ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 76-0168604 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
3100 Main Street, Suite 900 Houston TX | 77002 | ||
(Address of Principal Executive Offices) | (Zip Code) | ||
(713) 335-5151 | |||
(Registrant's telephone number, including area code) |
Large Accelerated Filer | o | Accelerated Filer | x |
Non-Accelerated Filer | o (do not check if a smaller reporting company) | Smaller Reporting Company | o |
Page | |
June 30, 2013 | December 31, 2012 | ||||||
Assets: | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 88,227 | $ | 83,558 | |||
Accounts and unbilled receivables, net of allowance of $690 and $760, respectively | 37,553 | 38,801 | |||||
Prepaid and other current assets | 6,041 | 5,067 | |||||
Total current assets | 131,821 | 127,426 | |||||
Restricted cash | 329 | 329 | |||||
Property and equipment, net | 14,838 | 12,788 | |||||
Other long term assets, net | 5,759 | 5,936 | |||||
Total assets | $ | 152,747 | $ | 146,479 | |||
Liabilities and Stockholders’ Equity: | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 4,532 | $ | 3,775 | |||
Accrued liabilities | 4,129 | 3,258 | |||||
Accrued payroll and other employee benefits | 4,828 | 7,669 | |||||
Deferred revenue | 36,013 | 39,774 | |||||
Total current liabilities | 49,502 | 54,476 | |||||
Long-term deferred revenue | 3,149 | 2,007 | |||||
Other long-term liabilities | 1,010 | 1,327 | |||||
Total liabilities | 53,661 | 57,810 | |||||
Commitments and contingencies (Note 5) | |||||||
Stockholders' equity: | |||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized none issued | — | — | |||||
Common stock, $0.001 par value, 75,000,000 shares authorized; 32,486,851 and 31,966,432 shares issued, respectively; 28,069,266 and 27,548,847 shares outstanding, respectively | 32 | 32 | |||||
Additional paid-in capital | 95,795 | 87,693 | |||||
Treasury stock, 4,417,585 common shares, at cost | (13,938 | ) | (13,938 | ) | |||
Retained earnings | 17,197 | 14,882 | |||||
Total stockholders’ equity | 99,086 | 88,669 | |||||
Total liabilities and stockholders’ equity | $ | 152,747 | $ | 146,479 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenue: | |||||||||||||||
License and implementation | $ | 24,170 | $ | 18,176 | $ | 46,762 | $ | 35,972 | |||||||
Maintenance and support | 11,357 | 9,958 | 22,391 | 19,183 | |||||||||||
Total revenue | 35,527 | 28,134 | 69,153 | 55,155 | |||||||||||
Cost of revenue: | |||||||||||||||
License and implementation | 8,808 | 5,540 | 17,278 | 11,543 | |||||||||||
Maintenance and support | 1,978 | 1,959 | 4,061 | 3,895 | |||||||||||
Total cost of revenue | 10,786 | 7,499 | 21,339 | 15,438 | |||||||||||
Gross profit | 24,741 | 20,635 | 47,814 | 39,717 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, marketing, general and administrative | 15,935 | 11,884 | 30,223 | 22,140 | |||||||||||
Research and development | 8,026 | 6,772 | 16,121 | 13,469 | |||||||||||
Income from operations | 780 | 1,979 | 1,470 | 4,108 | |||||||||||
Other (expense) income, net | (129 | ) | (129 | ) | (234 | ) | (106 | ) | |||||||
Income before income tax provision | 651 | 1,850 | 1,236 | 4,002 | |||||||||||
Income tax provision (benefit) | 71 | 855 | (1,078 | ) | 1,816 | ||||||||||
Net income | $ | 580 | $ | 995 | $ | 2,314 | $ | 2,186 | |||||||
Net earnings per share: | |||||||||||||||
Basic | $ | 0.02 | $ | 0.04 | $ | 0.08 | $ | 0.08 | |||||||
Diluted | $ | 0.02 | $ | 0.04 | $ | 0.08 | $ | 0.08 | |||||||
Weighted average number of shares: | |||||||||||||||
Basic | 28,006,517 | 27,375,429 | 27,881,957 | 27,271,201 | |||||||||||
Diluted | 29,958,580 | 28,337,143 | 29,710,202 | 28,303,760 | |||||||||||
Other comprehensive income, net of tax: | |||||||||||||||
Other comprehensive income | — | — | — | — | |||||||||||
Comprehensive income | $ | 580 | $ | 995 | $ | 2,314 | $ | 2,186 |
For the Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Operating activities: | |||||||
Net income | $ | 2,314 | $ | 2,186 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 1,999 | 938 | |||||
Share-based compensation | 7,559 | 4,472 | |||||
Excess tax benefit on share-based compensation | — | (1,685 | ) | ||||
Tax (shortfall)/benefit from share-based compensation | (10 | ) | 1,633 | ||||
Provision for doubtful accounts | (70 | ) | (257 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts and unbilled receivables | 1,317 | (2,407 | ) | ||||
Prepaid expenses and other assets | (821 | ) | 4,177 | ||||
Accounts payable | 715 | (2,465 | ) | ||||
Accrued liabilities | 391 | 630 | |||||
Accrued payroll and other employee benefits | (2,841 | ) | (1,115 | ) | |||
Deferred revenue | (2,619 | ) | 846 | ||||
Net cash provided by operating activities | 7,934 | 6,953 | |||||
Investing activities: | |||||||
Purchases of property and equipment | (2,172 | ) | (3,264 | ) | |||
Capitalized internal-use software development costs | (1,534 | ) | (815 | ) | |||
Net cash used in investing activities | (3,706 | ) | (4,079 | ) | |||
Financing activities: | |||||||
Exercise of stock options | 2,771 | 511 | |||||
