Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - Interactive Intelligence Group, Inc. | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - Interactive Intelligence Group, Inc. | ex31_2.htm |
EX-32.1 - EXHIBIT 32.1 - Interactive Intelligence Group, Inc. | ex32_1.htm |
EX-32.2 - EXHIBIT 32.2 - Interactive Intelligence Group, Inc. | ex32_2.htm |
EX-31.1 - EXHIBIT 31.1 - Interactive Intelligence Group, Inc. | ex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
(Mark One)
R
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2011
Or
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________to____________
Commission File Number: 000-54450
INTERACTIVE INTELLIGENCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction
of incorporation or organization)
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45-1505676
(I.R.S. Employer
Identification No.)
|
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7601 Interactive Way
Indianapolis, IN 46278
(Address of principal executive offices, including zip code)
|
||
(317) 872-3000
(Registrant’s telephone number, including area code)
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||
Not Applicable
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 R
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No ¨
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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 R
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No ¨
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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
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¨
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Accelerated filer
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R
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Non-accelerated filer
(Do not check if a smaller reporting company)
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¨
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
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No þ
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As of October 31, 2011 there were 18,885,947 shares outstanding of the registrant’s common stock, $0.01 par value.
PART I. FINANCIAL INFORMATION
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Page
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||||
Item 1.
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Financial Statements.
|
||||
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010
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1 | ||||
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010
|
2 | ||||
Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended September 30, 2011
|
3 | ||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010
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4 | ||||
Notes to Condensed Consolidated Financial Statements
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5 | ||||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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15 | |||
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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24 | |||
Item 4.
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Controls and Procedures.
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24 | |||
PART II. OTHER INFORMATION
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|||||
Item 1.
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Legal Proceedings.
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25 | |||
Item 1A.
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Risk Factors.
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25 | |||
Item 6.
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Exhibits.
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26 | |||
SIGNATURE
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27 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements.
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2011 and December 31, 2010
(In thousands, except share and per share amounts)
September 30,
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December 31,
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|||||||
2011
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2010
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|||||||
(unaudited)
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||||||||
Assets
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 24,629 | $ | 48,300 | ||||
Short-term investments
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44,162 | 37,582 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,655 at September 30, 2011
and $1,148 at December 31, 2010
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43,020 | 36,130 | ||||||
Deferred tax assets, net
|
4,333 | 5,499 | ||||||
Prepaid expenses
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12,292 | 7,456 | ||||||
Other current assets
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4,258 | 4,989 | ||||||
Total current assets
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132,694 | 139,956 | ||||||
Long-term investments
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22,230 | -- | ||||||
Property and equipment, net
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13,898 | 10,336 | ||||||
Deferred tax assets, net
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1,580 | 2,765 | ||||||
Goodwill
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23,914 | 11,371 | ||||||
Intangible assets, net
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15,171 | 11,001 | ||||||
Other assets, net
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1,091 | 803 | ||||||
Total assets
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$ | 210,578 | $ | 176,232 | ||||
Liabilities and Shareholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued liabilities
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$ | 16,017 | $ | 16,364 | ||||
Accrued compensation and related expenses
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7,191 | 6,553 | ||||||
Deferred product revenues
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5,826 | 3,350 | ||||||
Deferred services revenues
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49,867 | 43,281 | ||||||
Total current liabilities
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78,901 | 69,548 | ||||||
Long-term deferred revenues
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9,963 | 7,420 | ||||||
Other long-term liabilities
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350 | -- | ||||||
Total liabilities
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89,214 | 76,968 | ||||||
Commitments and contingencies
|
-- | -- | ||||||
Shareholders’ equity:
|
||||||||
Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding
|
-- | -- | ||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 18,860,360 issued and outstanding at September 30, 2011, 18,157,789 issued and outstanding at December 31, 2010
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189 | 182 | ||||||
Additional paid-in capital
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115,841 | 103,837 | ||||||
Accumulated other comprehensive loss
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(404 | ) | (290 | ) | ||||
Retained earnings (accumulated deficit)
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5,738 | (4,465 | ) | |||||
Total shareholders’ equity
|
121,364 | 99,264 | ||||||
Total liabilities and shareholders’ equity
|
$ | 210,578 | $ | 176,232 |
See Accompanying Notes to Condensed Consolidated Financial Statements
1
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Income (unaudited)
For the Three and Nine Months Ended September 30, 2011 and 2010
(In thousands, except per share amounts)
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
