Attached files
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-51461
Unica Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
04-3174345 (I.R.S. Employer Identification No.) |
170 Tracer Lane
Waltham, Massachusetts 02451-1379
(Address of principal executive offices)
(Address of principal executive offices)
(781) 839-8000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of the registrants common stock outstanding as of May 3, 2010 was
21,409,000.
UNICA CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2010
Table of Contents
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2010
Table of Contents
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PART I Financial Information
Item 1. Financial Statements
UNICA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(In thousands, except share and per share data)
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 39,215 | $ | 50,314 | ||||
Accounts receivable, net of allowance for doubtful
accounts of $350 and $361, respectively |
20,359 | 16,514 | ||||||
Prepaid expenses and other current assets |
5,814 | 4,731 | ||||||
Total current assets |
65,388 | 71,559 | ||||||
Property and equipment, net |
6,562 | 5,221 | ||||||
Acquired intangible assets, net |
11,378 | 4,515 | ||||||
Goodwill |
21,036 | 10,943 | ||||||
Deferred tax assets, long-term, net of valuation allowance |
905 | 894 | ||||||
Other assets |
843 | 749 | ||||||
Total assets |
$ | 106,112 | $ | 93,881 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 737 | $ | 1,332 | ||||
Accrued expenses |
11,599 | 13,080 | ||||||
Deferred revenue |
42,677 | 35,069 | ||||||
Total current liabilities |
55,013 | 49,481 | ||||||
Long-term deferred revenue |
3,399 | 1,250 | ||||||
Other long-term liabilities |
337 | 337 | ||||||
Total liabilities |
58,749 | 51,068 | ||||||
Commitments, contingencies, and guarantees (Note 12) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value: |
||||||||
Authorized 90,000,000 shares; 21,710,000 shares
issued and 21,294,000 shares outstanding at March
31, 2010; 21,254,632 shares issued and 20,758,131
shares outstanding at September 30, 2009 |
217 | 213 | ||||||
Additional paid-in capital |
75,681 | 73,267 | ||||||
Accumulated deficit |
(27,077 | ) | (29,209 | ) | ||||
Treasury stock, at cost |
(1,920 | ) | (1,920 | ) | ||||
Accumulated other comprehensive income |
462 | 462 | ||||||
Total stockholders equity |
47,363 | 42,813 | ||||||
Total liabilities and stockholders equity |
$ | 106,112 | $ | 93,881 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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UNICA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(In thousands, except share and per share data)
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
License |
$ | 7,693 | $ | 4,205 | $ | 13,180 | $ | 10,665 | ||||||||
Maintenance and services |
14,678 | 14,628 | 29,083 | 29,984 | ||||||||||||
Subscription |
6,579 | 4,423 | 11,815 | 8,701 | ||||||||||||
Total revenue |
28,950 | 23,256 | 54,078 | 49,350 | ||||||||||||
Costs of revenue: |
||||||||||||||||
License |
592 | 505 | 1,114 | 1,141 | ||||||||||||
Maintenance and services |
4,818 | 4,483 | 9,088 | 9,704 | ||||||||||||
Subscription |
2,260 | 1,037 | 4,225 | 2,050 | ||||||||||||
Total cost of revenue |
7,670 | 6,025 | 14,427 | 12,895 | ||||||||||||
Gross profit |
21,280 | 17,231 | 39,651 | 36,455 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
9,856 | 9,919 | 18,674 | 20,941 | ||||||||||||
Research and development |
5,083 | 4,970 | 9,152 | 10,416 | ||||||||||||
General and administrative |
4,469 | 3,932 | 8,723 | 7,889 | ||||||||||||
Restructuring charges (credits) |
(15 | ) | (6 | ) | 16 | 748 | ||||||||||
Goodwill impairment charge |
| 15,266 | | 15,266 | ||||||||||||
Amortization of acquired intangible assets |
258 | 450 | 381 | 935 | ||||||||||||
Transaction fees |
150 | | 297 | | ||||||||||||
Total operating expenses |
19,801 | 34,531 | 37,243 | 56,195 | ||||||||||||
Income (loss) from operations |
1,479 | (17,300 | ) | 2,408 | (19,740 | ) | ||||||||||
Other income (loss): |
||||||||||||||||
Interest income, net |
80 | 160 | 167 | 400 | ||||||||||||
Other expense, net |
(626 | ) | (483 | ) | (696 | ) | (1,600 | ) | ||||||||
Total other income (loss) |
(546 | ) | (323 | ) | (529 | ) | (1,200 | ) | ||||||||
Income (loss) before income taxes |
933 | (17,623 | ) | 1,879 | (20,940 | ) | ||||||||||
Provision for (benefit from) income taxes |
565 | (1,492 | ) | (253 | ) | (711 | ) | |||||||||
Net income (loss) |
$ | 368 | $ | (16,131 | ) | $ | 2,132 | $ | (20,229 | ) | ||||||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | 0.02 | $ | (0.77 | ) | $ | 0.10 | $ | (0.97 | ) | ||||||
Diluted |
$ | 0.02 | $ | (0.77 | ) | $ | 0.10 | $ | (0.97 | ) | ||||||
Shares used in computing net income (loss)
per common share: |
||||||||||||||||
Basic |
21,174,000 | 20,841,000 | 21,045,000 | 20,886,000 | ||||||||||||
Diluted |
22,054,000 | 20,841,000 | 21,950,000 | 20,886,000 | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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UNICA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(In thousands)
Six Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 2,132 | $ | (20,229 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
1,553 | 1,385 | ||||||
Amortization of capitalized software development costs |
86 | 86 | ||||||
Amortization of acquired intangible assets |
903 | 1,474 | ||||||
Goodwill impairment charge |
| 15,266 | ||||||
Provision for bad debt |
89 | 149 | ||||||
Share-based compensation expense |
2,230 | 2,637 | ||||||
Foreign currency translation loss |
241 | 153 | ||||||
Provision for (benefit from) deferred income taxes |
(23 | ) | (1,435 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(3,634 | ) | 1,631 | |||||
Prepaid expenses and other current assets |
(336 | ) | 2,456 | |||||
Other assets |
(125 | ) | (110 | ) | ||||
Accounts payable |
(556 | ) | (1,344 | ) | ||||
Accrued expenses |
(1,284 | ) | (2,253 | ) | ||||
Deferred revenue |
9,871 | 452 | ||||||
Net cash provided by operating activities |
11,147 | 318 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(2,486 | ) | (900 | ) | ||||
Cash collected from license acquired in acquisition |
72 | 77 | ||||||
Capitalization of software development costs |
(355 | ) | (425 | ) | ||||
Cash paid for acquisitions, net of cash acquired |
(19,181 | ) | | |||||
Proceeds from sales and maturities of investments |
| 11,310 | ||||||
Purchases of investments |
| (898 | ) | |||||
Increase in restricted cash |
(106 | ) | (69 | ) | ||||
Net cash provided by (used in) investing activities |
(22,056 | ) | 9,095 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock under stock option and employee stock purchase
plans |
904 | 355 | ||||||
Purchases of treasury shares |
| (912 | ) | |||||
Payment of withholding taxes in connection with settlement of restricted stock units |
(771 | ) | (230 | ) | ||||
Net cash (used in) financing activities |
133 | (787 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
(323 | ) | (808 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(11,099 | ) | 7,818 | |||||
Cash and cash equivalents at beginning of period |
50,314 | 35,799 | ||||||
Cash and cash equivalents at end of period |
$ | 39,215 | $ | 43,617 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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UNICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(In thousands, except share and per share data)
UNAUDITED
(In thousands, except share and per share data)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements include all
adjustments, consisting of normal recurring items, to fairly present the results of the interim
periods in accordance with the rules and regulations of the Securities and Exchange Commission
(SEC) regarding interim financial reporting. Certain information and footnote disclosures normally
included in financial statements, prepared in accordance with U.S. generally accepted accounting
principles (GAAP), have been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures are adequate to ensure the information presented is not
misleading. These condensed financial statements should be read in conjunction with the audited
consolidated financial statements and related notes, together with managements discussion and
analysis of financial condition and results of operations, contained in the Companys Annual Report
on Form 10-K for the fiscal year ended September 30, 2009, and current reports on Form 8-K filed
with the Securities and Exchange Commission. The interim period results are not necessarily
indicative of the results to be expected for any subsequent interim period or for the full year.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments, which included accounts
receivable, accounts payable and accrued expenses, approximated their fair values at March 31, 2010
and September 30, 2009, due to the short-term nature of these instruments.
2. Revenue Recognition
The Company sells its software products and services together in a multiple-element
arrangement under perpetual and subscription agreements. The Company uses the residual method to
recognize revenues from perpetual license arrangements that include one or more elements to be
delivered at a future date, when evidence of the fair value of all undelivered elements exists.
Under the residual method, the fair value of the undelivered elements based on VSOE is deferred and
the remaining portion of the arrangement fee is allocated to the delivered elements. Each license
arrangement requires that the Company analyze the individual elements in the transaction and
determine the fair value of each undelivered element, which typically includes maintenance and
services. Revenue is allocated to each undelivered element based on its fair value, with the fair
value determined by the price charged when that element is sold separately.
For perpetual license agreements, the Company generally estimates the fair value of the
maintenance portion of an arrangement based on the maintenance renewal price for that arrangement.
In multiple-element perpetual license arrangements where maintenance is sold for less than fair
value, the Company defers the contractual price of the maintenance plus the difference between such
contractual price and the fair value of maintenance over the expected life of the product. A
corresponding reduction in license revenue is made. The fair value of the professional services
portion of perpetual license arrangements is based on the rates that are charged for these services
when sold separately. If, in the Companys judgment, evidence of fair value cannot be established
for the undelivered elements in a multiple-element arrangement, the entire amount of revenue from
the arrangement is deferred until evidence of fair value can be established, or until the elements
for which evidence of fair value could not be established are delivered.
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Revenue for implementation services of perpetual software products that are not deemed
essential to the functionality of the software products is recognized separately from license and
subscription revenue. Generally these services are priced on a time-and-materials basis and
recognized as revenue when services are performed; however, in certain circumstances these services
may be priced on a fixed-fee basis and recognized as revenue under the proportional performance
method. In cases where VSOE of fair value does not exist for the undelivered elements in a
software license arrangement, services revenue is deferred and recognized over the period of
performance of the final undelivered element. The Company also defers the direct and incremental
costs of providing the services and amortizes those costs over the period revenue is recognized.
If the Company were to determine that services are essential to the functionality of software
in an arrangement, the license or subscription and services revenue from the arrangement would be
recognized pursuant to the accounting for performance of construction-type contracts. In such
cases, it is expected that the Company would be able to make reasonably dependable estimates
relative to the extent of progress toward completion by comparing the total hours incurred to the
estimated total hours for the arrangement and, accordingly, would apply the
percentage-of-completion method. If the Company were unable to make reasonably dependable estimates
of progress towards completion, then it would use the completed-contract method, under which
revenue is recognized only upon completion of the services. If total cost estimates exceed the
anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the
arrangement or at the time the loss becomes apparent.
The Company generally enters into subscription arrangements for term licenses that
include, on a bundled basis, (a) the right to use its software for a specified period of time, (b)
updates and upgrades to its software on a when and if available basis, and (c) technical support.
In subscription arrangements for term licenses, where services are not deemed essential to the
functionality of the software products, and fair value has not been established for the
subscription element, revenue for both the subscription and services is recognized ratably over the
term of the arrangement, once all services have commenced.
Subscription arrangements for on-demand services generally include: (a) a subscription fee for
hosted services and technical support and (b) optional professional services for consulting,
training and other services. Revenue related to subscription fees for on-demand services is
recognized ratably over the term of the arrangement commencing at the point when the end-user is
provided access to the underlying software. Revenue related to professional services is recognized
ratably over the term of the arrangement commencing at the point when such services are delivered,
provided that the end-user is given access to the underlying software.