Excess tax benefits on share-based compensation | — | 1,685 | |||||
Tax withholding related to net share settlement of restricted stock units | (2,330 | ) | (2,365 | ) | |||
Net cash provided by (used in) financing activities | 441 | (169 | ) | ||||
Net increase in cash and cash equivalents | 4,669 | 2,705 | |||||
Cash and cash equivalents: | |||||||
Beginning of period | 83,558 | 68,457 | |||||
End of period | $ | 88,227 | $ | 71,162 |
Award type | June 30, 2013 | December 31, 2012 | ||||
Stock options | 1,214,690 | 1,474,828 | ||||
Restricted stock units | 1,596,935 | 1,182,726 | ||||
Stock appreciation rights | 736,717 | 789,637 | ||||
Market share units | 469,000 | 205,000 |
For the Three Months Ended June 30, 2013 | ||
Volatility | 57% | |
Risk-free interest rate | 0.35% | |
Expected option life in years | 2.84 | |
Dividend yield | — |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 580 | $ | 995 | $ | 2,314 | $ | 2,186 | |||||||
Denominator: | |||||||||||||||
Weighted average shares (basic) | 28,006,517 | 27,375,429 | 27,881,957 | 27,271,201 | |||||||||||
Dilutive effect of potential common shares | 1,952,063 | 961,714 | 1,828,245 | 1,032,559 | |||||||||||
Weighted average shares (diluted) | 29,958,580 | 28,337,143 | 29,710,202 | 28,303,760 | |||||||||||
Basic earnings per share | $ | 0.02 | $ | 0.04 | $ | 0.08 | $ | 0.08 | |||||||
Diluted earnings per share | $ | 0.02 | $ | 0.04 | $ | 0.08 | $ | 0.08 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Share-based compensation: | |||||||||||||||
Cost of revenue: | |||||||||||||||
License and implementation | $ | 534 | $ | 301 | $ | 996 | $ | 630 | |||||||
Total included in cost of revenue | 534 | 301 | 996 | 630 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, marketing, general and administrative | 2,838 | 1,636 | 5,059 | 2,904 | |||||||||||
Research and development | 767 | 503 | 1,504 | 938 | |||||||||||
Total included in operating expenses | 3,605 | 2,139 | 6,563 | 3,842 | |||||||||||
Total share-based compensation expense | $ | 4,139 | $ | 2,440 | $ | 7,559 | $ | 4,472 |
• | Growth opportunities. We believe the market for our big data software applications is underpenetrated. Market interest for our software has increased over the past several years, providing us with growth opportunities. We have and will continue to invest in our business to more effectively address these opportunities through significant investment in professional services, research and development, sales, marketing and back office. In addition to organic growth, we may acquire companies or technologies that can contribute to the strategic, operational and financial growth of our business. We expect to continue to explore both organic and other strategic growth opportunities. |
• | Uncertain global economic conditions. Global economic conditions have been challenging in recent years, and continue to be somewhat uncertain. The uncertain economic conditions have had and may have a negative impact on the adoption of big data software and may increase the volatility in our business. Due to the uncertain economic conditions, we continue to experience long sales cycles, increased scrutiny on purchasing decisions and overall cautiousness taken by customers. In addition, certain foreign countries are still facing significant economic and political crises and it is possible that these crises could result in economic deterioration in the markets in which we operate. We believe our solutions provide value to our customers during periods of economic growth as well as in recessions, but the extent to which the current economic conditions will further affect our business is uncertain. |
• | Variability in revenue. Our revenue recognition policy provides visibility into a significant portion of our revenue in the near-term quarters, although the actual timing of revenue recognition varies based on the nature and requirements of our contracts. For the majority of our arrangements, we have not historically recognized license revenue upon customer contract signature and software delivery. We evaluate our contract terms and conditions as well as our implementation performance obligations in making our revenue recognition determination for each contract. Our contractual performance obligations in the future may differ from historical periods, impacting the timing of the recognition of revenue. For example, growth in our term license and SaaS service offerings may result in the deferral of revenue over the contractual term, whereas growth in perpetual license arrangements that meet the criteria for separation may result in the recognition of license revenue on delivery, provided revenue recognition criteria are met. Our revenue could also vary based on our customer mix and customer geographic location. We sell our software solutions to customers in the manufacturing, distribution, services and travel industries. From a geographical standpoint, approximately 52% and 61% of our consolidated revenues were derived from customers outside the United States for each of the three and six months ended June 30, 2013 and 2012, respectively. Our contracts with customers outside the United States are predominately denominated in U.S. dollars. The economic and political environments around the world could change our concentration of revenue within industries and across geographies. |