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2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Product
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$ | 22,190 | $ | 20,671 | $ | 67,451 | $ | 54,772 | ||||||||
Recurring
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24,185 | 16,595 | 66,974 | 48,842 | ||||||||||||
Services
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5,765 | 4,565 | 17,426 | 12,051 | ||||||||||||
Total revenues
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52,140 | 41,831 | 151,851 | 115,665 | ||||||||||||
Cost of revenues:
|
||||||||||||||||
Product
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6,689 | 6,198 | 19,277 | 16,499 | ||||||||||||
Recurring
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6,479 | 4,302 | 17,574 | 11,768 | ||||||||||||
Services
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4,158 | 2,465 | 11,789 | 6,783 | ||||||||||||
Amortization of intangible assets
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35 | 16 | 105 | 48 | ||||||||||||
Total cost of revenues
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17,361 | 12,981 | 48,745 | 35,098 | ||||||||||||
Gross profit
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34,779 | 28,850 | 103,106 | 80,567 | ||||||||||||
Operating expenses:
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||||||||||||||||
Sales and marketing
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15,223 | 12,106 | 44,700 | 33,938 | ||||||||||||
Research and development
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9,243 | 7,193 | 26,104 | 20,563 | ||||||||||||
General and administrative
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5,326 | 3,935 | 16,445 | 11,784 | ||||||||||||
Amortization of intangible assets
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302 | 9 | 760 | 28 | ||||||||||||
Total operating expenses
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30,094 | 23,243 | 88,009 | 66,313 | ||||||||||||
Operating income
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4,685 | 5,607 | 15,097 | 14,254 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income, net
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165 | 120 | 300 | 229 | ||||||||||||
Other income (expense)
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172 | 337 | 262 | (1,028 | ) | |||||||||||
Total other income (expense)
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337 | 457 | 562 | (799 | ) | |||||||||||
Income before income taxes
|
5,022 | 6,064 | 15,659 | 13,455 | ||||||||||||
Income tax expense
|
1,741 | 2,561 | 5,456 | 5,629 | ||||||||||||
Net income
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$ | 3,281 | $ | 3,503 | $ | 10,203 | $ | 7,826 | ||||||||
Net income per share:
|
||||||||||||||||
Basic
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$ | 0.17 | $ | 0.20 | $ | 0.55 | $ | 0.45 | ||||||||
Diluted
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0.16 | 0.19 | 0.51 | 0.42 | ||||||||||||
Shares used to compute net income per share:
|
||||||||||||||||
Basic
|
18,816 | 17,524 | 18,648 | 17,431 | ||||||||||||
Diluted
|
19,946 | 18,695 | 19,890 | 18,731 |
See Accompanying Notes to Condensed Consolidated Financial Statements
2
Interactive Intelligence Group, Inc.
Condensed Consolidated Statement of Shareholders’ Equity (unaudited)
For the Nine Months Ended September 30, 2011
(In thousands)
Common Stock
Shares
|
Common Stock
Amount
|
Additional Paid-in
Capital
|
Accumulated Other Comprehensive Loss
|
Retained Earnings (Accumulated Deficit)
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Total
|
|||||||||||||||||||
Balances, December 31, 2010
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18,158 | $ | 182 | $ | 103,837 | $ | (290 | ) | $ | (4,465 | ) | $ | 99,264 | |||||||||||
Stock-based compensation
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-- | -- | 4,004 | -- | -- | 4,004 | ||||||||||||||||||
Exercise of stock options
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690 | 7 | 5,955 | -- | -- | 5,962 | ||||||||||||||||||
Issuances of common stock
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12 | -- | 387 | -- | -- | 387 | ||||||||||||||||||
Tax benefits from stock-based payment arrangements
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-- | -- | 1,658 | -- | -- | 1,658 | ||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||
Net income
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-- | -- | -- | -- | 10,203 | 10,203 | ||||||||||||||||||
Foreign currency translation adjustment
|
-- | -- | -- | (176 | ) | -- | (176 | ) | ||||||||||||||||
Net unrealized investment income
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-- | -- | -- | 62 | -- | 62 | ||||||||||||||||||
Total comprehensive income
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-- | -- | -- | (114 | ) | 10,203 | 10,089 | |||||||||||||||||
Balances, September 30, 2011
|
18,860 | $ | 189 | $ | 115,841 | $ | (404 | ) | $ | 5,738 | $ | 121,364 |
See Accompanying Notes to Condensed Consolidated Financial Statements
3
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 2011 and 2010
(In thousands)
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Operating activities:
|
||||||||
Net income
|
$ | 10,203 | $ | 7,826 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization and other non-cash items
|
4,388 | 3,219 | ||||||
Stock-based compensation expense
|
4,004 | 3,002 | ||||||
Tax benefits from stock-based payment arrangements
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(1,658 | ) | (4,528 | ) | ||||
Deferred income tax
|
827 | (56 | ) | |||||
Accretion of investment income
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(1,261 | ) | (407 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(2 | ) | (325 | ) | ||||
Prepaid expenses
|
(3,706 | ) | (1,778 | ) | ||||
Other current assets
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623 | (1,104 | ) | |||||
Other assets
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(288 | ) | (82 | ) | ||||
Accounts payable and accrued liabilities
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(2,873 | ) | 7,143 | |||||
Accrued compensation and related expenses
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(2,597 | ) | 723 | |||||
Deferred product revenues
|
2,445 | (717 | ) | |||||
Deferred services revenues
|
6,519 | 4,309 | ||||||
Net cash provided by operating activities
|
16,624 | 17,225 | ||||||
Investing activities:
|
||||||||
Sales of available-for-sale investments
|
55,596 | 15,565 | ||||||
Purchases of available-for-sale investments
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(83,083 | ) | (34,678 | ) | ||||
Purchases of property and equipment
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(7,439 | ) | (3,540 | ) | ||||
Acquisition, net of cash
|
(13,376 | ) | -- | |||||
Net cash used in investing activities
|
(48,302 | ) | (22,653 | ) | ||||
Financing activities:
|
||||||||
Proceeds from stock options exercised
|
5,962 | 1,830 | ||||||
Proceeds from issuance of common stock
|
387 | 261 | ||||||
Tax benefits from stock-based payment arrangements
|
1,658 | 4,528 | ||||||
Net cash provided by financing activities
|
8,007 | 6,619 | ||||||
Net increase (decrease) in cash and cash equivalents
|
(23,671 | ) | 1,191 | |||||
Cash and cash equivalents, beginning of period
|
48,300 | 48,497 | ||||||
Cash and cash equivalents, end of period
|
$ | 24,629 | $ | 49,688 | ||||
Cash paid during the year for:
|
||||||||
Interest
|
$ | 2 | $ | 1 | ||||
Income taxes
|
2,539 | 716 | ||||||
Other non-cash item:
|
||||||||
Purchase of property and equipment payable at end of period
|
$ | 14 | $ | 22 |
See Accompanying Notes to Condensed Consolidated Financial Statements
4
Interactive Intelligence Group, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2011 and 2010 (unaudited)
1.