For all of our software arrangements, the Company does not recognize revenue until it can
determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable and collection is considered probable. In making these judgments, the Company
evaluates these criteria as follows:
| Evidence of an arrangement. For the majority of its arrangements, the Company considers a non-cancelable agreement to be persuasive evidence of an arrangement. In transactions below a certain dollar threshold involving the sale of our Unica NetInsight product, the Company considers a purchase order signed by the customer to be persuasive evidence of an arrangement. | ||
| Delivery. The Company considers delivery to have occurred when a CD or other medium containing the licensed software is provided to a common carrier or, in the case of electronic delivery, the customer is given electronic access to the licensed software. The Companys typical end-user license agreement does not include customer acceptance provisions. | ||
| Fixed or determinable fee. The Company considers the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our normal payment terms. If the fee is subject to refund or adjustment, the Company recognizes revenue when the refund or adjustment right lapses. If the payments are due beyond the Companys normal terms, it recognizes the revenue as amounts become due and payable or as cash is collected. |
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| Collection is deemed probable. Customers are evaluated for creditworthiness through the Companys credit review process at the inception of the arrangement. Collection is deemed probable if, based upon our evaluation, the Company expects that the customer will be able to pay amounts under the arrangement as payments become due. If the Company cannot conclude that collection is probable, it defers the revenue, and recognizes the revenue upon cash collection. |
When we license our software through an MSP or systems integrator, we begin to recognize
revenue upon delivery of the licensed software to the MSP or systems integrator only if (a) the
customer of the MSP or systems integrator is identified in a written arrangement between us and the
MSP or systems integrator and (b) all other revenue recognition criteria have been met.
In agreements with customers and MSPs, the Company provides a limited warranty that its
software will perform in a manner consistent with our documentation under normal use and
circumstances. In the event of a breach of this limited warranty, the Company must repair or
replace the software or, if those remedies are insufficient, provide a refund. These agreements
generally do not include any other right of return or any cancellation clause or conditions of
acceptance.
3. Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with original maturities of 90
days or less to be cash equivalents. The Company invests the majority of its excess cash in
overnight investments and money market funds of accredited financial institutions.
The Company considers all highly liquid investments with maturities of between 91 and 365 days
as of the balance sheet date to be short-term investments, and investments with maturities greater
than 365 days as of the balance sheet date to be long-term investments. Unrealized gains (losses)
on available-for-sale securities are recorded in accumulated other comprehensive income (loss)
within stockholders equity.
The Company did not hold any investments as of March 31, 2010 and September 30, 2009.
Effective October 1, 2008, the Company adopted an accounting pronouncement which establishes a
framework for measuring fair value and requires enhanced disclosures about fair value measurements.
The pronouncement clarifies that fair value is an exchange price, representing the amount that
would be received in an orderly transaction between market participants, upon the sale of an asset
or a payment to transfer a liability (an exit price) in the principal or most advantageous market
for such asset or liability. The adoption of this accounting pronouncement did not have a material
effect on the Companys consolidated financial statements for financial and non-financial assets
and liabilities carried at fair value.
Valuation techniques used to measure fair value are required to maximize the use of observable
inputs and minimize the use of unobservable inputs. The accounting guidance for fair value
accounting describes a fair value hierarchy based on three levels of inputs, of which the first two
are considered observable and the last unobservable, that may be used to measure fair value:
Level 1
|
- | Quoted prices in active markets for identical assets or liabilities. | |||
Level 2
|
- | Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. | |||
Level 3
|
- | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques. |
The Company uses the market approach to measure the fair value of its financial assets by
obtaining prices and other relevant information generated by market transactions involving
identical or comparable assets. The following
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table details the fair value measurements within the
fair value hierarchy of the Companys financial assets, including investments and cash equivalents,
at March 31, 2010:
Fair Value Measurements | ||||||||||||||||
at Reporting Date Using | ||||||||||||||||
Total Fair Value at | ||||||||||||||||
March 31, 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||
Money market funds |
$ | 19,443 | $ | 19,443 | $ | | $ | | ||||||||
Fair Value Measurements | ||||||||||||||||
at Reporting Date Using | ||||||||||||||||
Total Fair Value at | ||||||||||||||||
September 30, 2009 | Level 1 | Level 2 | Level 3 | |||||||||||||
Money market funds |
$ | 37,444 | $ | 37,444 | $ | | $ | | ||||||||
Money market funds are included in cash & cash equivalents and are quoted at market equivalent
rates.
4. Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner sources. Other than
reported net income (loss), comprehensive income (loss) includes foreign currency translation
adjustments and unrealized gains and losses on available-for-sale investments.
The following table presents the calculation of comprehensive income (loss):
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 368 | $ | (16,131 | ) | $ | 2,132 | $ | (20,229 | ) | ||||||
Other comprehensive income (loss), net of tax effects: |
||||||||||||||||
Change in unrealized gain on investments, net of tax |
| (21 | ) | | 48 | |||||||||||
Foreign currency translation adjustments |
| (134 | ) | | (188 | ) | ||||||||||
Other comprehensive income (loss) |
| (155 | ) | | (140 | ) | ||||||||||
Comprehensive income (loss) |
$ | 368 | $ | (16,286 | ) | $ | 2,132 | $ | (20,369 | ) | ||||||
5. Net Income (Loss) Per Common Share
Basic earnings per share is calculated by dividing net income (loss) by the weighted average
number of shares outstanding during the period. Diluted net income (loss) per common share gives
effect to all dilutive securities, including stock options and restricted stock units using the
treasury stock method. For the three and six months ended March 31, 2010 and 2009, the Company had
only one class of security, common stock, outstanding.
The following table presents the calculation of basic and diluted net income (loss) per common
share:
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 368 | $ | (16,131 | ) | $ | 2,132 | $ | (20,229 | ) | ||||||
Weighted-average shares of common stock outstanding |
21,174,000 | 20,841,000 | 21,045,000 | 20,886,000 | ||||||||||||
Dilutive effect of common stock equivalents |
880,000 | | 905,000 | | ||||||||||||
Weighted-average shares used in computing diluted
net loss per common share |
22,054,000 | 20,841,000 | 21,950,000 | 20,886,000 | ||||||||||||
Basic net income (loss) per common share |
$ | 0.02 | (0.77 | ) | $ | 0.10 | (0.97 | ) | ||||||||
Diluted net income (loss) per common share |
$ | 0.02 | $ | (0.77 | ) | $ | 0.10 | $ | (0.97 | ) |
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Weighted-average common stock equivalents of 1,160,000 and 4,481,000 were excluded from the
calculation of diluted net income (loss) per common share for the three months ended March 31, 2010
and 2009, respectively, as their inclusion would be anti-dilutive. Weighted-average common stock
equivalents of 1,054,000 and 4,167,000 were excluded from the calculation of diluted net income
(loss) per common share for the six months ended March 31, 2010 and 2009, respectively, as their
inclusion would be anti-dilutive.
6. Acquisitions
Pivotal Veracity acquisition
On January 12, 2010, the Company acquired 100 percent of the equity in privately-held Pivotal
Veracity, LLC (Pivotal Veracity), a provider of tools that enable companies to optimize the
deliverability and reputation of their digital communications, for approximately $17,800 in cash.
The acquisition of Pivotal Veracity provides expansion to the Companys e-mail marketing
capabilities. This acquisition was accounted for as a purchase transaction and the results of
operations for the Company include the results of Pivotal Veracity beginning on the date of
acquisition. The following table summarizes the allocation of the purchase price for the
acquisition:
(in thousands)
Cash |
$ | 369 | ||
Purchased receivables |
1,039 | |||
Definite-lived intangibles |
6,813 | |||
Goodwill |
9,582 | |||
Total Assets |
$ | 17,803 | ||
Liabilities |
||||
Current liabilities |
3 | |||
Total Liabilities |
$ | 3 | ||
Net assets acquired |
$ | 17,800 | ||
The portion of the Pivotal Veracity purchase price allocated to intangible assets including
trade name, technology, customer relationships, and non-competition agreements was determined by
the Company. Goodwill of $9,582 is primarily attributable to the workforce of the acquired
business and the significant synergies expected to arise after the Companys acquisition of Pivotal
Veracity. The goodwill is expected to be deductible for tax purposes. The following are the
identifiable intangible assets acquired and their respective weighted average useful lives (table
in thousands, except for years):
Amount | Average Life | |||||||
(in years) | ||||||||
Trade name |
$ | 55 | 2 | |||||
Technology |
1,686 | 8 | ||||||
Customer relationships |
4,943 | 15 | ||||||
Non-competition agreements |
129 | 5 | ||||||
$ | 6,813 | |||||||
The portion of the Pivotal Veracity purchase price allocated to purchased receivables reflects
the fair value of future amounts due under customer contracts in effect as of the acquisition date
less the fair value of Unicas
obligation to perform on such contracts.
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For the three months ended March 31, 2010, the condensed consolidated results of the Company
include $578 of revenue attributable to the acquisition of Pivotal Veracity.
MakeMeTop acquisition
On February 1, 2010, the Company acquired certain assets and customer contracts of the
MakeMeTop business from Microchannel Ltd., a privately-held UK-based company, for $1,750 in cash.
The MakeMeTop products allow online marketers to automate and optimize their keyword buys across
search engines while also managing their bidding and reporting across multiple currencies and
languages. The acquisition of MakeMeTop provides the expansion of the Companys online and
interactive marketing solutions to allow better optimization of customer placement in search
engines globally. This acquisition was accounted for as a purchase transaction and the results of
operations of the Company include the results of MakeMeTop beginning on the date of acquisition.
The acquisition consisted of $1,025 in intangible assets and $725 in goodwill resulting in net
assets acquired of $1,750.
The portion of the MakeMeTop purchase price allocated to intangibles including customer
relationships, technology, and non-compete agreements was determined by the Company. The goodwill
is attributable to the workforce of the acquired business and the significant synergies expected to
arise after the Companys acquisition of MakeMeTop. The goodwill is expected to be deductible for
tax purposes. The following are the identifiable intangible assets acquired and their respective
weighted average useful lives (table in thousands, except for years):
Amount | Average Life | |||||||
(in years) | ||||||||
Customer Relationships |
$ | 440 | 10 | |||||
Non-Compete Agreements |
52 | 4 | ||||||
Technology |
533 | 8 | ||||||
$ | 1,025 | |||||||
For the three months ended March 31, 2010, revenue attributable to the acquisition of
MakeMeTop is immaterial to the condensed consolidated results of the Company.
Pro Forma Results (unaudited)
The
unaudited pro forma combined condensed results of the Company, giving
effect to the acquisitions of Pivotal Veracity and MakeMeTop as if
the acquisitions had occurred as of the beginning of each period
presented, are not materially different from the as reported results
of Unica Corporation for the periods presented in this Report on Form
10-Q.
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7. Goodwill and Acquired Intangible Assets
The Company tests goodwill for impairment annually and whenever events or changes in
circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company
determines fair value using the income approach as well as the market approach, and applies a
weighting to the result of each approach. The income approach is based upon discounted cash flows
estimated by management for each reporting unit, while the market approach uses trading and
transaction multiples, for companies considered comparable to Unica, to estimate fair value.
Reporting units are organized by operations with similar economic characteristics for which
discrete financial information is available and regularly reviewed by management.
Unless changes in events or circumstances indicate that an impairment test is required, the
Company will continue to test goodwill for impairment on an annual basis. Conditions that could
trigger a more frequent impairment assessment include, but are not limited to, a significant
adverse change in certain agreements, significant underperformance relative to historical or
projected future operating results, an economic downturn in customers industries, increased
competition, a significant reduction in the Companys stock price for a sustained period, or a
reduction of the Companys market capitalization relative to net book value. There was no
indication of impairment of goodwill during the six months ended March 31, 2010.
Intangible assets acquired in the Companys acquisitions include goodwill, developed
technology and customer contracts and related customer relationships, license agreement, trade name
and non-compete agreements. All of the Companys acquired intangible assets, except goodwill, are
subject to amortization over their estimated useful lives. A portion of the goodwill and acquired
intangible assets is recorded in the accounts of a French subsidiary of the Company and, as such,
is subject to translation at the currency exchange rates in effect at the balance sheet date. The
components of acquired intangible assets, excluding goodwill were as follows:
Range of | Gross | |||||||||||||||
Useful Lives | Carrying | Accumulated | Net Book | |||||||||||||
In Years | Value | Amortization | Value | |||||||||||||
As of March 31, 2010: |
||||||||||||||||
Developed technology |
1-8 | $ | 8,918 | $ | (5,452 | ) | $ | 3,466 | ||||||||
Customer contracts and related customer relationships |
3-15 | 12,939 | (6,187 | ) | 6,752 | |||||||||||
License agreement |
14 | 1,360 | (420 | ) | 940 | |||||||||||
Trade name |
1-2 | 99 | (52 | ) | 47 | |||||||||||
Non-compete agreements |
3-5 | 181 | (8 | ) | 173 | |||||||||||
Total intangible assets |
$ | 23,497 | $ | (12,119 | ) | $ | 11,378 | |||||||||
As of September 30, 2009: |
||||||||||||||||
Developed technology |
1-8 | $ | 6,699 | $ | (4,931 | ) | $ | 1,768 | ||||||||
Customer contracts and related customer relationships |
3-14 | 7,556 | (5,821 | ) | 1,735 | |||||||||||
License agreement |
14 | 1,360 | (348 | ) | 1,012 | |||||||||||
Trade name |
1 | 44 | (44 | ) | | |||||||||||
Total intangible assets |
$ | 15,659 | $ | (11,144 | ) | $ | 4,515 | |||||||||
The following table describes changes to goodwill during the six months ended March 31, 2010:
Balance as of September 30, 2009 |
||||
Goodwill |
$ | 26,209 | ||
Goodwill related to acquisition of Pivotal Veracity |
9,582 | |||
Goodwill related to acquisition of MakeMeTop |
725 | |||
Accumulated impairment losses |
(15,266 | ) | ||
21,250 | ||||
Foreign currency translation adjustments |
(214 | ) | ||
Balance as of March 31, 2010 |
||||
Goodwill |
36,302 | |||
Accumulated impairment losses |
(15,266 | ) | ||
$ | 21,036 | |||
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The Company recorded amortization expense for acquired intangible assets of $551 and $902 for
the three and six months ended March 31, 2010, respectively, and $678 and $1,474 for the three and
six months ended March 31, 2009, respectively. Amortization of developed technology, included as a
component of cost of license revenue in the consolidated statements of operations, was $293 and
$521 for the three and six months ended March 31, 2010, respectively, and $228 and $540 for the
three and six months ended March 31, 2009.