• | Income taxes. For the three and six months ended June 30, 2013, our effective income tax rate provision was 11% and a tax benefit of 87% as compared to the federal rate of 34%. In January 2013, Congress passed the American Taxpayer Relief Act of 2012 which included, among other legislation, the retroactive extension of the Research and Experimentations ("R&E") tax credit. The passage of this legislation made the R&E tax credit retroactive to January 1, 2012 and extended the R&E tax credit until December 31, 2013. As a result of the retroactive reinstatement of the 2012 R&E tax credit in 2013, we recognized a discrete tax benefit of $1.4 million in the first quarter of 2013. |
For the Three Months Ended June 30, | ||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | ||||||||||||||
License and implementation | $ | 24,170 | 68 | % | $ | 18,176 | 65 | % | $ | 5,994 | 33 | % | ||||||||
Maintenance and support | 11,357 | 32 | % | 9,958 | 35 | % | 1,399 | 14 | % | |||||||||||
Total | $ | 35,527 | 100 | % | $ | 28,134 | 100 | % | $ | 7,393 | 26 | % |
For the Three Months Ended June 30, | ||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Related Revenue | Amount | As a Percentage of Related Revenue | Variance $ | Variance % | ||||||||||||||
Cost of license and implementation | $ | 8,808 | 36 | % | $ | 5,540 | 30 | % | $ | 3,268 | 59 | % | ||||||||
Cost of maintenance and support | 1,978 | 17 | % | 1,959 | 20 | % | 19 | 1 | % | |||||||||||
Total cost of revenue | $ | 10,786 | 30 | % | $ | 7,499 | 27 | % | $ | 3,287 | 44 | % | ||||||||
Gross profit | $ | 24,741 | 70 | % | $ | 20,635 | 73 | % | $ | 4,106 | 20 | % |
For the Three Months Ended June 30, | ||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | ||||||||||||||
Selling, marketing, general and administrative | $ | 15,935 | 45 | % | $ | 11,884 | 42 | % | $ | 4,051 | 34 | % | ||||||||
Research and development | 8,026 | 23 | % | 6,772 | 24 | % | 1,254 | 19 | % | |||||||||||
Total operating expenses | $ | 23,961 | 67 | % | $ | 18,656 | 66 | % | $ | 5,305 | 28 | % |
For the Three Months Ended June 30, | |||||||||||||||||||
2013 | 2012 | ||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | |||||||||||||
Other (expense) income, net | (129 | ) | — | % | $ | (129 | ) | — | % | $ | — | — | % |
For the Three Months Ended June 30, | ||||||||||||||
(Dollars in thousands) | 2013 | 2012 | Variance $ | Variance % | ||||||||||
Effective tax rate | 11 | % | 46 | % | n/a | (35 | )% | |||||||
Income tax provision | $ | 71 | $ | 855 | $ | (784 | ) | (92 | )% |
For the Six Months Ended June 30, | |||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | |||||||||||||||
License and implementation | $ | 46,762 | 68 | % | $ | 35,972 | 65 | % | $ | 10,790 | 30 | % | |||||||||
Maintenance and support | 22,391 | 32 | % | 19,183 | 35 | % | 3,208 | 17 | % | ||||||||||||
Total | $ | 69,153 | 100 | % | $ | 55,155 | 100 | % | $ | 13,998 | 25 | % |
For the Six Months Ended June 30, | |||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||
(Dollars in thousands) | Amount | As a percentage of related revenue | Amount | As a percentage of related revenue | Variance $ | Variance % | |||||||||||||||
Cost of license and implementation | $ | 17,278 | 37 | % | $ | 11,543 | 32 | % | $ | 5,735 | 50 | % | |||||||||
Cost of maintenance and support | 4,061 | 18 | % | 3,895 | 20 | % | 166 | 4 | % | ||||||||||||
Total cost of revenue | $ | 21,339 | 31 | % | $ | 15,438 | 28 | % | $ | 5,901 | 38 | % | |||||||||
Gross profit | $ | 47,814 | 69 | % | $ | 39,717 | 72 | % | $ | 8,097 | 20 | % |
For the Six Months Ended June 30, | |||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | |||||||||||||||
Selling, marketing, general and administrative | $ | 30,223 | 44 | % | $ | 22,140 | 40 | % | $ | 8,083 | 37 | % | |||||||||
Research and development | 16,121 | 23 | % | 13,469 | 24 | % | 2,652 | 20 | % | ||||||||||||
Total operating expenses | $ | 46,344 | 67 | % | $ | 35,609 | 65 | % | $ | 10,735 | 30 | % |
For the Six Months Ended June 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
(Dollars in thousands) | Amount | As a Percentage of Total Revenue | Amount | As a Percentage of Total Revenue | Variance $ | Variance % | |||||||||||
Other income (expense), net | (234 | ) | — | (106 | ) | — | (128 | ) | nm |
For the Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands) | 2013 | 2012 | Variance $ | Variance % | |||||||||||
Effective tax rate | (87 | )% | 45 | % | n/a | (132 | )% | ||||||||
Income tax (benefit) provision | $ | (1,078 | ) | $ | 1,816 | $ | (2,894 | ) | (159 | )% |
For the Six Months Ended June 30, | |||||||
(Dollars in thousands) | 2013 | 2012 | |||||
Net cash provided by operating activities | $ | 7,934 | $ | 6,953 | |||