|
FINANCIAL STATEMENT PRESENTATION
|
The shareholders of Interactive Intelligence, Inc. (“Interactive Intelligence”) at its 2011 Annual Meeting of Shareholders approved a proposal to reorganize Interactive Intelligence as a holding company incorporated in Indiana. Effective July 1, 2011, Interactive Intelligence Group, Inc. (“ININ Group”) replaced Interactive Intelligence as the publicly-held corporation. The reorganization is more fully described in the proxy statement/prospectus relating to the annual meeting of shareholders filed with the United States Securities and Exchange Commission (the “SEC”) on April 29, 2011. ININ Group is conducting the business previously conducted by Interactive Intelligence in substantially the same manner. In this Quarterly Report on Form 10-Q, the term the “Company” means Interactive Intelligence for the periods through and including June 30, 2011, and ININ Group for the periods after June 30, 2011. For further information, see Note 10 of these Notes to Condensed Consolidated Financial Statements.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions for Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, certain information and note disclosures normally included in the Company’s financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the SEC.
The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, at the respective balance sheet dates, and the reported amounts of revenues and expenses during the respective reporting periods. Despite management’s best effort to establish good faith estimates and assumptions, actual results could differ from these estimates. In management’s opinion, the Company’s accompanying condensed consolidated financial statements include all adjustments necessary (which are of a normal and recurring nature, except as otherwise noted) for the fair presentation of the results of the interim periods presented.
The Company’s accompanying condensed consolidated financial statements as of December 31, 2010 have been derived from the Company’s audited consolidated financial statements at that date but do not include all of the information and notes required by GAAP for complete financial statements. These accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2010, included in the Company’s most recent Annual Report on Form 10-K as filed with the SEC on March 16, 2011. The Company’s results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions.
2.
|
SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
|
The Company’s interim critical accounting policies and estimates include the recognition of income taxes using an estimated annual effective tax rate. For a complete summary of the Company’s other significant accounting policies and other critical accounting estimates, refer to Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
During the nine months ended September 30, 2011, there were no material changes to the Company’s significant accounting policies or critical accounting estimates.
In September 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements (“FASB ASC 2009-13”), which addresses criteria for separating consideration in multiple-element arrangements. The guidance requires companies allocating the overall consideration to each deliverable to use an estimated selling price of individual deliverables in the arrangement in the absence of vendor-specific objective (“VSOE”) evidence or other third-party evidence of the selling price (“ESP”) for the deliverables. This guidance is effective for fiscal years beginning on or after June 15, 2010 and early adoption was permitted.
The Company adopted FASB ASU 2009-13 on January 1, 2011. In arrangements that include hardware and software elements, the Company initially allocates the consideration in the arrangement to software and non-software items as groups. Then, the Company allocates the sales price of arrangements bundled with software and hardware based on the relative VSOE and/or ESP for each unit of accounting. This allocation has resulted in the shifting of revenues between software and hardware. As software revenue and hardware revenue are presented in the aggregate as “Product revenues” on the Statement of Income, there is no impact unless hardware is not delivered at period end. This is the only time in which revenues will be impacted as the hardware items in the bundled arrangement are not recognized while the software related items are recognizable assuming all other recognition criteria are met. As such, this adjustment is only made when there is undelivered hardware at the end of a reporting period. As the majority of orders are fulfilled prior to the end of a reporting period, the adoption of this guidance has been, and is expected to continue to be, immaterial to the Company’s condensed consolidated financial statements.
In September 2009, the FASB issued FASB ASU 2009-14, Certain Revenue Arrangements that Include Software Elements (“FASB ASU 2009-14”), which excludes from the scope of the FASB’s software revenue guidance tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. The Company adopted this guidance on January 1, 2011 and determined that FASB ASU 2009-14 does not apply to any of its product offerings. As such, the adoption of this guidance has had no impact on the Company’s results of operations.
In December 2010, the FASB issued FASB ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, which amends FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“FASB ASC 805”). The updated guidance requires that if a public entity presents comparative financial statements, the acquirer should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. This updated guidance also expands the supplemental pro forma disclosures to require a company to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption was permitted. The Company adopted this guidance on January 1, 2011, and there was no material impact on its consolidated financial statements.