Intangible assets are expected to be amortized over a weighted-average period of 4.66 years as
follows:
Year ending September 30, 2010 |
$ | 982 | ||
2011 |
2,013 | |||
2012 |
1,843 | |||
2013 |
1,604 | |||
2014 |
1,394 | |||
2015 and thereafter |
3,542 | |||
Total expected amortization |
$ | 11,378 | ||
8. Software Development Costs
The Company evaluates whether to capitalize or expense development costs of computer software
to be sold in accordance with established accounting standards. The Company sells products in a
market that is subject to rapid technological change, new product development and changing customer
needs. Accordingly, the Company has concluded that technological feasibility is not established
until the development stage of the product is nearly complete. The Company has defined
technological feasibility as the completion of a working model. During the three months ended March
31, 2010 and 2009, $50 and $42, respectively, of software development costs were capitalized.
During the six months ended March 31, 2010 and 2009, $50 and $146, respectively, of software
development costs were capitalized. Amortization expense during the three months ended March 31,
2010 and 2009 was $43 and $49, respectively. Amortization expense during the six months ended March
31, 2010 and 2009 was $86 and $86, respectively. The net book value of software development costs
was $160 and $196 at March 31, 2010 and September 30, 2009, respectively.
The Company capitalizes certain costs of software developed or obtained for internal use. The
costs incurred in the preliminary stages of development are expensed as incurred. Once an
application has reached the development stage, internal and external costs, if direct and
incremental, will be capitalized until the software is substantially complete and ready for its
intended use. Capitalization ceases upon completion of all substantial testing. The Company also
capitalizes costs related to specific upgrades and enhancements when it is probable the
expenditures will result in additional functionality. Maintenance and training costs are expensed
as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful
life, beginning when the software is ready for its intended use. Management evaluates the useful
lives of these assets on an annual basis and tests for impairments whenever events or changes in
circumstances occur that could impact the recoverability of these assets. During the three months
ended March 31, 2010 and 2009, $175 and $140, respectively, of internal-use software costs were
capitalized. During the six months ended March 31, 2010 and 2009, $357 and $321, respectively, of
internal-use software costs were capitalized. Amortization expense during the three months ended
March 31, 2010 and 2009 was $67 and $0, respectively. Amortization expense during the six months
ended March 31, 2010 and 2009 was $133 and $0, respectively. The net book value of internal-use
software costs was $1,108 and $884 at March 31, 2010 and September 30, 2009, respectively.
9. Accounting for Share-Based Compensation
The Company recognizes compensation expense for stock option awards on a straight-line basis
over the requisite service period of the award. In addition, the benefits of tax deductions in
excess of recognized share-based compensation are reported as a financing activity rather than an
operating activity in the statement of cash flows.
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This requirement reduces net operating cash
flows and increases net financing cash flows, and only to the extent the benefit is realizable in
the current period.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. The assumptions used in the model and the resulting estimated fair value for
option grants during the applicable period were as follows:
Three Months ended | Six Months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Dividend yield |
| | | | ||||||||||||
Volatility |
64 | % | 58 | % | 64 | % | 58 | % | ||||||||
Risk-free interest rate |
1.38 | % | 1.50 | % | 1.23% to 1.38% | 1.11% to 1.53% | ||||||||||
Weighted-average expected option term (in years) |
4.1 | 4.1 | 4.1 | 4.1 | ||||||||||||
Weighted-average fair value per share of options granted |
$ | 3.91 | $ | 0.87 | $ | 3.41 | $ | 1.39 | ||||||||
Weighted-average fair value per share of restricted
stock awards granted |
$ | 8.57 | $ | 4.84 | $ | 6.95 | $ | 4.14 |
The fair value of employee stock purchase plan (ESPP) awards is estimated on the date of grant
using the Black- Scholes option pricing model. The assumptions used in the model and the resulting
estimated fair value grants during the applicable period are as follows:
Three Months ended | Six Months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Dividend yield |
| | | | ||||||||||||
Volatility |
49 | % | 50 | % | 49 | % | 50 | % | ||||||||
Risk-free interest rate |
0.18 | % | 0.46 | % | 0.26 | % | 2.00 | % | ||||||||
Weighted-average expected option term (in years) |
0.5 | 0.5 | 0.5 | 0.5 | ||||||||||||
Weighted-average fair value per share of options granted |
$ | 2.10 | $ | 2.23 | $ | 1.96 | $ | 2.33 |
The computation of expected volatility is based on a study of historical volatility rates of
comparable companies during a period comparable to the expected option term. The interest rate for
periods within the contractual life of the award is based on the U.S. Treasury risk-free interest
rate in effect at the time of grant. The computation of the expected option term is based on an
average of the vesting term and the maximum contractual life of the Companys stock options.
Computation of expected forfeitures is based on historical forfeiture rates of the Companys stock
options and restricted stock units. Share-based compensation charges will be adjusted in future
periods to reflect the results of actual forfeitures and vesting.
The weighted-average exercise price of the options granted under the stock option plans for
the three months ended March 31, 2010 and 2009 was $5.83 and $4.84, respectively, and for the six
months ended March 31, 2010 and 2009 was $6.81 and $4.43, respectively.
The components of share-based compensation expense were as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock options |
$ | 248 | $ | 500 | $ | 630 | $ | 1,025 | ||||||||
Restricted stock units |
831 | 830 | 1,502 | 1,520 | ||||||||||||
Employee stock purchase plan |
47 | 11 | 98 | 92 | ||||||||||||
Total share-based compensation |
$ | 1,126 | $ | 1,341 | $ | 2,230 | $ | 2,637 | ||||||||
Cost of revenue and operating expenses include share-based compensation expense as follows :
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cost of license revenue |
$ | 10 | $ | 13 | $ | 13 | $ | 30 | ||||||||
Cost of maintenance and services revenue |
331 | 258 | 578 | 475 | ||||||||||||
Sales and marketing expense |
240 | 519 | 556 | 1,042 | ||||||||||||
Research and development expense |
203 | 240 | 361 | 474 | ||||||||||||
General and administrative expense |
342 | 311 | 722 | 616 | ||||||||||||
Total share-based compensation expense |
$ | 1,126 | $ | 1,341 | $ | 2,230 | $ | 2,637 | ||||||||
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The Company expects to record the unamortized portion of share-based compensation expense for
existing stock options and restricted stock units outstanding at March 31, 2010, over a
weighted-average period of 2.01 years, as follows:
Year Ending September 30, | ||||
2010 (remainder) |
$ | 2,343 | ||
2011 |
3,690 | |||
2012 |
2,706 | |||
2013 |
1,787 | |||
2014 |
583 | |||
Total unamortized share-based compensation |
$ | 11,109 | ||
10. Equity Compensation Plans
Stock Options
In March 2005, the Board of Directors and stockholders approved the 2005 Stock Incentive Plan
(the 2005 Plan). The 2005 Plan provides that the options shall be exercisable over a period not to
exceed 10 years. The Board of Directors is responsible for the administration of the 2005 Plan and
determines the term of each option, the option exercise price, the number of shares for which each
option is exercisable, and the vesting period. Options generally vest over a period of four years.
The Company has reserved for issuance an aggregate of 1,500,000 shares of common stock under the
2005 Plan. In addition, a total of 367,000 shares then available under the 2003 stock option plan
(the 2003 Plan) became available for grant under the 2005 Plan. An additional 5,009,000 shares
were reserved under the 2005 Plan through October 1, 2009, in accordance with the provisions of the
Plan, which require an annual increase of shares reserved for issuance under the Plan equal to the
lesser of (a) 5,000,000 shares of common stock, (b) 5% of the outstanding shares of common stock as
of the opening of business on such date or (c) an amount determined by the Board of Directors.
The following is a summary of the Companys stock options activity, including related
disclosures, during the six months ended March 31, 2010.
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value(1) | |||||||||||||
Outstanding at September 30, 2009 |
2,463,000 | $ | 5.40 | |||||||||||||
Granted |
596,000 | 6.81 | ||||||||||||||
Exercised |
(134,000 | ) | 4.47 | |||||||||||||
Forfeited |
(208,000 | ) | 6.55 | |||||||||||||
Outstanding at March 31, 2010 |
2,717,000 | 5.67 | 4.41 yrs | $ | 9,276 | |||||||||||
Exercisable at March 31, 2010 |
1,310,000 | 5.63 | 4.32 yrs | $ | 8,707 | |||||||||||
Options at March 31, 2010 vested and expected to vest |
2,509,000 | 5.51 | 3.57 yrs | $ | 4,924 | |||||||||||
(1) | The aggregate intrinsic value was calculated based on the positive difference between the closing price of the Companys common stock on March 31, 2010, the last trading day of the period, of $8.89 per share, and the exercise price of the underlying options. The total intrinsic value of options exercised during the three and six months ended March 31, 2010 was $434 and $518, respectively. The total intrinsic value of options exercised during the three and six months ended March 31, 2009 was $10 and $24, respectively. |
Restricted Stock Units
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The Company issues restricted stock units (RSUs) as an additional form of equity
compensation to its employees and officers, pursuant to the Companys stockholder-approved 2005
Plan. RSUs are restricted stock awards that entitle the grantee to an issuance of stock upon
vesting. The fair value of the RSUs was calculated based upon the Companys closing stock price on
the date of grant, and the related share-based compensation expense is being recorded over the
vesting period. RSUs generally vest over a four-year period and unvested RSUs are forfeited and
canceled as of the date that employment terminates. RSUs are settled in shares of the Companys
common stock upon vesting. The following is a summary of the status of the Companys restricted
stock units as of March 31, 2010 and the activity during the six months ended March 31, 2010.
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested awards at September 30, 2009 |
1,268,000 | $ | 6.68 | |||||
Granted |
595,000 | 6.95 | ||||||
Vested |
(376,000 | ) | 7.22 | |||||
Forfeited |
(114,000 | ) | 7.88 | |||||
Nonvested awards at March 31, 2010 |
1,373,000 | 6.55 | ||||||
The Company recorded $831 and $1,502 of share-based compensation expense related to RSUs for
the three and six months ended March 31, 2010. As of March 31, 2010, there was unrecognized
compensation cost related to RSUs totaling $7,294, net of estimated forfeitures, which will be
recognized over a weighted-average period of 2.03 years.
Employee Stock Purchase Plan
In March 2005, the Board of Directors and stockholders approved the 2005 Employee Stock
Purchase Plan (ESPP), which is qualified under Section 423 of the Internal Revenue Code. The ESPP
is available to all eligible employees, who, through payroll deductions, will be able to
individually purchase shares of the Companys common stock semi-annually at a price equal to 85% of
the lower of the fair market value of the Companys common stock at the beginning or end of the
purchase period. The Company has reserved for issuance an aggregate of 1,000,000 shares of common
stock for the ESPP. At March 31, 2010, 571,000 shares were reserved for future issuance under the
ESPP.
11. Restructuring Charges
During the three months ended December 31, 2008, the Company reduced its workforce by
approximately 4% and recorded a restructuring charge of $754 for one-time termination benefits to
employees. The following is a rollforward of the restructuring accrual for the six months ended
March 31, 2010:
Restructuring accrual balance at September 30, 2009 |
$ | 128 | ||
Cash payments and foreign exchange impact |
(128 | ) | ||
Restructuring accrual balance at March 31, 2010 |
$ | 0 | ||
In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic
reduction of its workforce designed to streamline its organization and improve its corporate
operating performance. The Company reduced its workforce by approximately 13% and recorded a
restructuring charge of $2,289 for one-time termination benefits to employees.
