluding the impact of the charges discussed above in fiscal 2002, net income
was $5.4 million, or $0.40 per diluted share, for the current quarter and $6.8
million, or $0.46 per diluted share, for last year's second fiscal quarter.
Operating cash flow reported for the fiscal 2003 second quarter was $16.1
million before changes in assets and liabilities compared to $6.3 million in
last year's second fiscal quarter and $9.4 million in the fiscal 2003 first
quarter. Operating cash flow after changes in assets and liabilities was $22.0
million in the fiscal 2003 second quarter compared to $9.3 million in last
year's second fiscal quarter and $8.0 million in the fiscal 2003 first quarter.
Compared to previous guidance updated in December 2002, reported revenues were
$114.0 million versus the guidance of $108.0 million to $110.0 million. Earnings
per share was $0.40 versus guidance of $0.13 to $0.16. Operating cash flow
before changes in assets and liabilities was $16.1 million versus guidance of
$9.0 million to $11.0 million.
"This was a productive quarter for MemberWorks," said Gary Johnson, President
and CEO. "By focusing on our core business, we have been able to achieve key
milestones including new client additions, channel diversification, revenue and
profitability. Our new marketing relationships announced this quarter highlight
the value of our custom programs for large affinity brands and point to the
underlying strength in our business. Looking ahead, as we continue to stabilize
the business, we are committed to our targets for moderate growth, cash flow and
profitability."
4
Six Month Results
The Company reported revenues of $219.0 million, a decrease of 1% from $221.6
million reported in the first six months of fiscal 2002. Excluding revenues from
iPlace, which was sold in the first quarter of fiscal 2002, revenues would have
increased 3% year over year.
Net income for the six months ended December 31, 2002, was $23.2 million, or
$1.71 per diluted share, versus net income of $25.3 million, or $1.63 per
diluted share, in the prior year period. Net income for the first six months of
fiscal 2003 included a tax provision based on an estimated effective tax rate of
12%.
Net income for the first six months of fiscal 2003 also included a $19.1 million
($16.9 million after tax) gain related to the settlement of the suit against
Homestore, Inc., a $1.0 million ($0.8 million after tax) charge for a purchase
price adjustment related to the sale of iPlace, Inc. and a $0.2 million ($0.2
million after tax) charge for a realized loss on marketable securities.
Net income for the first six months of fiscal 2002 included a $5.9 million
charge for a cumulative effect of an accounting change relating to the adoption
of a new accounting standard, a $6.9 million restructuring charge and a $30.8
million gain, net of tax and minority interest, related to the sale of iPlace,
Inc. in August 2001.
Excluding the items discussed above from both periods, net income was $7.3
million, or $0.54 per diluted share, for the first six months of 2003 and $7.3
million, or $0.47 per diluted share, for the first six months of fiscal 2002.
During the six months ended December 31, 2002, MemberWorks purchased 873,000
shares of its common stock on the open market. During the past twelve months,
the Company has reduced the number of shares outstanding through its buyback
program by 1,958,000 shares. Pursuant to the share repurchase program, the
Company is authorized to repurchase approximately 2,100,000 additional shares as
market conditions permit. As of December 31, 2002, there were 12,695,000 shares
of common stock outstanding.
Business Outlook
Management offers the following guidance for the full year:
Revenues are expected to be in the range of $450.0 million to $455.0 million.
Earnings per share is expected to be in the range of $1.25 to $1.30, tax
effected at a 12% effective rate and excluding the items included as part of the
first quarter 2003 results discussed above. Operating cash flow before changes
in assets and liabilities is expected to be between $46.0 million and $50.0
million.
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Management offers the following guidance for the quarter ended March 31, 2003:
Revenues are expected to be in the range of $114.0 million to $116.0 million and
earnings per share is expected to range between $0.05 and $0.07. Operating cash
flow before changes in assets and liabilities is expected to be in the range of
$7.0 million to $8.0 million.