Net cash used in investing activities | (3,706 | ) | (4,079 | ) | |||
Net cash provided by (used in) financing activities | 441 | (169 | ) | ||||
Cash and cash equivalents (beginning of period) | 83,558 | 68,457 | |||||
Cash and cash equivalents (end of period) | $ | 88,227 | $ | 71,162 |
Number | Description | |
10.18(1) | Amended and Restated Employment Agreement by and between PROS, Inc., PROS Holdings, Inc., and Ronald F. Woestemeyer, dated as of May 13, 2013. | |
10.19(2) | PROS 2013 Employee Stock Purchase Plan. | |
31.1 | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). | |
31.2 | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/ 15d-14(a). | |
32.1* | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 |
(1) | Incorporated by reference to our Current Report on Form 8-K dated May 15, 2013. Constitutes management contracts or compensatory arrangements. |
(2) | Incorporated by reference to our Current Report on Form 8-K dated June 7, 2013. |
PROS HOLDINGS, INC. | |||
August 1, 2013 | By: | /s/ Andres Reiner | |
Andres Reiner | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
August 1, 2013 | By: | /s/ Charles H. Murphy | |
Charles H. Murphy | |||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of PROS Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
August 1, 2013 | /s/ Andres Reiner | |
Andres Reiner | ||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of PROS Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
August 1, 2013 | /s/ Charles H. Murphy | |
Charles H. Murphy | ||
Executive Vice President and | ||
Chief Financial Officer |
August 1, 2013 | /s/ Andres Reiner | |
Andres Reiner | ||
President and Chief Executive Officer |
August 1, 2013 | /s/ Charles H. Murphy | |
Charles H. Murphy | ||
Executive Vice President and Chief Financial Officer |
Summary of Significant Accounting Policies Awards Outstanding (Details)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Stock options
|
||
Awards outstanding [Line Items] | ||
Awards outstanding, Number | 1,214,690 | 1,474,828 |
Restricted stock units
|
||
Awards outstanding [Line Items] | ||
Awards outstanding, Number | 1,596,935 | 1,182,726 |
Stock appreciation rights
|
||
Awards outstanding [Line Items] | ||
Awards outstanding, Number | 736,717 | 789,637 |
Market share units
|
||
Awards outstanding [Line Items] | ||
Awards outstanding, Number | 469,000 | 205,000 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Revenue: | ||||
License and implementation | $ 24,170 | $ 18,176 | $ 46,762 | $ 35,972 |
Maintenance and support | 11,357 | 9,958 | 22,391 | 19,183 |
Total revenue | 35,527 | 28,134 | 69,153 | 55,155 |
Cost of revenue: | ||||
License and implementation | 8,808 | 5,540 | 17,278 | 11,543 |
Maintenance and support | 1,978 | 1,959 | 4,061 | 3,895 |
Total cost of revenue | 10,786 | 7,499 | 21,339 | 15,438 |
Gross profit | 24,741 | 20,635 | 47,814 | 39,717 |
Operating Expenses | ||||
Selling, marketing, general and administrative | 15,935 | 11,884 | 30,223 | 22,140 |
Research and development | 8,026 | 6,772 | 16,121 | 13,469 |
Income from operations | 780 | 1,979 | 1,470 | 4,108 |
Other income: | ||||
Other Nonoperating Income (Expense) | (129) | (129) | (234) | (106) |
Income before income tax provision | 651 | 1,850 | 1,236 | 4,002 |
Income tax provision | 71 | 855 | (1,078) | 1,816 |
Net income | 580 | 995 | 2,314 | 2,186 |
Net earnings per share: | ||||
Basic | $ 0.02 | $ 0.04 | $ 0.08 | $ 0.08 |
Diluted | $ 0.02 | $ 0.04 | $ 0.08 | $ 0.08 |
Weighted average number of shares: | ||||
Basic | 28,006,517 | 27,375,429 | 27,881,957 | 27,271,201 |
Diluted | 29,958,580 | 28,337,143 | 29,710,202 | 28,303,760 |
Other comprehensive income, net of tax: | ||||
Other comprehensive income | 0 | 0 | 0 | 0 |
Comprehensive income | $ 580 | $ 995 | $ 2,314 | $ 2,186 |
Summary of Significant Accounting Policies (Policies)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Revenue and Unbilled Receivables [Policy Text Block] | Deferred revenue and unbilled receivables Software license and implementation services that have been performed, but for which the Company has not invoiced the customer, are recorded as unbilled receivables, and invoices that have been issued before the software license and implementation services have been performed are recorded as deferred revenue in the accompanying unaudited condensed consolidated balance sheets. The Company generally invoices for maintenance and support services on a monthly, a quarterly or an annual basis through the maintenance and support period |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of presentation | Basis of presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the financial position of the Company as of June 30, 2013, the results of operations for the three and six months ended June 30, 2013 and cash flows for the six months ended June 30, 2013. During the second quarter of 2013, the Company recorded a $0.1 million out-of-period tax benefit adjustment related to the first quarter of 2013 for non-deductible share-based compensation expense that is included in the Company's estimated annual tax rate. The error was not material to the first quarter of 2013 interim financial statements and the correction of the error is not material to the second quarter interim financial statements. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“Annual Report”) filed with the SEC. The condensed consolidated balance sheet as of December 31, 2012 was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by GAAP. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of consolidation | Basis of consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollar amounts | Dollar amounts The dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars, except per unit amounts, or as noted within the context of each footnote disclosure. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of estimates | Use of estimates The Company’s management prepares the unaudited condensed consolidated financial statements in accordance with GAAP. The Company makes estimates and assumptions in the preparation of its unaudited condensed consolidated financial statements, and its estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The complexity and judgment required in the Company’s estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the percentage-of-completion method of accounting affect the amounts of revenue, expenses, unbilled receivables and deferred revenue. Estimates are also used for, but not limited to, receivables, allowance for doubtful accounts, useful lives of assets, depreciation, income taxes and deferred tax asset valuation, valuation of stock options, other current liabilities and accrued liabilities. Numerous internal and external factors can affect estimates. The critical accounting policies related to the estimates and judgments are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 under management’s discussion and analysis of financial condition and results of operations. There have been no significant changes to the Company’s critical accounting policies as described in the Company’s Annual Report. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue recognition | Revenue recognition The Company derives its revenue from the licensing and implementation of software solutions and associated software maintenance and support. To a lesser extent, the Company's revenue includes nonsoftware related hosting services. The Company's arrangements with customers typically include: (a) license fees for the use of our solutions either in perpetuity or over a specified term, (b) professional services for configuration, implementation and training services and (c) maintenance and support related to technical support and software updates. If there is significant uncertainty about contract completion or collectability is not reasonably assured, revenue is deferred until the uncertainty is sufficiently resolved or collectability is reasonably assured. In addition, revenue is recognized when persuasive evidence of an arrangement exists and fees are fixed or determinable. In determining whether professional services revenue should be accounted for separately from license revenue, the Company evaluates whether the professional services are considered essential to the functionality of the software using factors such as: the nature of its software products; whether they are ready for use by the customer upon receipt; the nature of professional services; the availability of services from other vendors; whether the timing of payments for license revenue is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. If the Company determines that professional services revenue should not be accounted for separately from license revenue, the license revenue is recognized together with the professional services revenue using the percentage-of-completion method or completed contract method. The completed contract method is also used for contracts where there is a risk over final acceptance by the customer or for contracts that are short term in nature. The percentage-of-completion computation is measured by the percentage of man-days incurred during the reporting period as compared to the estimated total man-days necessary for each contract for implementation of the software solutions. The Company measures performance under the percentage-of-completion method using total man-day method based on current estimates of man-days to complete the project. The Company believes that for each such project, man-days expended in proportion to total estimated man-days at completion represents the most reliable and meaningful measure for determining a project's progress toward completion. Under our fixed-fee arrangements, should a loss be anticipated on a contract, the full amount is recorded when the loss is determinable. The Company also licenses software solutions under term license agreements that typically include maintenance during the license term. When maintenance is included for the entire term of the license, there is no renewal rate and the Company has not established