5
In May 2011, the FASB issued FASB ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”), which amends FASB ASC Topic 820, Fair Value Measurement (“FASB ASC 820”). This updated guidance clarifies the FASB’s intent about the application of existing fair value measurement and disclosure requirements. In order to develop common requirements in accordance with GAAP and IFRS, this update also provides changes to particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. This guidance is effective for public entities prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not expect a material impact on its condensed consolidated financial statements upon adoption.
In June 2011, the FASB issued FASB ASU 2011-05, Presentation of Comprehensive Income, which amends FASB ASC Topic 220, Comprehensive Income. This updated guidance requires companies to report comprehensive income in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The updated guidance does not change what items are reported in other comprehensive income or the GAAP requirement to report reclassification of items from other comprehensive income to net income. The guidance is effective for public entities with fiscal years and interim periods beginning after December 15, 2011. Early adoption is permitted. The Company does not plan to early adopt this guidance and does not expect a material impact on its condensed consolidated financial statements upon adoption.
In September 2011, the FASB issued FASB ASU 2011-08, Testing Goodwill for Impairment, which amends FASB ASC Topic 350, Intangibles – Goodwill and Other. This updated guidance allows an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before completing the two-step goodwill impairment test. If it is not more likely that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required to be performed. The guidance applies to both public and non-public entities and is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company plans to early adopt this guidance when completing its annual goodwill impairment test for the 2011 fiscal year and does not expect a material impact on its condensed consolidated financial statements upon adoption.
3.
|
FAIR VALUE MEASUREMENTS
|
FASB ASC 820, as amended, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes the following three levels of inputs that may be used to measure fair value:
·
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
·
|
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
·
|
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.
|
The Company’s short-term investments all mature in less than one year and its long-term investments all mature within three years. Both short-term and long-term investments are considered available for sale. The Company’s assets that are measured at fair value on a recurring basis are classified within Level 1 or Level 2 of the fair value hierarchy. The types of instruments valued based on quoted market prices in active markets include money market securities. Such instruments are classified within Level 1 of the fair value hierarchy. The Company invests in money market funds that are traded daily and does not adjust the quoted price for such instruments. The types of instruments valued based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include corporate notes, agency bonds, T-bills and commercial paper. Such instruments are classified within Level 2 of the fair value hierarchy. The Company uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments.
The following tables sets forth a summary of the Company’s financial assets, classified as cash and cash equivalents, short-term investments and long-term investments on its condensed consolidated balance sheet, measured at fair value as of September 30, 2011 and December 31, 2010 (in thousands):
Fair Value Measurements at September 30, 2011 Using
|
||||||||||||||||
Description
|
Total
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Cash & cash equivalents:
|
||||||||||||||||
Money market funds
|
$ | 722 | $ | 722 | $ | -- | $ | -- | ||||||||
Total
|
$ | 722 | $ | 722 | $ | -- | $ | -- | ||||||||
Short-term investments:
|
||||||||||||||||
Corporate notes
|
$ | 29,056 | $ | -- | $ | 29,056 | $ | -- | ||||||||
Agency bonds
|
7,111 | -- | 7,111 | -- | ||||||||||||
Commercial paper
|
7,995 | -- | 7,995 | -- | ||||||||||||
Total
|
$ | 44,162 | $ | -- | $ | 44,162 | $ | -- | ||||||||
Long-term investments:
|
||||||||||||||||
Corporate notes
|
$ | 21,230 | $ | -- | $ | 21,230 | $ | -- | ||||||||
Agency bonds
|
1,000 | -- | 1,000 | -- | ||||||||||||
Total
|
$ | 22,230 | $ | -- | $ | 22,230 | $ | -- |
6
Fair Value Measurements at December 31, 2010 Using
|
||||||||||||||||
Description
|
Total
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Cash & cash equivalents:
|
||||||||||||||||
Money market funds
|
$ | 15,593 | $ | 15,593 | $ | -- | $ | -- | ||||||||
Commercial paper
|
2,400 | 2,400 | ||||||||||||||
Total
|
$ | 17,993 | $ | 17,993 | $ | -- | $ | -- | ||||||||
Short-term investments:
|
||||||||||||||||
Corporate notes
|
$ | 20,803 | $ | -- | $ | 20,803 | $ | -- | ||||||||
Agency bonds
|
8,882 | -- | 8,882 | -- | ||||||||||||
Commercial paper
|
5,297 | -- | 5,297 | -- | ||||||||||||
T-Bill
|
2,600 | -- | 2,600 | -- | ||||||||||||
Total
|
$ | 37,582 | $ | -- | $ | 37,582 | $ | -- |
4.
|
NET INCOME PER SHARE
|
Basic net income per share is calculated based on the weighted-average number of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net income per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports net income, the calculation of diluted net income per share excludes shares underlying stock options outstanding that would be anti-dilutive. Potential common shares are composed of shares of common stock issuable upon the exercise of stock options. The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share amounts):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income, as reported (A)
|
$ | 3,281 | $ | 3,503 | $ | 10,203 | $ | 7,826 | ||||||||
Weighted average shares of common stock outstanding (B)
|
18,816 | 17,524 | 18,648 | 17,431 | ||||||||||||
Dilutive effect of employee stock options
|
1,130 | 1,171 | 1,242 | 1,300 | ||||||||||||
Common stock and common stock equivalents (C)
|
19,946 | 18,695 | 19,890 | 18,731 | ||||||||||||
Net income per share:
|
||||||||||||||||
Basic (A/B)
|
$ | 0.17 | $ | 0.20 | $ | 0.55 | $ | 0.45 | ||||||||
Diluted (A/C)
|
0.16 | 0.19 | 0.51 | 0.42 |
The Company’s calculation of diluted net income per share for the three and nine months ended September 30, 2011 and the same periods in 2010 excludes stock options to purchase approximately 360,000 and 924,000 shares and 307,000 and 911,000 shares of the Company’s common stock, respectively, as the effect would be anti-dilutive.