The following is a rollforward of the accrual related to the restructuring initiated in the
fourth quarter of fiscal 2009:
Restructuring accrual balance at September 30, 2009 |
$ | 1,865 | ||
Adjustment to severance related costs |
15 | |||
Cash payments and foreign exchange impact |
(1,834 | ) | ||
Restructuring accrual balance at March 31, 2010 |
$ | 46 | ||
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12. Commitments, Contingencies and Guarantees
Contingencies
From time to time and in the ordinary course of business, the Company may be subject to
various claims, charges and litigation. In some cases, the claimants may seek damages, as well as
other relief, which, if granted, could require significant expenditures. The Company accrues the
estimated costs of settlement or damages when a loss is deemed probable and such costs are
estimable. The Company accrues for legal costs associated with a loss contingency when a loss is
probable and such amounts are estimable. Otherwise, these costs are expensed as incurred. If the
estimate of a probable loss or defense costs is a range and no amount within the range is more
likely, the Company accrues the minimum amount of the range.
Warranties and Indemnifications
The Companys software is typically warranted to perform in a manner consistent with the
Companys documentation under normal use and circumstances. The Companys license agreements
generally include a provision by which the Company agrees to defend its customers against
third-party claims of intellectual property infringement under specified conditions and to
indemnify them against any damages and costs awarded in connection with such claims. To date, the
Company has not incurred any material costs as a result of such warranties and indemnities and has
not accrued any liabilities related to such obligations in the accompanying consolidated financial
statements.
Guarantees
The Company evaluates estimated losses for guarantees at the end of each reporting period.
The Company considers such factors as the degree of probability of an unfavorable outcome and the
ability to make a reasonable estimate of the amount of loss. To date, the Company has not
encountered material costs as a result of such obligations and has not accrued any liabilities
related to such guarantees in its financial statements.
As permitted under Delaware law, the Companys Certificate of Incorporation provides that the
Company indemnify each of its officers and directors during his or her lifetime for certain events
or occurrences that happen by reason of the fact that the officer or director is or was or has
agreed to serve as an officer or director of the Company. The maximum potential amount of future
payments the Company could be required to make under these indemnification agreements is unlimited;
however, the Company has a Director and Officer insurance policy that limits its exposure and would
enable the Company to recover a portion of certain future amounts paid.
The Company enters into standard indemnification agreements in the ordinary course of
business. Pursuant to these agreements, the Company typically agrees to indemnify, hold harmless,
and reimburse the indemnified party for losses suffered or incurred by the indemnified party,
generally the Companys business partners or customers, in connection with claims relating to
infringement of a U.S. patent, or any copyright or other intellectual property. Subject to
applicable statutes of limitation, the term of these indemnification agreements is generally
perpetual from the time of execution of the agreement. In certain situations the Company has agreed
to indemnify its customers for losses incurred in connection with a breach of contract. The maximum
potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company carries insurance that covers certain
third party claims relating to its services and could limit the Companys exposure.
13. Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary differences between the
financial statement and tax basis of assets and liabilities and net operating loss and credit
carryforwards using enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation allowances are
established when it is more likely than not that some portion of the deferred tax assets will not
be realized.
For the three months ended March 31, 2010, the Company recorded a tax provision of $565. The
provision primarily related to tax on income in foreign jurisdictions and an uncertain tax position
recorded in connection with an ongoing audit in a foreign jurisdiction.
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For the six months ended March 31, 2010, the Company recorded a tax benefit of $253. The tax
benefit primarily related to the reversal of $1,318 of valuation allowance, previously recorded
against certain deferred tax assets, due to the carryback of the Companys 2009 net operating loss to fiscal 2004 and 2005
pursuant to the Worker, Homeownership, and Business Act, which was effective on November 6, 2009.
Prior to this change in tax law, which increased the carryback period for certain net operating
losses from two to five years, the Company had recorded a full valuation allowance against the
related deferred tax assets. The tax benefit was largely offset by income tax expense related to
our profitable operations in foreign tax jurisdictions, foreign withholding taxes, and an uncertain
tax position recorded in connection with an ongoing audit in a foreign jurisdiction.
14. Segment Information
Accounting pronouncements, related to reporting and disclosures of operating segments of a
business, require selected information to be presented in interim financial reports issued to
stockholders. Operating segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief operating decision-maker,
or decision-making group, in making decisions on how to allocate resources and assess performance.
The Company views its operations and manages its business as one operating segment.
Geographic Data
The following table presents revenue from unaffiliated customers by geographic region and is
determined based on the locations of customers.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
United States |
$ | 20,848 | $ | 15,402 | $ | 37,515 | $ | 31,737 | ||||||||
All Other |
8,102 | 7,854 | 16,563 | 17,613 | ||||||||||||
Total |
$ | 28,950 | $ | 23,256 | $ | 54,078 | $ | 49,350 | ||||||||
The following table presents information about the Companys long-lived assets by geographic
region:
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
North America |
$ | 6,399 | $ | 4,833 | ||||
International |
1,006 | 1,138 | ||||||
Total |
$ | 7,405 | $ | 5,971 | ||||
15. Recent Accounting Pronouncements
In September 2009, the Emerging Issues Task Force of the Financial Accounting Standards Board
(FASB) issued authoritative guidance on revenue arrangements with multiple deliverables. This
guidance provides another alternative for establishing fair value for a deliverable. When
vendor-specific objective evidence or third-party evidence for deliverables in an arrangement
cannot be determined, companies will be required to develop a best estimate of the selling price
for separate deliverables and allocate arrangement consideration using the relative selling price
method. This guidance is effective for fiscal years beginning after June 15, 2010, and early
adoption is permitted. The Company is currently evaluating the impact of this guidance on its
financial position and results of operations.
In September 2009, the FASB issued authoritative guidance on software-enabled products. Under
this guidance, tangible products that have software components that are essential to the
functionality of the tangible product will be excluded from the software revenue recognition
guidance. The new guidance includes factors to help companies determine what is essential to the
functionality. Software-enabled products will now be subject to other revenue guidance and will
follow the above new guidance for multiple deliverable arrangements. This guidance is effective in
fiscal 2011 and early adoption is permitted. The Company is currently evaluating the impact of this
guidance on its financial position and results of operations.
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Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated financial statements and
related notes that appear elsewhere in this Quarterly Report on Form 10-Q. We believe that this
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E
of the Securities Exchange Act. When used herein, the words believes, anticipates, plans,
expects, estimates and similar expressions are intended to identify forward-looking statements.
These forward-looking statements reflect managements current opinions and are subject to certain
risks and uncertainties that could cause results to differ materially from those stated or implied.
We assume no obligation to update this information.
Overview
We are a global provider of enterprise marketing management, or EMM, software designed to help
businesses increase their revenues and improve the efficiency and measurability of their marketing
operations. Focused exclusively on the needs of marketers, Unicas software delivers key
capabilities to track and analyze online and offline customer behavior, generate demand and manage
marketing processes, resources and assets. Our software streamlines the entire marketing process
for relationship, brand and Internet marketing from analysis and planning, to budgeting,
production management, execution and measurement. As the most comprehensive EMM suite on the
market, our suite of products delivers a marketing system of record a dedicated solution
through which marketers capture, record and easily manage marketing activity, information and
assets, rapidly design campaigns, and report on performance.
We sell and market our software primarily through our direct sales force as well as through
alliances with marketing service providers (MSPs), resellers, distributors and systems integrators.
In addition to reselling and deploying our products, MSPs offer a range of marketing program
design, database development support, and execution services on an on-demand or outsourced basis.
We also provide a full range of services to our customers, including implementation, training,
consulting, maintenance and technical support, and customer success programs. We have sales offices
across the United States, including at our headquarters in Waltham, Massachusetts. Our primary
sales offices outside of the United States are in France, the United Kingdom, Singapore and
Australia. In addition, we have a research and development office in India. We have a worldwide
installed base of over 1,500 companies in a wide range of industries. Our current customers operate
principally in the financial services, retail, telecommunications, and travel and hospitality
industries.
Management evaluates our financial condition and operating results based on many factors,
including license revenue, subscription revenue, maintenance revenue, services revenue, costs of
revenue, operating expenses, income from operations, cash flow from operations, total cash and cash
equivalents and total liabilities. Management reviews these factors on an ongoing basis and
measures them quarterly. In previous filings we have disclosed that license revenue has decreased
due to longer sales cycles, delayed decision making and lack of commitment to large capital
expenditures by our customers due to the macro-economic environment. Perpetual license sales
require customers to commit upfront capital expenditures, and as such, they have been the most
adversely affected during the downturn of the macro-economic environment. While perpetual license revenue has grown significantly on a sequential basis
over the last two quarters and compared to the corresponding quarters in the prior year, given that
the macro-economic environment has not returned to pre-recessionary levels, we continue to expect our visibility into future license revenue to be somewhat limited.
Sources of Revenue
We derive revenue from software licenses, maintenance, services and subscriptions. License
revenue is derived from the sale of software licenses for our product offerings under perpetual
software arrangements that typically include: (a) an end-user license fee paid for the use of our
products in perpetuity; (b) an annual maintenance arrangement that provides for software updates
and upgrades and technical support; and (c) a services work order for implementation, training,
consulting and reimbursable expenses. Subscription revenue is derived from arrangements for our
on-demand offerings and term licenses. On-demand arrangements typically include: (a) a subscription
fee for
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hosted services and technical support and (b) optional professional services for consulting,
training and other services. Term license arrangements typically include: (a) a subscription fee
for bundled software and support for a fixed period and (b) a services work order for
implementation, training, consulting and reimbursable expenses.
License Revenue
Perpetual Licenses. Licenses to use our software products in perpetuity generally are priced
based on (a) either a customers database size (including number of database records) or a platform
fee and (b) a specified number of users. With respect to our Unica NetInsight product, licenses are
generally priced based on the volume of traffic of a website. We recognize perpetual license
revenue at the time of product delivery, provided all other revenue recognition criteria have been
met. When we license our software on a perpetual basis through an MSP or systems integrator, we
recognize revenue upon delivery of the licensed software to the MSP or systems integrator only if
(a) the customer of the MSP or systems integrator is identified in a written arrangement between
the MSP or systems integrator and us and (b) all other revenue recognition criteria have been met.
Maintenance and Services Revenue
Maintenance and services revenue is generated from sales of (a) maintenance, including
software updates and upgrades and technical support associated with the sale of perpetual software
licenses and (b) services, including implementation, training, consulting, and reimbursable travel.
Maintenance. We sell maintenance on perpetual licenses that includes technical support and
software updates and upgrades on a when and if available basis. Revenue is deferred at the time the
maintenance agreement is initiated and is recognized ratably over the term of the maintenance
agreement.
Services. We sell implementation services and training on a time-and-materials basis and
generally recognize revenue when the services are performed; however, in certain circumstances,
these services may be priced on a fixed-fee basis and recognized as revenue using a proportional
performance method. For services and subscription fees combined into a single unit of accounting,
where both are recognized ratably over the expected economic life of an arrangement, we report the
services portion of these revenues separately based on vendor-specific objective evidence, or VSOE,
of fair value for those services. Services revenue also includes billable travel, lodging and other
out-of-pocket expenses incurred as part of delivering services to our customers.
Subscription Revenue
We also market our software under subscription arrangements, typically as an on-demand
offering or as a term license. The software in a term license arrangement is either installed on
the end-user customers premises or it is hosted by an MSP. Under a subscription agreement, we
typically invoice the customer in annual or quarterly installments in advance.
Cost of Revenue
Cost of license revenue for perpetual license agreements consists primarily of (a) salaries,
other labor related costs and share-based compensation related to documentation personnel, (b)
facilities and other related overhead, (c) third-party royalties for licensed technology
incorporated into our current product offerings, (d) amortization of acquired developed technology
and (e) amortization of capitalized software development costs.
Cost of maintenance and services revenue consists primarily of (a) salaries, other
labor-related costs, share-based compensation, facilities and other overhead related to
professional services and technical support personnel, and (b) expenses for services provided by
subcontractors for professional services and related out-of-pocket expenses.
Cost of subscription revenue includes (a) an allocation of labor related and overhead costs
associated with technical support, documentation and professional services personnel, (b) costs
associated with hosting-related activities and (c) amortization of internal-use software costs.
Operating Expenses
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Sales and Marketing. Sales and marketing expense consists primarily of (a) salaries, other
labor related costs and share-based compensation related to sales and marketing personnel, (b)
commissions and bonuses, (c) travel, lodging and other out-of-pocket expenses, (d) marketing
programs such as trade shows and advertising, and (e) facilities and other related overhead. The
total amount of commissions expense related to a perpetual license, subscription or maintenance
arrangement is recorded during the fiscal quarter in which it is earned.