Management offers the following guidance for the quarter ended June 30, 2003:
Revenues are expected to be in the range of $118.0 million to $120.0 million and
earnings per share is expected to range between $0.65 and $0.70. Operating cash
flow before changes in assets and liabilities is expected to be in the range of
$14.0 million to $17.0 million
The Company also announced today that it is challenging in a Connecticut state
court an arbitration award that was recently entered against it. The arbitration
was between the Company and MedValUSA Health Programs, Inc. ("MedVal"), a
start-up company with no operations. In the arbitration, MedVal claimed that
MemberWorks breached a marketing agreement between the parties and violated the
Connecticut Unfair Trade Practices Act ("CUTPA"). Even though the arbitrators
found that MemberWorks was not liable to MedVal for any compensatory damages,
they awarded approximately $5.5 million in punitive damages and costs against
MemberWorks solely under CUPTA. MemberWorks believes that this arbitration award
is unjustified and not based on any existing legal precedent. The Company is
challenging the award on a number of grounds, including that it violates a well
defined public policy against excessive punitive damage awards, raises
constitutional issues and disregards certain legal requirements for a valid
award under CUPTA. Accordingly, on January 24, 2003, the Company filed a motion
with the Superior Court for the Judicial District of Hartford, Connecticut to
vacate the award. The hearing on the Company's motion is currently scheduled for
February 10, 2003. While the Company intends to vigorously seek to vacate this
award as well as to take action to prevent the enforcement of the award by,
among other things, seeking to prevent the confirmation of the award, there can
be no assurance that MemberWorks will be successful in its efforts. The Company
has made no provision in its financial statements for this contingency because
it believes that a loss is not probable.
Conference Call Note:
MemberWorks will host a conference call on Thursday, January 30, 2003, at 10:00
A.M., EST, to discuss the Company's second quarter results. This call will be
web cast live on the Company's web site at www.memberworks.com. To listen to the
conference call, please dial (877) 709-5342, approximately five to ten minutes
before the scheduled start time. When prompted, state passcode "MBRS".
For those who cannot listen to the live call, an audio replay of the call will
be available immediately following the broadcast until February 7, 2003. To
listen to the audio replay, please call (800) 756-0529, or if located outside of
the United States call (402) 998-0771. A replay of the web cast will also be
available on the Company's website beginning approximately 2 hours after the end
of the call and will remain available until February 7, 2003.
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Headquartered in Stamford, Conn., MemberWorks is a leader in bringing value to
consumers by designing innovative membership programs that offer services and
discounts on everyday needs in healthcare, personal finance, insurance, travel,
entertainment, computing, fashion and personal security. As of December 31,
2002, 6.3 million retail members are enrolled in MemberWorks programs, gaining
convenient access to thousands of service providers and vendors. MemberWorks is
the trusted marketing partner of leading consumer-driven organizations and
offers them effective tools to enhance their market presence, to strengthen
customer affinity and to generate additional revenue.
Any statements herein regarding the business of MemberWorks Incorporated that
are not historical are "forward looking statements" that are intended to qualify
for the safe harbor provisions from liability provided by the Private Securities
Litigation Reform act of 1995. For a discussion of risks and uncertainties that
could cause actual results to differ from those intended by any forward looking
statement, see "Forward-Looking Information" in the Company's most recent
Quarterly Reports on Form 10-Q and Annual report on form 10-K as filed with the
SEC.
Company Contacts:
James B. Duffy
Chief Financial Officer
(203) 324-7635
-- Tables Attached --
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MEMBERWORKS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended Six months ended
December 31, 2002 December 31, 2002
-------------------------------- -------------------------------
2002 2001 2002 2001
--------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
Revenues $ 114,045 $ 102,684 $ 219,049 $ 221,648
Expenses:
Operating 19,178 19,508 37,252 40,576
Marketing 69,899 57,444 135,448 134,234
General and Administrative 18,764 18,570 37,627 41,579
Restructuring - 6,893 - 6,893
Amortization of intangible assets 346 440 739 1,115
------------ ----------- ----------- -------------
Total expenses 108,187 102,855 211,066 224,397
------------ ----------- ----------- -------------
Operating income (loss) 5,858 (171) 7,983 (2,749)
Settlement of investment related litigation - - 19,148 -
Gain on sale of subsidiary - - (959) 65,608
Net loss on investment - (9,043) (206) (31,339)
Other income (expense), net 221 54 340 (36)
------------ ----------- ----------- -------------
Income (loss) before minority interest 6,079 (9,160) 26,306 31,484
Minority interest - - - 450
------------ ----------- ----------- -------------