5.
|
STOCK-BASED COMPENSATION
|
Stock Option Plans
The Company’s stock option plans, adopted in 1995, 1999 and 2006, authorize the Board of Directors or the Compensation Committee, as applicable, to grant incentive and nonqualified stock options, and, in the case of the 2006 Equity Incentive Plan, as amended and as assumed by ININ Group (the “2006 Plan”), stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units and other stock-based awards. After adoption of the 2006 Plan by the Company’s shareholders in May 2006, the Company may no longer make any grants under previous plans, but any shares subject to awards under the 1999 Stock Option and Incentive Plan and the Outside Directors Stock Option Plan (collectively, the “1999 Plans”) that are cancelled are added to shares available under the 2006 Plan. A maximum of 7,050,933 shares are available for delivery under the 2006 Plan, which consists of (i) 3,350,000 shares, plus (ii) 320,000 shares available for issuance under the 1999 Plans, but not underlying any outstanding stock options or other awards under the 1999 Plans, plus (iii) up to 3,380,933 shares subject to outstanding stock options or other awards under the 1999 Plans that expire, are forfeited or otherwise terminate unexercised on or after May 18, 2006. The number of shares available under the 2006 Plan is subject to adjustment for certain changes in the Company’s capital structure. The exercise price of options granted under the 2006 Plan is equal to the closing price of the Company’s common stock, as reported by The NASDAQ Global Select Market, on the business day immediately preceding the date of grant.
7
The Company grants four types of equity compensation awards, including three types of stock options and RSUs. The first type of stock option is non-performance-based subject only to time-based vesting and are granted by the Company as annual grants to executives and designated key employees, to certain new employees and to newly-elected non-employee directors. These stock options vest in four equal annual installments beginning one year after the grant date. The fair value of these option grants is determined on the date of grant and the related compensation expense is recognized for the entire award on a straight-line basis over the requisite service period.
The second type of stock option granted by the Company is performance-based subject to cancellation if the specified performance targets are not met. If the applicable performance targets have been achieved, the options will vest in four equal annual installments beginning one year after the performance-related period has ended. The fair value of these stock option grants is determined on the date of grant and the related compensation expense is recognized over the requisite service period, including the initial period for which the specified performance targets must be met.
The third type of stock option granted by the Company is director options granted to non-employee directors annually. These options are similar to the non-performance-based options described above except that the director options vest one year after the grant date. The fair value of these option grants is determined on the date of the grant and the related compensation expense is recognized over one year. The director options are generally granted at the Company’s Annual Meeting of Shareholders during the second quarter.
The fourth type of equity compensation awards granted to designated key employees by the Company are RSUs. Commencing in January 2011, the Company began granting RSUs to certain key employees. The fair value of the RSUs is determined on the date of grant and the RSUs vest in four equal annual installments beginning one year after the grant date. RSUs are not included in issued and outstanding common stock until the shares are vested and settlement has occurred.
The plans may be terminated by the Company’s Board of Directors at any time.
Stock-Based Compensation Expense Information
The following table summarizes the allocation of stock-based compensation expense related to employee and director stock options and RSUs under FASB ASC Topic 718, Compensation – Stock Compensation for the three and nine months ended September 30, 2011 and 2010 (in thousands):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Stock-based compensation expense by category:
|
||||||||||||||||
Cost of recurring revenues
|
$ | 119 | $ | 68 | $ | 328 | $ | 159 | ||||||||
Cost of services revenues
|
36 | 18 | 71 | 69 | ||||||||||||
Sales and marketing
|
458 | 332 | 1,283 | 974 | ||||||||||||
Research and development
|
392 | 285 | 1,196 | 881 | ||||||||||||
General and administrative
|
406 | 326 | 1,126 | 922 | ||||||||||||
Total stock-based compensation expense
|
$ | 1,411 | $ | 1,029 | $ | 4,004 | $ | 3,005 |
Stock Option and Restricted Stock Unit Valuation
The Company estimated the fair value of stock options using the Black-Scholes valuation model. There were no material changes in the way the assumptions were calculated as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The weighted-average estimated per option value of non-performance-based and performance-based options granted during the nine months ended September 30, 2011 and 2010 used the following assumptions:
Nine Months Ended
September 30,
|
||||||||
Valuation assumptions for non-performance-based options:
|
2011
|
2010
|
||||||
Dividend yield
|
-- | % | -- | % | ||||
Expected volatility
|
62.42 - 63.10 | % | 67.75 - 69.10 | % | ||||
Risk-free interest rate
|
0.69- 1.74 | % | 1.72 - 2.06 | % | ||||
Expected life of option (in years)
|
4.25 | 4.25 |
Nine Months Ended
September 30,
|
||||||||
Valuation assumptions for performance-based options:
|
2011
|
2010
|
||||||
Dividend yield
|
-- | % | -- | % | ||||
Expected volatility
|
65.55 | % | 67.81 | % | ||||
Risk-free interest rate
|
1.97 | % | 2.30 | % | ||||
Expected life of option (in years)
|
4.75 | 4.75 |
The Company granted performance-based options during the first quarter of 2011 and 2010.