vendor specific objective evidence (“VSOE”) of fair value for the maintenance on term licenses. For term license agreements, revenue and the associated costs are deferred until the delivery of the solution and recognized ratably over the remaining license term. For arrangements that include hosting services we allocate the arrangement consideration between the hosting service and other elements and recognize the hosting fee ratably beginning on the date the customer commences use of our services and continuing through the end of the customer term. For multiple element arrangements that contain software and nonsoftware elements such as the Company's hosting service offerings, we allocate revenue between the software and software related elements as a group and any nonsoftware elements based on a relative fair value allocation. We determine fair value for each deliverable using the following hierarchy. We utilize VSOE of fair value if it exists, however in certain instances, the Company may not be able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to infrequently selling each element separately, not pricing solutions or services within a narrow range, or only having a limited sales history. In addition, third party evidence ("TPE") may not be available. When the Company is unable to establish selling prices using VSOE or TPE, it uses best estimated selling price ("BESP") in the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. For transactions that only include software and software-related elements, the Company continues to account for such arrangements under the software revenue recognition standards which require it to establish VSOE of fair value to allocate arrangement consideration to multiple deliverables. Maintenance and support revenue includes post-implementation customer support and the right to unspecified software updates and enhancements on a when-and-if available basis. The Company generally invoices for maintenance and support services on a monthly, quarterly or on an annual basis through the maintenance and support period. The Company recognizes revenue from maintenance arrangements ratably over the period in which the services are provided. Software license and implementation revenue that have been recognized, but for which the Company has not invoiced the customer, are recorded as unbilled receivables. Invoices that have been issued before software license, implementation and maintenance and support revenue has been recognized are recorded as deferred revenue in the accompanying unaudited condensed consolidated balance sheets. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Internal-use software | Internal-use software Costs incurred to develop internal-use software during the application development stage are capitalized, stated at cost, and depreciated using the straight-line method over the estimated useful lives of the assets. Application development stage costs generally include salaries and personnel costs and third party contractor expenses associated with internal-use software configuration, coding, installation and testing. Capitalized internal-use software development costs related to the Company's cloud-based offerings were $0.8 million and $0.5 million for the three months ended June 30, 2013 and 2012, respectively, and $1.6 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively. Capitalized internal-use software development costs related to our cloud-based offerings is amortized using the straight line method over the useful life of the asset. For the three and six months ended June 30, 2013, the Company amortized $0.1 million and $0.2 million, respectively, of capitalized internal-use software development costs related to its cloud-based offerings. Capitalized software for internal use is included in property and equipment, net in the unaudited condensed consolidated balance sheets. Amortization of capitalized internal-use software development costs related to the Company's cloud-based offerings is included in cost of license and implementation revenues in the accompanying unaudited condensed consolidated statements of comprehensive income. Nonc |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncash share-based compensation | Noncash share-based compensation The Company measures all share-based payments to its employees based on the grant date fair value of the awards and recognizes expense in the Company’s unaudited consolidated statement of comprehensive income on a straight-line basis over the period during which the recipient is required to perform service (generally over the vesting period of the awards). To date, the Company has granted Stock Options, Restricted Stock Units (“RSUs”), Stock Appreciation Rights (“SARs”), and Market Stock Units (“MSUs”). The MSUs are performance-based awards where the number of shares that vest are based upon the Company’s relative shareholder return. The following table presents the number of shares or units outstanding for each award type as of June 30, 2013 and December 31, 2012, respectively.