Research and Development. Research and development expense consists primarily of (a) salaries,
other labor related costs and share-based compensation related to employees working on the
development of new products, enhancement of existing products, quality assurance and testing and
(b) facilities and other related overhead. During the three months ended March 31, 2010 and 2009,
$225,000 and $182,000 respectively, of software development costs were capitalized. During the six
months ended March 31, 2010 and 2009, $407,000 and $467,000, respectively, of software development
costs were capitalized.
General and Administrative. General and administrative expense consists primarily of (a)
salaries, other labor-related costs and share-based compensation related to general and
administrative activities, (b) accounting, legal and other professional fees, and (c) facilities
and other related overhead.
Restructuring Charges. In the first quarter of fiscal 2009, the Company reduced its workforce
by approximately 4% and recorded a restructuring charge of $754,000 for one-time termination
benefits to employees. The strategic reduction of workforce was designed to streamline the
Companys organization and improve its corporate performance. In the fourth quarter of fiscal 2009,
the Company approved a plan to implement a strategic reduction of its workforce designed to
streamline its organization and improve its corporate operating performance. In connection with
this plan, in the fourth quarter of fiscal 2009, the Company reduced its workforce by approximately
13% and recorded a restructuring charge of $2.3 million for one-time termination benefits to
employees.
Amortization of Acquired Intangible Assets. Cost of revenue includes the amortization of
developed core technology acquired in our recent acquisitions. Operating expenses include the
amortization of acquired customer contracts and related customer relationships as well as the
amortization of trade names.
Share-Based Compensation. We account for share-based compensation awards by estimating the
fair value of such employee awards and recording the related expense in the consolidated financial
statements. We selected the Black-Scholes option-pricing model as the most appropriate fair-value
model for our awards and recognize compensation cost on a straight-line basis over the requisite
service period of the awards.
Application of Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with accounting principles generally
accepted in the United States, or GAAP. The application of GAAP requires that we make estimates
that affect our reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. We evaluate our
estimates and assumptions on an ongoing basis. Our actual results may differ significantly from
these estimates.
Revenue Recognition
We sell our software products and services together in a multiple-element arrangement under
perpetual and subscription agreements. We use the residual method to recognize revenues from
perpetual license arrangements that include one or more elements to be delivered at a future date,
when evidence of the fair value of all undelivered elements exists. Under the residual method, the
fair value of the undelivered elements based on VSOE is deferred and the remaining portion of the
arrangement fee is allocated to the delivered elements. Each license arrangement requires that we
analyze the individual elements in the transaction and determine the fair value of each undelivered
element, which typically includes maintenance and services. Revenue is allocated to each
undelivered element based on its fair value, with the fair value determined by the price charged
when that element is sold separately.
For perpetual license agreements, we generally estimate the fair value of the maintenance
portion of an arrangement based on the maintenance renewal price for that arrangement. In
multiple-element perpetual license arrangements where maintenance is sold for less than fair value,
we defer the contractual price of the maintenance
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plus the difference between such contractual price and the fair value of maintenance over the
expected life of the customer arrangement. A corresponding reduction in license revenue is made.
The fair value of the professional services portion of perpetual license arrangements is based on
the rates that are charged for these services when sold separately. If, in our judgment, evidence
of fair value cannot be established for the undelivered elements in a multiple-element arrangement,
the entire amount of revenue from the arrangement is deferred until evidence of fair value can be
established, or until the elements for which evidence of fair value could not be established are
delivered.
Revenue for implementation services of perpetual software products that are not deemed
essential to the functionality of the software products is recognized separately from license and
subscription revenue. Generally these services are priced on a time-and-materials basis and
recognized as revenue when services are performed; however, in certain circumstances these services
may be priced on a fixed-fee basis and recognized as revenue under the proportional performance
method. In cases where VSOE of fair value does not exist for the undelivered elements in a
software license arrangement, services revenue is deferred and recognized over the period of
performance of the final undelivered element. We also defer the direct and incremental costs of
providing the services and amortize those costs over the period revenue is recognized.
If we were to determine that services are essential to the functionality of software in an
arrangement, the license or subscription and services revenue from the arrangement would be
recognized pursuant to the accounting for performance of construction-type contracts. In such
cases, it is expected that we would be able to make reasonably dependable estimates relative to the
extent of progress toward completion by comparing the total hours incurred to the estimated total
hours for the arrangement and, accordingly, would apply the percentage-of-completion method. If we
were unable to make reasonably dependable estimates of progress towards completion, then we would
use the completed-contract method, under which revenue is recognized only upon completion of the
services. If total cost estimates exceed the anticipated revenue, then the estimated loss on the
arrangement is recorded at the inception of the arrangement or at the time the loss becomes
apparent.
We generally enter into subscription arrangements for term licenses that include, on a
bundled basis, (a) the right to use our software for a specified period of time, (b) updates and
upgrades to our software on a when and if available basis, and (c) technical support. In
subscription arrangements for term licenses, where services are not deemed essential to the
functionality of the software products, and fair value has not been established for the
subscription element, revenue for both the subscription and services is recognized ratably over the
term of the arrangement, once all services have commenced.
Subscription arrangements for on-demand services generally include: (a) a subscription fee for
hosted services and technical support and (b) optional professional services for consulting,
training and other services. Revenue related to subscription fees for on-demand services is
recognized ratably over the term of the arrangement commencing at the point when the end-user is
provided access to the underlying software. Revenue related to professional services is recognized
ratably over the term of the arrangement commencing at the point when such services are delivered,
provided that the end-user is given access to the underlying software.
For all of our software arrangements, we do not recognize revenue until we can determine
that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collection is considered probable. In making these judgments, we evaluate these
criteria as follows:
| Evidence of an arrangement. For the majority of our arrangements, we consider a non-cancelable agreement to be persuasive evidence of an arrangement. In transactions below a certain dollar threshold, we consider a purchase order signed by the customer to be persuasive evidence of an arrangement. | ||
| Delivery. We consider delivery to have occurred when a CD or other medium containing the licensed software is provided to a common carrier or, in the case of electronic delivery, the customer is given electronic access to the licensed software. Our typical end-user license agreement does not include customer acceptance provisions. | ||
| Fixed or determinable fee. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our normal payment terms. If the fee is subject to refund or adjustment, we recognize revenue when the refund or adjustment right lapses. If the payments are due beyond our normal terms, we recognize the revenue as amounts become due and payable or as cash is collected. |
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| Collection is deemed probable. Customers are evaluated for creditworthiness through our credit review process at the inception of the arrangement. Collection is deemed probable if, based upon our evaluation, we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we cannot conclude that collection is probable, we defer the revenue, and recognize the revenue upon cash collection. |
When we license our software through an MSP or systems integrator, we begin to recognize
revenue upon delivery of the licensed software to the MSP or systems integrator only if (a) the
customer of the MSP or systems integrator is identified in a written arrangement between us and the
MSP or systems integrator and (b) all other revenue recognition criteria have been met.
In our agreements with customers and MSPs, we provide a limited warranty that our software
will perform in a manner consistent with our documentation under normal use and circumstances. In
the event of a breach of this limited warranty, we must repair or replace the software or, if those
remedies are insufficient, provide a refund. These agreements generally do not include any other
right of return or any cancellation clause or conditions of acceptance.
Allowance for Doubtful Accounts
In addition to our initial credit evaluations at the inception of arrangements, we regularly
assess our ability to collect outstanding customer invoices and in so doing must make estimates of
the collectability of accounts receivable. We provide an allowance for doubtful accounts when we
determine that the collection of an outstanding customer receivable is not probable. We
specifically analyze accounts receivable and historical bad debts experience, customer
creditworthiness, and changes in our customer payment history when evaluating the adequacy of the
allowance for doubtful accounts. If any of these factors change, our estimates may also change,
which could affect the level of our future provision for doubtful accounts.
Share-Based Compensation
The fair value of each option to purchase common stock is estimated on the date of grant using
the Black-Scholes pricing model, which requires us to make assumptions as to volatility, risk-free
interest rate, expected term of the awards, and expected forfeiture rate. The computation of
expected volatility is based on a study of historical volatility rates of comparable companies
during a period comparable to the expected option term. The estimated risk-free interest rate is
based on the U.S. Treasury risk-free interest rate in effect at the time of grant. The computation
of expected option term is based on an average of the vesting term and the maximum contractual life
of the Companys stock options. Computation of expected forfeitures is based on historical
forfeiture rates of the Companys stock options.
For options and other share-based compensation awards, we recognize compensation expense on a
straight-line basis over the requisite service period of the award. In addition, certain tax
effects of share-based compensation are reported as a financing activity rather than an operating
activity in the statement of cash flows.
Goodwill, Other Intangible Assets and Long-Lived Assets
Goodwill represents the excess of the purchase price over the fair value of net assets
associated with various acquisitions and is not subject to amortization. We allocated a portion of
each purchase price to intangible assets, including customer contracts and related customer
relationships, developed technology, trade names and acquired licenses that are being amortized
over their estimated useful lives of one to 15 years. We also allocated a portion of each purchase
price to tangible assets and assessed the liabilities to be recorded as part of the purchase price.
The estimates we made in allocating each purchase price to tangible and intangible assets, and in
assessing liabilities recorded as part of the purchase, involved the application of judgment, which
could significantly affect our operating results and financial position.
We review the carrying value of goodwill for impairment annually and whenever events or
changes in circumstances indicate that the carrying value of goodwill may exceed its fair value.
Conditions that could trigger a
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more frequent impairment assessment include, but are not limited
to, a significant adverse change in certain agreements, significant underperformance relative to
historical or projected future operating results, an economic downturn in customers industries,
increased competition, a significant reduction in the Companys stock price for a sustained period
or a reduction of our market capitalization relative to net book value. We evaluate impairment by
comparing the estimated fair value of each reporting unit to its carrying value. We estimate fair
value using the income approach as well as the market approach. The income approach is based upon
discounted cash flows estimated by management for each reporting unit, while the market approach
uses trading and transaction multiples, for companies considered comparable to Unica, to estimate
fair value. Actual results may differ materially from these estimates. The estimates we make in
determining the fair value of each reporting unit involve the application of judgment, including
the amount and timing of future cash flows, short- and long-term growth rates, and the weighted
average cost of capital, which could affect the timing and size of any future impairment charges.
Impairment of our goodwill could significantly affect our operating results and financial position.
We continually evaluate whether events or circumstances have occurred that indicate that the
estimated remaining useful life of our long-lived assets, including intangible assets, may warrant
revision or that the carrying value of these assets may be impaired. Any write-downs are treated as
permanent reductions in the carrying amount of the assets. We must use judgment in evaluating
whether events or circumstances indicate that useful lives should change or that the carrying value
of assets has been impaired. Any resulting revision in the useful life or the amount of an
impairment also requires judgment. Any of these judgments could affect the timing or size of any
future impairment charges. Revision of useful lives or impairment charges could significantly
affect our operating results and financial position.
Software Development Costs
We evaluate whether to capitalize or expense software development costs of computer software
to be sold or leased in accordance with established accounting standards. We sell products in a
market that is subject to rapid technological change, new product development and changing customer
needs. Accordingly, we have concluded that technological feasibility is not established until the
development stage of the product is nearly complete. We define technological feasibility as the
completion of a working model. We amortize software development costs over their estimated useful
lives of two years. During both the three and six months ended March 31, 2010, $50,000 of software
development costs were capitalized. During the three and six months ended March 31, 2009, $42,000
and $146,000, respectively, of software development costs were capitalized.
We capitalize certain costs of software developed or obtained for internal use. The costs
incurred in the preliminary stages of development are expensed as incurred. Once an application has
reached the development stage, internal and external costs, if direct and incremental, will be
capitalized until the software is substantially complete and ready for its intended use.
Capitalization ceases upon completion of all substantial testing. We amortize internal-use software
development costs over their estimated useful lives of three years. During the three and six
months ended March 31, 2010, we capitalized $175,000 and $357,000 respectively, of internal-use
software development costs. During the three and six months ended March 31, 2009, $140,000 and
$321,000 of internal use software development costs were capitalized.
Income Taxes
We are subject to income taxes in both the United States and foreign jurisdictions, and we use
estimates in determining our provision for income taxes. Significant changes to these estimates
could have a material impact on our effective tax rate. Deferred tax assets, related valuation
allowances, current tax liabilities and deferred tax liabilities are determined separately by tax
jurisdiction. In making these determinations, we estimate tax assets, related valuation allowances,
current tax liabilities and deferred tax liabilities and assess temporary differences resulting
from differing treatment of items for tax and accounting purposes. We assess the likelihood that
deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely
than not that all or some portion of the deferred tax assets will not be realized. This assessment
requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.