8
|
Nine Months Ended
September 30,
|
|||||||
Valuation assumptions for annual director options:
|
2011
|
2010
|
||||||
Dividend yield
|
-- | % | -- | % | ||||
Expected volatility
|
64.38 | % | 64.43 | % | ||||
Risk-free interest rate
|
0.93 | % | 1.41 | % | ||||
Expected life of option (in years)
|
3.50 | 3.50 |
The Company granted annual director options that vest one year after the grant date during the second quarter of 2011 and 2010.
RSUs are valued using the fair market value of the Company’s stock on the date of grant on a straight line basis taking into account an estimated forfeiture rate.
Stock Option and RSU Activity
The following table sets forth a summary of stock option activity for the nine months ended September 30, 2011:
Options
|
Weighted-
Average
Exercise
Price
|
|||||||
Balances, beginning of year
|
3,129,373 | $ | 11.58 | |||||
Options granted
|
354,500 | 32.54 | ||||||
Options exercised
|
(690,431 | ) | 8.62 | |||||
Options cancelled, forfeited or expired
|
(13,883 | ) | 20.60 | |||||
Options outstanding
|
2,779,559 | 14.94 | ||||||
Option price range
|
$ | 2.55 – 37.76 | ||||||
Weighted-average fair value of options granted
|
$ | 16.30 | ||||||
Options exercisable
|
1,599,865 | $ | 10.89 |
The following table sets forth a summary of RSU activity for the nine months ended September 30, 2011:
Awards
|
||||
Balances, beginning of year
|
-- | |||
RSUs granted
|
117,007 | |||
RSUs released
|
-- | |||
RSUs forfeited
|
(667 | ) | ||
RSUs outstanding
|
116,340 |
As of September 30, 2011, there were 1,262,847 shares of stock available for issuance for equity compensation awards under the 2006 Plan.
6.
|
CONCENTRATION OF CREDIT RISK
|
No customer or partner accounted for more than 10% of the Company’s accounts receivable as of September 30, 2011 and December 31, 2010 or revenues for the three and nine months ended September 30, 2011 or September 30, 2010. With the exception of the revenues of the United States, no other country accounted for more than 10% of the Company’s revenues during the three and nine months ended September 30, 2011. The United States accounted for 64% and 62%, respectively, of the Company’s revenues during those periods.
9
7.
|
COMMITMENTS AND CONTINGENCIES
|
Legal Proceedings
From time to time, the Company has received notification from competitors and other technology providers claiming that the Company’s technology infringes their proprietary rights. The Company cannot assure you that these matters can be resolved amicably without litigation, or that the Company will be able to enter into licensing arrangements on terms and conditions that would not have a material adverse effect on its business, financial condition or results of operations.
From time to time, the Company is also involved in certain legal proceedings in the ordinary course of conducting its business. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes these legal proceedings will not have a material adverse effect on its financial position or results of operations. Litigation in general, and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.
Guarantees
The Company provides indemnifications of varying scope and amount to certain customers against claims of intellectual property infringement made by third parties arising from the use of its products. The Company’s direct software license agreements, in accordance with FASB ASC Topic 460, Guarantees, include certain provisions for indemnifying customers, in material compliance with their license agreement, against liabilities if the Company’s software products infringe upon a third party's intellectual property rights, over the life of the agreement. There is no maximum potential amount of future payments set under the guarantee. However, the Company may at any time and at its option and expense: (i) procure the right of the customer to continue to use the Company’s software that may infringe a third party’s rights; (ii) modify its software so as to avoid infringement; or (iii) require the customer to return its software and refund the customer the fee actually paid by the customer for its software less depreciation based on a five-year straight-line depreciation schedule. The customer’s failure to provide timely notice or reasonable assistance will relieve the Company of its obligations under this indemnification to the extent that it has been actually and materially prejudiced by such failure. To date, the Company has not incurred, nor does it expect to incur, any material related costs and, therefore, has not reserved for such liabilities.
The Company’s software license agreements also include a warranty that its software products will substantially conform to its software user documentation for a period of one year, provided the customer is in material compliance with the software license agreement. To date, the Company has not incurred any material costs associated with these product warranties, and as such, has not reserved for any such warranty liabilities in its operating results.
Lease Commitments
The Company leases space for its world headquarters in Indianapolis, Indiana under an operating lease agreement and amendments which expire on March 31, 2018. The Company also has multiple leases for offices and other space throughout the world. The office space for sales, services, development and international offices and a product distribution center located in Indianapolis, Indiana are rented under operating leases and expire at various times through 2016. In accordance with FASB ASC Topic 840, Leases, rental expense is recognized ratably over the lease period, including those leases containing escalation clauses.