Stock options, RSUs and SARs vest ratably between three and four years. The actual number of MSUs that will be eligible to vest is based on the total shareholder return of the Company relative to the total shareholder return of the Russell 2000 Index (“Index”) over the Performance Period, as defined by each awards plan documents. The fair value of the RSUs is based on the closing price of the Company’s stock on the date of grant. The Company estimates the fair value of MSUs on the date of grant using a Monte Carlo simulation model. The determination of fair value of the MSUs is affected by the Company’s stock price and a number of assumptions including the expected volatilities of the Company’s stock and the Index, its risk-free interest rate and expected dividends. The Company’s expected volatility at the date of grant was based on the historical volatilities of the Company and the Index over the Performance Period. The assumptions used to value the MSUs granted during the six months ended June 30, 2013 were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per share | Earnings per share The Company computes basic earnings per share by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and dilutive potential common shares then outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and SARs or the vesting of share-based awards. Diluted earnings per share reflect the assumed conversion of all dilutive share-based awards using the treasury stock method. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value measurement | . Fair value measurement The Company’s financial assets that are measured at fair value on a recurring basis consisted of $58.0 million invested in treasury money market funds at both June 30, 2013 and December 31, 2012, respectively. The fair value of these accounts is determined based on quoted market prices, which represents level 1 in the fair value hierarchy as defined by ASC 820, “Fair Value Measurement and Disclosure. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | Income taxes At the end of each interim reporting period, the Company estimates its annual effective tax rate to calculate its income tax provision. The estimated effective tax rate includes U.S. federal, state and foreign income taxes and is based on the application of an estimated annual income tax rate applied to the current quarter’s year-to-date pre-tax income. This estimated effective tax rate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim reporting periods. In January 2013, Congress passed the American Taxpayer Relief Act of 2012 which included, among other legislation, the retroactive extension of the Research and Experimentations ("R&E") tax credit. The passage of this legislation made the R&E tax credit retroactive to January 1, 2012 and extended the R&E tax credit until December 31, 2013. The effective tax rate for the three months ended June 30, 2013 and 2012 was 11% and 46%, respectively. The effective tax rate (benefit) for the six months ended June 30, 2013 and 2012 was (87)% and 45%, respectively. The decrease in the effective tax rate in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 is primarily due to the application of the 2013 R&E tax credit partially offset by a rate increase attributed to an increase in non-deductible share-based compensation expense. The difference between the effective tax rate for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 is primarily due to the application of the 2013 R&E tax credit, a discrete benefit attributed to the 2012 R&E tax credit recorded in the first quarter of 2013, partially offset by a rate increase attributed to an increase in non-deductible share-based compensation expense. The