The accounting standards for income taxes require that deferred tax assets be reduced by a
valuation allowance if, based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The valuation allowance must be
sufficient to reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future realization of deferred tax assets ultimately depends on the existence of
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sufficient taxable income of the appropriate character in either the carryback or carryforward
period under the tax laws. Based on the weight of all of the available evidence, we have determined
that it is more likely than not that all of our U.S. federal and state deferred tax assets will not
be realized and as a result we provide a full valuation allowance against all of our U.S. federal
and state deferred tax assets. As a result, we have not recorded any tax benefit for the estimated
U.S. federal and state tax net operating losses or research and development tax credits generated
during fiscal 2010.
Contingencies
From time to time and in the ordinary course of business, we may be subject to various claims,
charges and litigation. In some cases, the claimants may seek damages, as well as other relief,
which, if granted, could require significant expenditures. We accrue the estimated costs of
settlement or damages when a loss is deemed probable and such costs are estimable. We accrue for
legal costs related to a loss contingency when a loss is probable and such amounts are estimable.
Otherwise, these costs are expensed as incurred. If the estimate of a probable loss or defense
costs is a range and no amount within the range is more likely, we accrue the minimum amount of the
range.
Valuation of Business Combinations
We record intangible assets acquired in business combinations under the purchase method of
accounting. We allocate the amounts we pay for each acquisition to the assets we acquire and
liabilities we assume based on their fair values at the date of acquisition. We then allocate the
purchase price in excess of net tangible assets acquired to identifiable intangible assets,
including developed technology, customer contracts and related customer relationships, trade names
and in-process research and development. The fair value of identifiable intangible assets is based
on detailed valuations that use information and assumptions provided by management. We allocate any
excess purchase price over the fair value of the net tangible and intangible assets acquired to
goodwill. The use of alternative purchase price allocations and alternative estimated useful life
assumptions could result in different intangible asset amortization expense in current and future
periods.
Results of Operations
Comparison of Three Months Ended March 31, 2010 and 2009
Revenue
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period -to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
License |
$ | 7,693 | 27 | % | $ | 4,205 | 18 | % | $ | 3,488 | 83 | % | ||||||||||||
Maintenance and services: |
||||||||||||||||||||||||
Maintenance fees |
11,242 | 39 | 10,832 | 47 | 410 | 4 | ||||||||||||||||||
Services |
3,436 | 12 | 3,796 | 16 | (360 | ) | (9 | ) | ||||||||||||||||
Total maintenance
and services |
14,678 | 51 | 14,628 | 63 | 50 | | ||||||||||||||||||
Subscription revenue |
6,579 | 22 | 4,423 | 19 | 2,156 | 49 | ||||||||||||||||||
Total |
$ | 28,950 | 100 | % | $ | 23,256 | 100 | % | $ | 5,694 | 24 | % | ||||||||||||
Total revenue for the three months ended March 31, 2010 was $29.0 million, an increase of 24%,
or $5.7 million, from the three months ended March 31, 2009. Total revenue increased as a result of
higher license sales relating to our product suite as well as an increase in subscription revenue
relating to sales of our on-demand products.
Total license revenue for the three months ended March 31, 2010 was $7.7 million, an increase
of 83%, or $3.5 million, from the three months ended March 31, 2009. This increase in license
revenue was primarily attributable to higher sales of our product suite. Given that the
macro-economic environment has not returned to pre-recessionary levels, we continue to expect our visibility into future license revenue to be somewhat limited.
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Maintenance fees revenue is associated with maintenance agreements in connection with sales of
perpetual licenses to our existing installed customer base and to new customers. Maintenance fees
revenue for the three months ended March 31, 2010 was $11.2 million, an increase of 4%, or $410,000
from the three months ended March 31, 2009.
Services revenue for the three months ended March 31, 2010 was $3.4 million, a decrease of 9%,
or $360,000, from the three months ended March 31, 2009. The decrease in services revenue was
primarily the result of a delay in the recognition of services revenue, for certain
multiple-element arrangements, until the commencement of the final undelivered element, when such
services revenue will be recognized over the remaining period of performance.
Total subscription revenue for the three months ended March 31, 2010 was $6.6 million, an
increase of 49%, or $2.2 million, from the three months ended March 31, 2009. The increase in
subscription revenue was primarily attributable to higher sales of our on-demand products. We
anticipate that subscription revenue will continue to increase in future quarters as we enter into
additional subscription agreements and expand our on-demand product offerings.
Recurring Revenue
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Recurring revenue: |
||||||||||||||||||||||||
Maintenance fees |
$ | 11,242 | 39 | % | $ | 10,832 | 47 | % | 410 | 4 | % | |||||||||||||
Subscription revenue |
6,579 | 22 | 4,423 | 19 | 2,156 | 49 | ||||||||||||||||||
Total recurring revenue |
17,821 | 61 | 15,255 | 66 | 2,566 | 17 | ||||||||||||||||||
License revenue |
7,693 | 27 | 4,205 | 18 | 3,488 | 83 | ||||||||||||||||||
Services |
3,436 | 12 | 3,796 | 16 | (360 | ) | (1 | ) | ||||||||||||||||
Total |
$ | 28,950 | 100 | % | $ | 23,256 | 100 | % | $ | 5,694 | 24 | % | ||||||||||||
We generate recurring revenue from both maintenance and subscription arrangements, which is
recognized ratably over the contractual term of the arrangement or agreement.
Recurring revenue for the three months ended March 31, 2010 was $17.8 million, an increase of
17%, or $2.6 million, from the three months ended March 31, 2009. The increase in recurring revenue
resulted from additional subscription revenue related to sales of our on-demand products.
Recurring revenue as a percentage of total revenue was 62% for the three months ended March 31,
2010 as compared to 66% for the three months ended March 31, 2009, which is primarily the result of
license revenue increasing at a higher rate than that of subscription and maintenance revenue.
Revenue by Geography
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
North America |
$ | 21,648 | 75 | % | $ | 16,414 | 71 | % | $ | 5,234 | 32 | % | ||||||||||||
International |
7,302 | 25 | 6,842 | 29 | 460 | 7 | % | |||||||||||||||||
Total revenue |
$ | 28,950 | 100 | % | $ | 23,256 | 100 | % | $ | 5,694 | 24 | % | ||||||||||||
For purposes of this discussion, we designate revenue by geographic regions based on the
locations of our customers. North America is comprised of revenue from the United States and
Canada. International is comprised of revenue from the rest of the world. Depending on the timing
of new customer contracts, revenue mix from geographic region can vary widely from period to
period.
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Total revenue for North America for the three months ended March 31, 2010 was $21.6 million,
an increase of 32%, or $5.2 million, from the three months ended March 31, 2009. The increase in
total revenue for North America was primarily related to increases in license and subscription
revenue. Total revenue for International for the three months ended March 31, 2010 was $7.3
million, an increase of 7%, or $460,000, from the three months ended March 31, 2009. The increase
in total revenue for International was primarily related to increases in license and subscription
revenue, partially offset by a decrease in services revenue.
Cost of Revenue and Gross Margin
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Gross Margin on | Gross Margin on | Period-to-Period Change | ||||||||||||||||||||||
Related | Related | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
License |
$ | 592 | 92 | % | $ | 505 | 88 | % | $ | 87 | 17 | % | ||||||||||||
Maintenance and services |
4,818 | 67 | 4,483 | 69 | 335 | 7 | ||||||||||||||||||
Subscription |
2,260 | 66 | 1,037 | 77 | 1,223 | 118 | ||||||||||||||||||
Total cost of revenue |
$ | 7,670 | 74 | % | $ | 6,025 | 74 | % | $ | 1,645 | 27 | % | ||||||||||||
Cost of license revenue for the three months ended March 31, 2010 was $592,000, an increase of
17%, or $87,000 from the three months ended March 31, 2009. The increase in cost of license revenue
was primarily due to (a) a $65,000 increase in amortization of acquired intangible assets, and (b)
an increase of $84,000 in royalties. Royalties paid for third-party licensed technology represented
3% of total license revenue for the three months ended March 31, 2010. Royalties related to license
revenue may fluctuate based on the mix of products we sell. We expect royalties paid for
third-party licensed technology to be between 1% and 4% of total license revenue. Gross margin on
license revenue was 92% in the three months ended March 31, 2010 compared to 88% in the three
months ended March 31, 2009.
Cost of maintenance and services for the three months ended March 31, 2010 was $4.8 million,
an increase of 7%, or $335,000, from the three months ended March 31, 2009. The increase in cost of
maintenance and services revenue was primarily due to (a) a $258,000 increase in subcontractor
costs, and (b) a $72,000 increase in stock-based compensation cost. Gross margin on maintenance and
services revenue was 67% for the three months ended March 31, 2010, down from 69% for the three
months ended March 31, 2009. The decrease in gross margin primarily related to the decrease in the
mix of maintenance revenue compared to service revenue. Gross margin on maintenance and services
revenue fluctuates based on the mix of revenues from services and maintenance and the degree to
which we use subcontractor services.
Cost of subscription revenue for the three months ended March 31, 2010 was $2.3 million, an
increase of 118%, or $1.2 million from the three months ended March 31, 2009. The increase in cost
of subscription revenue was primarily due to (a) an increase in labor-related expenses of $753,000,
(b) an increase of $239,000 in depreciation and amortization expense and (c) an increase in
subcontractor costs of $143,000.
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Operating Expenses
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Sales and marketing |
$ | 9,856 | 34 | % | $ | 9,919 | 43 | % | $ | (63 | ) | (1 | )% | |||||||||||
Research and development |
5,083 | 18 | 4,970 | 21 | 113 | 2 | ||||||||||||||||||
General and administrative |
4,469 | 15 | 3,932 | 17 | 537 | 14 | ||||||||||||||||||
Restructuring charges |
(15 | ) | | (6 | ) | | (9 | ) | (150 | ) | ||||||||||||||
Goodwill impairment charge |
| | 15,266 | 66 | (15,266 | ) | (100 | ) | ||||||||||||||||
Amortization of acquired
intangible assets |
258 | 1 | 450 | 2 | (192 | ) | (43 | ) | ||||||||||||||||
Acquisition related fees |
150 | 1 | | | 150 | 100 | ||||||||||||||||||
Total operating expenses |
$ | 19,801 | 69 | % | $ | 34,531 | 149 | % | $ | (14,730 | ) | (43 | ) | |||||||||||
Sales and Marketing. Sales and marketing expense for the three months ended March 31, 2010 was
$9.9 million, a decrease of 1%, or $63,000, from the three months ended March 31, 2009. The
decrease was primarily the result of (a) a decrease in expenses related to marketing programs of
$348,000, (b) a reduction in share based compensation expense of $279,000, offset by (c) an
increase in labor-related expenses of $511,000. We expect quarterly sales and marketing expense to
increase slightly in absolute dollars for the remainder of fiscal 2010.
Research and Development. Research and development expense for the three months ended March
31, 2010 was $5.1 million, an increase of 2%, or $113,000, from the three months ended March 31,
2009. The increase in research and development expense was primarily the result of (a) a $331,000
increase in professional service expenses, offset by (b) a $37,000 decrease of stock-based
compensation expense. Capitalized software development costs were $225,000 and $182,000 during the
three months ended March 31, 2010 and 2009, respectively. We expect quarterly research and
development expense to remain relatively unchanged in absolute dollars for the remainder of fiscal
2010.
General and Administrative. General and administrative expense for the three months ended
March 31, 2010 was $4.5 million, an increase of 14%, or $537,000 from the three months ended March
31, 2009. The increase in general and administrative expense was primarily the result of (a) a
$610,000 increase in labor-related expenses and (b) an increase of $67,000 in professional fees. We
expect quarterly general and administrative expense to remain relatively unchanged in absolute
dollars for the remainder of fiscal 2010.
Restructuring Charges. In the first quarter of fiscal 2009, the Company reduced its workforce
by approximately 4% and recorded a restructuring charge of $754,000 for one-time termination
benefits to employees. The strategic reduction of workforce was designed to streamline the
Companys organization and improve its corporate performance. The restructuring accrual at March
31, 2010 was $0.
In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic
reduction of its workforce designed to streamline its organization and improve its corporate
operating performance. The Company reduced its workforce by approximately 13% and recorded a
restructuring charge of $2.3 million for one-time termination benefits to employees. The remaining
accrual of $46,000 at March 31, 2010 is expected to be paid during fiscal 2010.