Other Contingencies
The Company has received and may continue to receive certain payroll tax credits and real estate tax abatements that were granted to the Company based upon certain growth projections. If the Company’s actual results are less than those projections, the Company may be subject to repayment of some or all of the tax credits or payment of additional real estate taxes in the case of the abatements. The Company does not believe that it will be subject to payment of any money related to these taxes; however, the Company cannot provide assurance as to the outcome.
8.
|
INCOME TAXES
|
The following table sets forth the items accounting for the difference between expected income tax expense at the 35% federal statutory rate compared to actual income tax expense recorded in the Company’s condensed consolidated financial statements (in thousands):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Expected income tax expense at 35% tax rate
|
$ | 1,729 | $ | 2,122 | $ | 5,453 | $ | 4,709 | ||||||||
State taxes, net of federal benefit
|
204 | 424 | 618 | 952 | ||||||||||||
Stock-based compensation expense related to non-deductible stock option expense
|
11 | 72 | 54 | 238 | ||||||||||||
Disqualifying dispositions of stock options
|
(92 | ) | (74 | ) | (373 | ) | (251 | ) | ||||||||
Research tax credit
|
(150 | ) | -- | (448 | ) | -- | ||||||||||
Other
|
39 | 17 | 152 | (19 | ) | |||||||||||
Income tax expense
|
$ | 1,741 | $ | 2,561 | $ | 5,456 | $ | 5,629 |
FASB ASC Topic 740, Income Taxes (“FASB ASC 740”), prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has identified an uncertain tax position related to certain tax credits that the Company currently believes meets the “more likely than not” recognition threshold to be sustained upon examination. The balance of the reserve was approximately $1.1 million at December 31, 2010. As of September 30, 2011, the reserve had increased to $1.3 million because of the current year increase in the tax credits.
10
During the quarter ended September 30, 2011, the Company determined that a tax position taken on previously filed state income tax returns no longer meets the “more likely than not” recognition threshold. As required under FASB ASC 740, the derecognizing of the tax position resulted in the creation of a reserve of $200,000, which included associated interest and penalties, in the quarter ended September 30, 2011.
The Company and its subsidiaries file federal income tax returns and income tax returns in various states and foreign jurisdictions. Tax years 2006 and forward remain open for examination for federal tax purposes and tax years 2005 and forward remain open for examination for the Company’s more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, net operating loss and other carryforwards at December 31, 2010 will remain subject to examination until the respective tax year is closed.
The impact of foreign effective income tax rates on the Company’s overall effective income tax rates is immaterial due to the fact that the Company uses a cost plus basis for calculating taxes in most foreign tax jurisdictions in which the Company operates. A cost plus basis limits the taxes paid in these foreign jurisdictions to a markup of the costs that the Company incurs in these jurisdictions and is not tied to the actual revenues generated. As of September 30, 2011 and 2010, the recorded foreign tax expense and the related effect on the income tax rates were $160,000, or 1.0%, and $179,000, or 1.3%, respectively. The impact of the foreign effective income tax rates could become material as the Company expands its operations in foreign countries and calculates foreign income taxes based on operating results in those countries.
During the third quarter of 2010, the Company utilized its remaining net operating losses generated from the exercise of stock options in prior years and began utilizing deferred tax assets generated from foreign withholding and research tax credits. At September 30, 2011, the Company had approximately $5.4 million of alternative minimum tax, federal and state research tax credit carryforwards and foreign tax credits available to offset taxes payable.
9.
|
ACQUISITIONS
|
CallTime Acquisition
The Company entered into a stock purchase agreement, dated as of July 1, 2011, with CallTime Technology Sdn. Bnd., the ultimate parent company of CallTime Solutions Ltd. (“CallTime”). CallTime is based in Australia and New Zealand, and is an exclusive reseller of the Company’s solutions. Pursuant to the terms of the stock purchase agreement, the Company purchased 100% of CallTime’s outstanding capital stock for an aggregate purchase price of $11.4 million, funded with cash-on-hand. The Company deposited $2.1 million of the purchase price into an escrow account to ensure funds are available to pay indemnification claims, if any. The Company acquired CallTime as part of its growth strategy of accelerating business in key international markets. CallTime has been the Company’s largest revenue-producing reseller in Australia and New Zealand for the last three years. The acquisition was accounted for using the acquisition method of accounting in accordance with FASB ASC 805. The results of CallTime’s operations for the three months ended September 30, 2011 were included in the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2011.
The preliminary purchase price allocations for the Company’s acquisition of CallTime are based on a third-party valuation report which was prepared in accordance with the provisions of FASB ASC 805. The following table summarizes the fair value of the intangible and other assets acquired and liabilities assumed at the date of the acquisition (in thousands):
July 1, 2011
|
||||
Cash and cash equivalents
|
$ | 2,106 | ||
Accounts receivable
|
5,790 | |||
Property and equipment, net
|
419 | |||
Prepaid expenses
|
842 | |||
Intangible assets, net
|
2,410 | |||
Goodwill
|
9,619 | |||
Total assets acquired
|
21,186 | |||
Accounts payable and accrued liabilities
|
(3,537 | ) | ||
Accrued compensation and related expenses
|
(3,133 | ) | ||
Other liability, net
|
(329 | ) | ||
Deferred tax liability
|
(723 | ) | ||
Deferred services revenues
|
(2,093 | ) | ||
Net assets acquired
|
$ | 11,371 |
The fair value of financial assets acquired includes accounts receivable with a fair and a contractual value of $5.8 million. The receivables consist of amounts due from customers for products sold and/or services rendered.