difference between the effective tax rate and the federal statutory rate of 34% for the three months ended June 30, 2013 was due primarily to the 2013 R&E tax credit, partially offset by a rate increase attributable to nondeductible share-based compensation expense. The difference between the effective tax rate and the federal statutory rate of 34% for the six months ended June 30, 2013 was due primarily to rate decreases from the 2013 R&E tax credit and a discrete benefit attributed to the 2012 R&E tax credit, partially offset by a rate increase attributable to nondeductible share-based compensation expense. |
Earnings per Share (Details)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive potential common shares excluded from computation of earnings per share | 3,400 | 722,200 | 2,300 | 528,400 |
1%]7.2S?$0SMCK+TU6FR`?QTFV;=3K\#IY:;PZ'O"+T_@:AP4W;>#4:Y
MM\[?)O0*T/84W@B%3TUJT_I?XN)W8P?E3R:#X4G!W.CA.,F2LK*#=6GV%OO>
M!'\4I'OZ?W?Z3SOZ8DH3%X,+&*``8L8TGUB$]X2_%^&G/=T#Q#W%+<7W98=M
M*3N\KKK?ON;P:FW@*ZLY[#)O]P6''[O@L,O '1>DDU]&3E30F6\?@I@66F#V%JA\N
M[KK-C@XLE":.(TD5'/(839"K3WH,">VR=539BB(J!;I'S[M%W+M^=RE'*4V5
MT8H0F]B$"T.8C0]\'-$)7C>%H!R%.;PO&SV5 DV*BZUBS<>CY1F@$&+FZB_2F$0W;)D]0['9GU<&.@0$,# &@Y
M0W;UV>UOKI.===ZG%P4GKHOO0,FY;]\>?D/OT"*G;])545XYQW;Q'SRVS.F:
MYK1M )\@8AZOWU/-^E,HUS6C@[.`&HRRG&`<
M026&@(.GC3&.`3+*'Y,07`R;3+/B@%LT@`)@FB_Y7?M*5-%\S![Y+H6Y:>@@
MAV)$_8`E!/O;78K'8B#'`#\^#[OLE+*$5F!2@2(F2R<&P5(B$FF LM+VIB>=!PP(SNV>OY8[LCSQ[SZBS2XW:UKV."\J'[/MRVY
M#W!L>=#.PBA+D!4[*$;1F'("!W%5W])ER[!^CQ#!$\,(GCJ08,-0WH"&5*`GK(7CZX./J>D5$]KE,LL_KIB:8=E5AZ^D;CK=8%FL.4_\L'[,%B7V
M>=5=>7^R1OQ+#?*Z)BS-/76/(.N7@5)<1.9@\\R00V<<%C#,T.I.:::YBMZ[
MN-F055-\)>]WM#61+_GW6YK+DI(-:EJ:_#[M2=6UZOK>]L+4MZ($9QY"@46'
M-6$P(K"PG8F,'32:-9QH#DCI*\J@@B;_#BK^^BHFB.;KZ<_$L5BV.=+;HP04
M)F`X;\`1*3A"G?H^1VX.+W37#01B(7US$YZ]O@+2%'F*$GE+&$?%MNB,4Z4F
ME.M^*-#2F#R_^,?W3NIG09B%/D(X"&PW=?%A,@C'::"NG7KQ&!;5`1RH1W1&
MQ%5SB%14=[[H:))C\-*#;B0P1O'@Q>L?+4*LA:@75G$S@5VTO!MRF4OW3=+-
MG1"2XVY==K2CI0)XV!_ZQ*H#_=V/4&W/#EP4!RG,,B^(?1A3#./FI"@3$GU=
M-DWO&3K9R#SB!"/0;A;V`%50XK61SB?C<_`MN)U(!]5&=)B3NPM:JYO]A>BI
M=K=*LXU68'H:4B/KTPHB_9FF(/1A9,&0VO/B(,.11148.;[M9U9(C?+.2$L^
MWK#:]:A.B^)('+649>[Z//,$I(E)UJQ\\<\>3\";^G'3O.>R/.&2'30B^>H1
MU*R[F8R`_.?[(/SK(4M'2>^B"N2&(:7]?JL,R=!\?M;NC-44D^>8..U;2Q%(VL+%,\B!UW
MCHPE/%G!/X)_!/\(_FDM?03_'","1D[=8OI7%/(\6=XZ=3",>9KK]N+V7=R<
M`T1NU\Y.6\CZJ2GJ;>73MR9(O)U8G(EKI9:FJ$>G5ULXA[VW>]]>$74X?+A&
MZ#&AQS932Y'DH].K+9PC])C08^WA1J''=J&6:>I'IU=;.$?H,:''VL.-0H_M
M0BU=66[^(?38?GKL[/<6[WB7BMEZ\G!^MW&?8"UN=UW,28=ZVL(XA[8@A*%P
MQO+48,A!R).0IP\O3PVZOD*>A#Q]>'EJT`7[*/(DRG76$/;W(67]HY*'<7>O
M7!3J'#T*UQ[6:QWA!,<)CA,<=Q*$:PVQ!,>=`\>],YA^^FFGMS2.`;(N&@39
M7[3@EP\T`?LNYJFH06\0)5%>9+Q1]"$\K9/SI'"7*,L=WO=4:6WA`Q%[:$_L
MX>0D0N[J2FW1.B$10B).7B*TKJ290B*$1`B)F%A-IE1;QL%'D0A1#K>.LC
++HZ-1SK[,WB]8O&F4
MO5;`#FCQF/9V=0.VK":;EYZ-BPY?VR?KCF%*V%<-GVBN@4W+(;+JEPND9&FJ
M:1]\W:E3#RYI/>42S2F^6Z'XZE1\_32.TV?.]UQD
3]:KI,LKI(L@;V$>IY"1-YDUOSD4@:7!O
M_D/;?,[CAM*W2[`5EF<^OLIQTTTPH'`7]UL"_G#9+-,`E-0>TMW`D:'
O.
M%;`I4;X@FWRIC0W21IC&.G'\U6VI$U]WTN"'E//FK3IMUU1M[=26'=V]:.]Y
MV3GT1+;:FJK5-9%?FCU]IG9AK3OH.XTTBQ4/_'821`K]03V>YRL>C\&A3%*%
M1&@[1.>+?U'A=+Z*M2`Q=+NM`+J74A31)A+Q\W\[V!97E:W__-0?XW43K>3.?[CY1R./PJOVCQE2CY=(0BEC!8`4H@H
M(E)ZARDFCG+I&/3PK%MWL?%$H3AF,7Y5)B@%!>7."$0\),Q1['73:\MYIC-Z
M&3MQ*<#K,H/OV3C-^/"A.3E_NTM?+,G@V4):"Y!>7XJ>2=%
M6@2!]0K%/9
?ML537U[]]NPJ9+=3!Q$C@T]E%DXMI/4M4:CGN]R[6C48\FP4!_!
M@9JA`RV#-W&WZ")#%SI#>IA=2!=(DS.EB<8G^&YUIN!^7Y%5/QR]+?Y\;.H[
M>'LW&'93STU3[-+19N8Y86+;5CP:QDDB-`!4MV9ZGW#W8N4G"$'509SX-;M*
MU(5731_)"WG=-#I4FFJ/*J.,#\?+L%$&??J*AV&6(BO%GALYH[7(M;@J>"F:
MF&:T<=KCD]SQK4*CQ+###(-20X^9R5,8@Y@A46X<(DVFU-#BPY5][1JH6N(0
M0\*+2\,,65+XCE*Q`6=W?(O-.Y%AN-EA^+7L=CF1]:]MEQ7BV(JQXUMT5!-$
M&;:@"Y/1NN]FW#JMT>3DNGT#>F0BAW0T,GQ=PF