Income (loss) before income taxes 6,079 (9,160) 26,306 31,934
Provision for income taxes (729) - (3,143) (743)
------------ ----------- ----------- -------------
Income (loss) before cumulative effect of accounting change 5,350 (9,160) 23,163 31,191
Cumulative effect of accounting change - - - (5,907)
------------ ----------- ----------- -------------
Net income (loss) $ 5,350 $ (9,160) $ 23,163 $ 25,284
============ =========== =========== =============
Diluted earnings (loss) per share:
Income (loss) before cumulative effect of accounting change $ 0.40 $ (0.62) $ 1.71 $ 2.01
Cumulative effect of accounting change - - - (0.38)
------------ ----------- ----------- -------------
Diluted earnings (loss) per share $ 0.40 $ (0.62) $ 1.71 $ 1.63
============ =========== =========== =============
Diluted shares used in earnings (loss) per share calculation 13,396 14,789 13,530 15,505
============ =========== =========== =============
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MEMBERWORKS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended Six months ended
December 31, 2002 December 31, 2002
-------------------------------- -------------------------------
2002 2001 2002 2001
--------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
Operating Activities
Net income (loss) $ 5,350 $ (9,160) $ 23,163 $ 25,284
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Revenues before deferral 111,026 101,201 209,140 206,697
Marketing costs before deferral (59,764) (55,060) (114,673) (125,446)
Revenues recognized (114,045) (102,684) (219,049) (221,648)
Marketing costs expensed 69,899 57,444 135,448 134,234
Depreciation and amortization 3,040 3,249 6,169 6,677
Deferred income taxes 578 - 2,864 -
Gain on settlement - - (19,148) -
Net loss (gain) on sale of subsidiary - - 959 (65,608)
Net loss on investment - 9,043 206 31,339
Restructuring and other charges - 1,585 - 1,585
Minority interest - - - (450)
Cumulative effect of accounting change - - - 5,907
Other 20 646 382 688
------------ ----------- ----------- -------------
Net cash provided by (used in) operating activities before
changes in assets and liabilities 16,104 6,264 25,461 (741)
Net change in assets and liabilities 5,935 3,076 4,575 (2,644)
------------ ----------- ----------- -------------
Net cash provided by (used in) operating activities 22,039 9,340 30,036 (3,385)
------------ ----------- ----------- -------------
Investing Activities
Acquisition of fixed assets (1,441) (1,109) (2,762) (2,999)
Settlement of investment related litigation - - 19,148 -
Proceeds from sale of subsidiary, net of cash sold - - (750) 45,997
------------ ----------- ----------- -------------
Net cash (used in) proved by investing activities (1,441) (1,109) 15,636 42,998
------------ ----------- ----------- -------------
Financing Activities
Net proceeds from issuance of stock 1,830 310 1,851 1,196
Treasury stock purchases (6,088) (8,335) (14,957) (15,665)
Payments of long-term obligations (78) (168) (927) (359)
------------ ----------- ----------- -------------
Net cash used in financing activities (4,336) (8,193) (14,033) (14,828)
------------ ----------- ----------- -------------
Effect of exchange rate changes on cash and cash equivalents 8 (89) (32) (221)
------------ ----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents 16,270 (51) 31,607 24,564
Cash and cash equivalents at beginning of period 66,522 47,351 51,185 22,736
------------ ----------- ----------- -------------
Cash and cash equivalents at end of period $ 82,792 $ 47,300 $ 82,792 $ 47,300
============ =========== =========== =============
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MEMBERWORKS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2002 2001
--------------- -----------------
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 82,792 $ 51,185
Marketable securities - 912
Accounts receivable 11,857 9,831
Other current assets 7,221 6,386
Membership solicitation and other deferred costs 108,229 129,085
------------- --------------
Total current assets 210,099 197,399
Fixed assets, net 28,235 31,420
Goodwill, net 42,039 42,039
Intangible and other assets, net 9,643 9,959
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Total assets $ 290,016 $ 280,817
============= ==============
Liabilities and Shareholders' Deficit
Current liabilities:
Current maturities of long-term obligations $ 268 $ 1,070
Accounts payable and accrued liabilities 98,090 90,478
Deferred membership fees 196,290 206,272
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Total current liabilities 294,648 297,820
Deferred income taxes 2,863 -
Long-term liabilities 3,079 3,627
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Total liabilities 300,590 301,447
============= ==============
Shareholders' deficit:
Common stock; $0.01 par value
40,000 shares authorized; 17,703 issued (17,493
at June 30, 2002) 177 175
Capital in excess of par value 111,094 109,254
Accumulated deficit (19,024) (42,185)
Accumulated other comprehensive loss (453) (373)
------------- --------------
Total shareholders' equity before treasury stock 91,794 66,871
Treasury stock, 5,008 shares at cost (4,139 shares at June 30, 2002) (102,368) (87,501)
------------- --------------
Total shareholders' deficit (10,574) (20,630)
------------- --------------
Total liabilities and shareholders' deficit $ 290,016 $ 280,817
============= ==============
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