The following is a rollforward of the accrual related to the restructuring initiated in the
fourth quarter of fiscal 2009 (in thousands):
Restructuring accrual balance at December 31, 2009 |
$ | 254 | ||
Adjustment to severance related costs |
(15 | ) | ||
Cash payments and foreign exchange impact |
(193 | ) | ||
Restructuring accrual balance at March 31, 2010 |
$ | 46 | ||
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Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was
$258,000 and $450,000 for the three months ended March 31, 2010 and 2009, respectively. The
reduction primarily relates to certain acquired intangible assets becoming fully amortized by the
end of fiscal 2009.
Other Income
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Interest income, net |
$ | 80 | | $ | 160 | 1 | % | $ | (80 | ) | (50 | )% | ||||||||||||
Other expense, net |
(626 | ) | (2 | )% | (483 | ) | (2 | %) | (143 | ) | (30 | ) | ||||||||||||
Other income (expense), net |
$ | (546 | ) | (2 | )% | $ | (323 | ) | (1 | %) | $ | (223 | ) | (69 | )% | |||||||||
Interest income, net was $80,000 for the three months ended March 31, 2010, a decrease of
$80,000 from the three months ended March 31, 2009. Interest income is generated from the
investment of our cash balances, less related bank fees. The decrease in interest income, net
principally reflected lower invested cash balances and lower interest rates on invested cash
balances.
Other income (expense), net consisted primarily of foreign currency translation and
transaction gains and losses. The change in other expense, net was primarily driven by unfavorable
foreign currency exchange rates as compared to the corresponding period in the prior year.
Provision for Income Taxes
Three Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Income Before | Loss Before | Percentage | ||||||||||||||||||||||
Amount | Income Taxes | Amount | Income Taxes | Amount | Change | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Provision for
(benefit from)
income taxes |
$ | 565 | 60 | % | $ | (1,492 | ) | 8 | % | $ | 2,057 | 138 | % | |||||||||||
The provision for income taxes was $565,000, or an effective tax rate of 60%. for the three
months ended March 31, 2010, a $2.1 million change from the three months ended March 31, 2009. The
tax provision primarily relates to income tax expense on profitable operations in foreign tax
jurisdictions, foreign withholding taxes, and an uncertain tax position recorded in connection with
an ongoing audit in a foreign jurisdiction.
For the three months ended March 31, 2010, our effective tax rate was different from the
federal statutory rate primarily due to the mix of jurisdictional earnings, foreign withholding
taxes and the uncertain tax position recorded in the period. For the three months ended March 31,
2009, our effective tax rate was different from the federal statutory rate primarily due to the mix
of jurisdictional earnings, foreign withholding taxes, and adjustments to our valuation allowance.
29
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Comparison of Six Months Ended March 31, 2010 and 2009
Revenue
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period -to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
License |
$ | 13,180 | 24 | % | $ | 10,665 | 22 | % | $ | 2,515 | 24 | % | ||||||||||||
Maintenance and services: |
||||||||||||||||||||||||
Maintenance fees |
22,552 | 42 | 22,414 | 45 | 138 | 1 | ||||||||||||||||||
Services |
6,531 | 12 | 7,570 | 15 | (1,039 | ) | (14 | ) | ||||||||||||||||
Total maintenance
and services |
29,083 | 54 | 29,984 | 60 | (901 | ) | (3 | ) | ||||||||||||||||
Subscription revenue |
11,815 | 22 | 8,701 | 18 | 3,114 | 36 | ||||||||||||||||||
Total |
$ | 54,078 | 100 | % | $ | 49,350 | 100 | % | $ | 4,728 | 10 | % | ||||||||||||
Total revenue for the six months ended March 31, 2010 was $54 million, an increase of 10% or
$4.7 million, from the six months ended March 31, 2009. Total revenue increased as a result of
higher license sales relating to our product suite as well as an increase in subscription revenue
relating to sales of our on-demand products, partially offset by a decrease in service revenue.
Total license revenue for the six months ended March 31, 2010 was $13.2 million, an increase
of 24%, or $2.5 million, from the six months ended March 31, 2009. This increase in license revenue
was primarily attributable to higher sales of our product suite.
Maintenance fees revenue is associated with maintenance agreements in connection with sales of
perpetual licenses to our existing installed customer base and to new customers. Maintenance fees
revenue for the six months ended March 31, 2010 was $22.6 million, an increase of 1%, or $138,000
from the six months ended March 31, 2009.
Services revenue for the six months ended March 31, 2010 was $6.5 million, a decrease of 14%,
or $1 million, from the six months ended March 31, 2009. The decrease in services revenue was
primarily the result of a delay in the recognition of services revenue, for certain
multiple-element arrangements, until the commencement of the final undelivered element, when such
services revenue will be recognized over the remaining period of performance.
Total subscription revenue for the six months ended March 31, 2010 was $11.8 million, an
increase of 36%, or $3.1 million, from the six months ended March 31, 2009. The increase in
subscription revenue was primarily attributable to higher sales of our on-demand products. We
anticipate that subscription revenue will continue to increase in future quarters as we enter into
additional subscription agreements and expand our on-demand product offerings.
Recurring Revenue
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Recurring revenue: |
||||||||||||||||||||||||
Maintenance fees |
$ | 22,552 | 42 | % | $ | 22,414 | 45 | % | 138 | 1 | % | |||||||||||||
Subscription revenue |
11,815 | 22 | 8,701 | 18 | 3,114 | 36 | ||||||||||||||||||
Total recurring revenue |
34,367 | 64 | 31,115 | 63 | 3,252 | 10 | ||||||||||||||||||
License revenue |
13,180 | 24 | 10,665 | 22 | 2,515 | 24 | ||||||||||||||||||
Services |
6,531 | 12 | 7,570 | 15 | (901 | ) | (3 | ) | ||||||||||||||||
Total |
$ | 54,078 | 100 | % | $ | 49,350 | 100 | % | $ | 4,728 | 10 | % | ||||||||||||
We generate recurring revenue from both maintenance and subscription arrangements, which is
recognized ratably over the contractual term of the arrangement or agreement.
Recurring revenue for the six months ended March 31, 2010 was $34.4 million, an increase of
10%, or $3.3 million, from the six months ended March 31, 2009. The increase in recurring revenue
resulted from additional subscription revenue related to sales of our on-demand products.
Recurring revenue as a percentage of total revenue was 64% for the six months ended March 31, 2010
as compared to 63% for the six months ended March 31, 2009.
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Revenue by Geography
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
North America |
$ | 39,089 | 72 | % | $ | 33,556 | 68 | % | $ | 5,533 | 16 | % | ||||||||||||
International |
14,989 | 28 | 15,794 | 32 | (805 | ) | (5 | )% | ||||||||||||||||
Total revenue |
$ | 54,078 | 100 | % | $ | 49,350 | 100 | % | $ | 4,728 | 10 | % | ||||||||||||
For purposes of this discussion, we designate revenue by geographic regions based on the
locations of our customers. North America is comprised of revenue from the United States and
Canada. International is comprised of revenue from the rest of the world. Depending on the timing
of new customer contracts, revenue mix from geographic region can vary widely from period to
period.
Total revenue for North America for the six months ended March 31, 2010 was $39.1 million, an
increase of 16%, or $5.5 million, from the six months ended March 31, 2009. The increase in total
revenue for North America was primarily related to increases in license and subscription revenue.
Total revenue for International for the six months ended March 31, 2010 was $15 million, a decrease
of 5%, or $805,000, from the six months ended March 31, 2009. The decrease in total revenue for
International was primarily related to decreases in license and services revenue, partially offset
by an increase in subscription revenue.
Cost of Revenue and Gross Margin
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Gross Margin on | Gross Margin on | Period-to-Period Change | ||||||||||||||||||||||
Related | Related | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
License |
$ | 1,114 | 92 | % | $ | 1,141 | 89 | % | $ | (27 | ) | (2 | )% | |||||||||||
Maintenance and services |
9,088 | 69 | 9,704 | 68 | (616 | ) | (6 | ) | ||||||||||||||||
Subscription |
4,225 | 64 | 2,050 | 76 | 2,175 | 106 | ||||||||||||||||||
Total cost of revenue |
$ | 14,427 | 73 | % | $ | 12,895 | 74 | % | $ | 1,532 | 12 | % | ||||||||||||
Cost of license revenue for the six months ended March 31, 2010 was $1.1 million, a decrease
of 3%, or $27,000 from the six months ended March 31, 2010. The decrease in cost of license revenue
was primarily due to a $42,000 decrease in labor-related costs. Royalties paid for third-party
licensed technology represented 3% of total license revenue for the six months ended March 31,
2010. Royalties related to license revenue may fluctuate based on the mix of products we sell. We
expect royalties paid for third-party licensed technology to be between 1% and 4% of total license
revenue. Gross margin on license revenue was 92% in the six months ended March 31, 2010 compared to
89% in the six months ended March 31, 2009.
Cost of maintenance and services for the six months ended March 31, 2010 was $9.1 million, a
decrease of 6%, or $616,000 from the six months ended March 31, 2009. The decrease in cost of
maintenance and services revenue was primarily due to (a) a $911,000 decrease in labor-related
costs, and (b) a $106,000 decrease in subcontractor costs. The reduction in labor-related and
subcontractor costs was primarily related to an increase in deferred implementation expenses
associated with arrangements when services revenue was also deferred. Gross margin on maintenance
and services revenue was 69% for the six months ended March 31, 2010, up from 68% for the six
months ended March 31, 2009. The increase in gross margin primarily related to the increase in the
mix of maintenance revenue compared to service revenue. Gross margin on maintenance and services
revenue fluctuates based on the mix of revenues from services and maintenance and the degree to
which we use subcontractor services.
Cost of subscription revenue for the six months ended March 31, 2009 was $4.2 million, an
increase of 106%, or $2.2 million from the six months ended March 31, 2009. The increase in cost of
subscription revenue was primarily due to (a) an increase in labor-related expenses of $1.2
million, (b) an increase in subcontractor costs of $322,000 and (c) an increase of $424,000 in
depreciation expense.
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Table of Contents
Operating Expenses
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Sales and marketing |
$ | 18,674 | 35 | % | $ | 20,941 | 42 | % | $ | (2,267 | ) | (11 | )% | |||||||||||
Research and development |
9,152 | 17 | 10,416 | 21 | (1,264 | ) | (12 | ) | ||||||||||||||||
General and administrative |
8,723 | 16 | 7,889 | 16 | 834 | 11 | ||||||||||||||||||
Restructuring charges |
16 | | 748 | 2 | (732 | ) | (98 | ) | ||||||||||||||||
Goodwill impairment charge |
| | 15,266 | 31 | (15,266 | ) | (100 | ) | ||||||||||||||||
Amortization of acquired
intangible assets |
381 | 1 | 935 | 2 | (554 | ) | (59 | ) | ||||||||||||||||
Acquisition related fees |
297 | 1 | | | 297 | 100 | ||||||||||||||||||
Total operating expenses |
$ | 37,243 | 70 | % | $ | 56,195 | 114 | % | $ | (18,952 | ) | (34 | ) | |||||||||||
Sales and Marketing. Sales and marketing expense for the six months ended March 31, 2010 was
$18.7 million, a decrease of 11%, or $2.3 million, from the six months ended March 31, 2009. The
decrease was primarily the result of (a) a $1.1 million decrease in labor-related expenses due to
decreased headcount as a result of the fourth quarter 2009 restructuring, (b) a decrease in
expenses related to marketing programs of $588,000 and (c) a reduction in share based compensation
expense of $486,000.
Research and Development. Research and development expense for the six months ended March 31,
2010 was $9.2 million, a decrease of 12%, or $1.3 million, from the six months ended March 31,
2009. The decrease in research and development expense was primarily the result of (a) a $1.6
million decrease in labor-related expenses, principally due to decreased headcount as a result of
the fourth quarter 2009 restructuring, and (b) a $113,000 decrease of stock based compensation
expense. Capitalized software development costs were $407,000 and $467,000 during the six months
ended March 31, 2010 and 2009, respectively.
General and Administrative. General and administrative expense for the six months ended March
31, 2010 was $8.7 million, an increase of 11%, or $834,000 from the six months ended March 31,
2009. The increase in general and administrative expense was primarily the result of (a) a $735,000
increase in labor-related expenses, (b) an increase of $161,000 in professional fees, and (c) a
$105,000 increase in share-based compensation expense.
Restructuring Charges. In the first quarter of fiscal 2009, the Company reduced its workforce
by approximately 4% and recorded a restructuring charge of $754,000 for one-time termination
benefits to employees. The strategic reduction of workforce was designed to streamline the
Companys organization and improve its corporate performance. The restructuring accrual at March
31, 2010 was $0.
In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic
reduction of its workforce designed to streamline its organization and improve its corporate
operating performance. The Company reduced its workforce by approximately 13% and recorded a
restructuring charge of $2.3 million for one-time termination benefits to employees. The remaining
accrual of $46,000 at March 31, 2010 is expected to be paid during fiscal 2010.
The following is a rollforward of the accrual related to the restructuring initiated in the
fourth quarter of fiscal 2009 (in thousands):
Restructuring accrual balance at September 30, 2009 |
$ | 1,865 | ||
Adjustment to severance related costs |
15 | |||
Cash payments and foreign exchange impact |
(1,834 | ) | ||
Restructuring accrual balance at March 31, 2010 |
$ | 46 | ||
Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was
$381,000 and $935,000 for the six months ended March 31, 2010 and 2009, respectively. The reduction
primarily relates to certain acquired intangible assets becoming fully amortized during fiscal
2009.
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Other Income
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Total | Total | Percentage | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Change | |||||||||||||||||||
Interest income, net |
$ | 167 | | % | $ | 400 | 1 | % | $ | (233 | ) | (58 | )% | |||||||||||
Other expense, net |
(696 | ) | (1) | % | (1,600 | ) | (3 | ) | 904 | 57 | ||||||||||||||
Other income (expense), net |
$ | (529 | ) | (1 | )% | $ | (1,200 | ) | (2 | )% | $ | 671 | 56 | % | ||||||||||
Interest income, net was $167,000 for the six months ended March 31, 2010, a $233,000 decrease
from the six months ended March 31, 2009. Interest income is generated from the investment of our
cash balances, less related bank fees. The decrease in interest income, net principally reflected
lower invested cash balances and lower interest rates on invested cash balances.
Other income (expense), net consisted primarily of foreign currency translation and
transaction gains and losses. The change in other expense, net was primarily driven by favorable
foreign currency exchange rates as compared to the corresponding period in the prior year.
Provision for Income Taxes
Six Months Ended March 31, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Percentage of | Percentage of | Period-to-Period Change | ||||||||||||||||||||||
Income Before | Loss Before | Percentage | ||||||||||||||||||||||
Amount | Income Taxes | Amount | Income Taxes | Amount | Change | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Provision for
(benefit from)
income taxes |
$ | (253 | ) | 13 | % | $ | (711 | ) | 3 | % | $ | 458 | 64 | % | ||||||||||
The tax benefit from income taxes was $253,000, or an effective tax rate of (13)%, for the six
months ended March 31, 2010, a $458,000 change from the six months ended March 31, 2009. The tax
benefit primarily related to a $1.3 million decrease of valuation allowance previously recorded
against net operating loss deferred tax assets. The Worker, Homeownership, and Business Act, which
was effective on November 6, 2009, increased the carryback period for certain net operating losses
from two to five years. The benefit was recorded as a result of this legislative change. The tax
benefit was partially offset by income tax expense related to our profitable operations in foreign
tax jurisdictions, foreign withholding taxes, and an uncertain tax position recorded in connection
with an ongoing audit in a foreign jurisdiction.
For the six months ended March 31, 2010, our effective tax rate was different from the federal
statutory rate primarily due to the tax benefit recorded in conjunction with the net operating loss
carryback, the mix of jurisdictional earnings and the uncertain tax position recorded in the
period. For the six months ended March 31, 2009, our effective tax rate was different from the
federal statutory rate primarily due to the mix of jurisdictional earnings, foreign withholding
taxes, and adjustments to our valuation allowance.
Liquidity and Capital Resources
Historically, we have financed our operations and met our capital requirements primarily
through funds generated from operations and sales of our capital stock. As of March 31, 2010, our
primary sources of liquidity consisted of our total cash and cash equivalents balance of $39.2
million. As of March 31, 2010, we had no outstanding debt.
Our cash and cash equivalents at March 31, 2010 were held for working capital purposes and
were invested primarily in overnight investments and money market funds. We do not enter into
investments for trading or speculative purposes. Restricted cash of $466,000 at March 31, 2010 was
held in certificates of deposit as collateral for letters of credit related to the lease agreement
for our corporate headquarters in Waltham, Massachusetts, our sales office in France and for our
payroll credit facility in Australia. Investments are made in accordance with our corporate
investment policy, as approved by our Board of Directors. The primary objective of this policy is
the preservation of capital. Investments are limited to high quality corporate debt, money market
funds and similar
33
Table of Contents
instruments. The policy establishes maturity limits, liquidity requirements and concentration
limits. At March 31, 2010, we were in compliance with this internal policy.
Net cash provided by operating activities was $11.1 million in the six months ended March 31,
2010, compared to net cash provided by operating activities of $318,000 in the six months ended
March 31, 2009. Net income (loss) adjusted for non-cash expenses (including depreciation,
amortization of acquired intangible assets and capitalized software development costs, share-based
compensation, foreign currency translation loss and deferred tax provisions) increased to income of
$7.2 million in the six months ended March 31, 2010 from a loss of $663,000 in the six months ended
March 31, 2009, an increase of $7.9 million. Increases in deferred revenue as well as in accounts
payable increased our cash during the six months ended March 31, 2010. These increases in operating
cash flow, in the six months ended March 31, 2010, were offset by reductions of cash from changes
in accounts receivable, accrued expenses, and prepaid expenses and other current assets. The
change in accounts receivable for the six months ended March 31, 2010 was primarily related to the
timing of new perpetual license transactions.
Investing activities used $22.1 million and provided $9.1 million of cash in the six months
ended March 31, 2010 and 2009, respectively. In the six months ended March 31, 2010, $2.5 million
of cash was used for purchases of property and equipment, which primarily related to purchases of
computer equipment and software to support increased investment in our on-demand offerings. $19.2
million, net of cash acquired, was used to pay for the acquisition of Pivotal Veracity and
MakeMeTop.
On January 12, 2010, we acquired by merger Pivotal Veracity LLC for $17.8 million in cash. On
February 1, 2010, we acquired the paid search bid management business, MakeMeTop, from Microchannel
Ltd. for $1.8 million in cash. The acquisitions were accounted for as purchase transactions, and
as such the results of operations of Pivotal Veracity LLC and MakeMeTop were consolidated with the
Company beginning on January 12, 2010 and February 1, 2010, respectively.
Our financing activities provided cash of $133,000 and consumed $787,000 in the six months
ended March 31, 2010 and March 31, 2009, respectively. In the six months ended March 31, 2010 and
2009, $771,000 and $230,000, respectively, was used to pay withholding taxes related to restricted
stock units, and $0 and $912,000, respectively, was used to purchase shares of common stock under
the Companys share repurchase program.
Contractual Obligations and Requirements
Our significant lease obligations relate to our corporate headquarters in Waltham,
Massachusetts as well as our facility in the United Kingdom. Our contractual commitments as of
March 31, 2010 are not materially different from the amounts disclosed as of September 30, 2009 in
our fiscal 2009 Annual Report on Form 10-K.
We believe that our current cash, cash equivalents, and marketable securities will be
sufficient to meet our anticipated cash needs for working capital and capital expenditures for at
least the next twelve months. Long-term cash requirements, other than normal operating expenses,
are anticipated for the continued development of new products, financing anticipated growth and the
possible acquisition of businesses, software products or technologies complementary to our
business. On a long-term basis or to complete acquisitions in the short term, we may require
additional external financing through credit facilities, sales of additional equity or other
financing arrangements. There can be no assurance that such financing can be obtained on favorable
terms, if at all.
Off-Balance-Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.
Recently Issued Accounting Pronouncements
In September 2009, the FASBs Emerging Issues Task Force issued authoritative guidance on
revenue arrangements with multiple deliverables. This guidance provides another alternative for
establishing fair value for a deliverable. When vendor-specific objective evidence or third-party
evidence for deliverables in an arrangement
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cannot be determined, companies will be required to develop a best estimate of the selling
price for separate deliverables and allocate arrangement consideration using the relative selling
price method. This guidance is effective October 1, 2010, and early adoption is permitted. We are
currently evaluating the impact of this guidance on our financial position and results of
operations.
In September 2009, the FASB issued authoritative guidance on software-enabled products. Under
this guidance, tangible products that have software components that are essential to the
functionality of the tangible product will be excluded from the software revenue recognition
guidance. The new guidance will include factors to help companies determine what is essential to
the functionality. Software-enabled products will now be subject to other revenue guidance and will
follow the above new guidance for multiple deliverable arrangements. This guidance is effective in
fiscal 2011 and early adoption is permitted. We are currently evaluating the impact of this
guidance on our financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of
fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial
instruments for trading purposes.
Foreign Currency Exchange Risk
Our operating results and cash flows are subject to fluctuations due to changes in foreign
currency exchange rates, particularly changes in the Euro and the British pound sterling. We enter
into derivative transactions, specifically foreign currency forward contracts, to manage our
exposure to fluctuations in foreign exchange rates that arise primarily from our foreign
currency-denominated receivables. For the three and six months ended March 31, 2010, we did not
enter into any derivative transactions. There are certain non-U.S. Dollar denominated receivables
where we have not entered into a foreign currency forward contract to mitigate the foreign currency
exposure, which may create foreign currency exchange risks for us. Revenue denominated in
currencies other than the U.S. dollar represented 23% and 36% of total revenue in the three months
ended March 31, 2010 and 2009, respectively.
As of March 31, 2009, we had $8.2 million of receivables denominated in currencies other than
the U.S. dollar. If the foreign exchange rates fluctuated by 10% as of March 31, 2010, the fair
value of our receivables denominated in currencies other than the U.S. dollar would have fluctuated
by $823,000. In addition, our subsidiaries have intercompany accounts that are eliminated in
consolidation, but that expose us to foreign currency exchange rate exposure. Exchange rate
fluctuations on short-term intercompany accounts are reported in other income (expense). Exchange
rate fluctuations on long-term intercompany accounts, which are invested indefinitely without
repayment terms, are recorded in accumulated other comprehensive income in stockholders equity.
Interest Rate Risk
At March 31, 2010, we had unrestricted cash and cash equivalents of $39.2 million. These
amounts were invested primarily in money market funds and corporate bonds, and are held for working
capital purposes. We do not enter into investments for trading or speculative purposes. We
considered the historical volatility of short-term interest rates and determined that, due to the
size and duration of our investment portfolio, a 100-basis-point change in interest rates at March
31, 2010 would not have any material exposure to changes in fair value of our portfolio at March
31, 2010.
Credit Risk
Our exposure to credit risk consists principally of accounts receivable and purchased customer
receivables. We maintain reserves for potential credit losses which, on a historical basis, have
been limited due to our ongoing credit review procedures and the general creditworthiness of our
customer base. No customers accounted for greater than 10% of our accounts receivable balance at
March 31, 2010 and September 30, 2009.
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Item 4. Controls and Procedures
Effectiveness of Disclosure Controls and Procedures
An evaluation was performed by our Chief Executive Officer and Chief Financial Officer of the
effectiveness of the design and operation of our disclosure controls and procedures, which are
defined under SEC rules as controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports it files under the Securities
Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within
required time periods. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decision regarding required disclosure. As a result of this evaluation, our Chief Executive Officer
and Chief Financial Officer have determined that our disclosure controls and procedures were
effective as of March 31, 2010.
Changes in Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended March 31, 2010, that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
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PART II Other Information
Item 1. Legal Proceedings
We are not currently a party to any material litigation and we are not aware of any pending or
threatened litigation against us that could have a material adverse effect on our business,
operating results or financial condition. The industry in which we operate is characterized by
frequent claims and litigation, including claims regarding patent and other intellectual property
rights as well as improper hiring practices. As a result, we may be involved in various legal
proceedings from time to time that arise in the ordinary course of business.
Item 1A. Risk Factors
There has been no material change in the Companys reported risk factors since the filing of
the Companys Annual Report on Form 10-K for the year ended September 30, 2009, which was filed
with the Securities and Exchange Commission on December 10, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Share Repurchase Program was announced on December 1, 2008 and allowed for the repurchase
of up to $5 million of common stock through December 1, 2009. As of March 31, 2010, there were
416,000 shares held as treasury stock.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information |
None.
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Item 6. Exhibits
EXHIBIT INDEX
Exhibit | ||
Number | Description | |
31.1#
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
31.2#
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
32.1#
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
# | Filed herewith | |
* | Management contract or compensatory plan or arrangement |
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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 thereunto duly authorized.
UNICA CORPORATION |
||||
Date: May 10, 2010 | /s/ Yuchun Lee | |||
Yuchun Lee | ||||
Chief Executive Officer, President and Chairman | ||||
Date: May 10, 2010 | /s/ Kevin P. Shone | |||
Kevin P. Shone | ||||
Senior Vice President and Chief Financial Officer [Principal Financial and Accounting Officer] |
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