The Company has recorded a deferred tax liability of $723,000 associated with the intangible asset recorded in connection with the CallTime acquisition. This resulted in a corresponding adjustment recorded to goodwill. The Company is in the process of completing the valuation of a net operating loss associated with the acquisition of CallTime. Adjustments for this tax matter may result in a corresponding adjustment to goodwill. The Company expects the valuation to be completed in the fourth quarter of 2011.
Professional fees recognized as of September 30, 2011 totaled approximately $164,000, with approximately $41,000 recognized during the third quarter of 2011, and included transaction costs such as legal, accounting, valuation and other professional services, which were expensed as incurred. These costs are included within general and administrative expenses on the condensed consolidated statements of income.
11
The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, was primarily attributed to CallTime’s existing client base. Included within goodwill is the assembled workforce, comprised of 21 employees, which does not qualify for separate recognition. None of the goodwill is expected to be deductible for tax purposes.
Customer relationships are amortized based upon historical patterns in which the economic benefits are expected to be realized. Other finite-lived identifiable intangible assets are amortized on a straight-line basis. The following sets forth the customer relationships acquired and their economic useful life at the date of acquisition (dollars in thousands):
As of September 30, 2011
|
||||||||||||||||
Gross Amount
|
Accumulated Amortization
|
Net Amount
|
Economic Useful Life
(in years)
|
|||||||||||||
Customer relationships
|
$ | 2,410 | $ | 50 | $ | 2,360 | 12 |
Agori Acquisition
The Company entered into a stock purchase agreement, dated as of February 28, 2011, with the shareholders of Agori Communications, GmbH (“Agori”), a Frankfurt, Germany-based reseller of the Company’s solutions. Pursuant to the terms of the stock purchase agreement, the Company purchased 100% of Agori’s outstanding capital stock for an aggregate purchase price of $4.9 million, including $808,000 related to the working capital of Agori, funded with cash-on-hand. The Company deposited $493,000 of the purchase price into an escrow account to ensure funds are available to pay indemnification claims, if any. The Company acquired Agori as part of its growth strategy of accelerating business in key international markets. The acquisition was accounted for using the acquisition method of accounting in accordance with FASB ASC 805. The results of Agori’s operations for the three and nine months ended September 30, 2011 were included in the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2011.
The preliminary purchase price allocations for the Company’s acquisition of Agori are based on a third-party valuation report which was prepared in accordance with the provisions of FASB ASC 805. The following table summarizes the fair value of the intangible and other assets acquired and liabilities assumed at the date of the acquisition (in thousands):
February 28, 2011
|
||||
Cash and cash equivalents
|
$ | 815 | ||
Accounts receivable
|
1,098 | |||
Prepaid expenses
|
288 | |||
Property and equipment, net
|
123 | |||
Other assets, net
|
221 | |||
Intangible assets, net
|
2,670 | |||
Goodwill
|
2,344 | |||
Total assets acquired
|
7,559 | |||
Accounts payable and accrued liabilities
|
(812 | ) | ||
Accrued compensation and related expenses
|
(102 | ) | ||
Contingent liability
|
(370 | ) | ||
Deferred tax liability
|
(801 | ) | ||
Deferred services revenues
|
(548 | ) | ||
Net assets acquired
|
$ | 4,926 |
The fair value of financial assets acquired includes accounts receivable with a fair and a contractual value of $1.1 million. The receivables consist of amounts due from customers for products sold and/or services rendered.
The Company has recorded a deferred tax liability of $800,000 associated with the intangible asset recorded in connection with the Agori acquisition. This resulted in a corresponding adjustment recorded to goodwill.
Professional fees recognized as of September 30, 2011 totaled approximately $211,000, with approximately $34,000 recognized during the third quarter of 2011, and included transaction costs such as legal, accounting, valuation and other professional services, which were expensed as incurred. These costs are included within general and administrative expenses on the condensed consolidated statements of income.
The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, was primarily attributed to Agori’s existing client base. Included within goodwill is the assembled workforce, comprised of 16 employees, which does not qualify for separate recognition. None of the goodwill is expected to be deductible for tax purposes.
12
Customer relationships are amortized based upon historical patterns in which the economic benefits are expected to be realized. Other finite-lived identifiable intangible assets are amortized on a straight-line basis. The following sets forth the customer relationships acquired and their economic useful life at the date of acquisition (dollars in thousands):
As of September 30, 2011
|
||||||||||||||||
Gross Amount
|
Accumulated Amortization
|
Net Amount
|
Economic Useful Life
(in years)
|
|||||||||||||
Customer relationships
|
$ | 2,670 | $ | 156 | $ | 2,514 | 10 |
Earn-out Payments
In accordance with the stock purchase agreement with Agori, the Company agreed to make contingent earn-out payments based upon pre-defined terms. The Company estimates the earn-out payments will total approximately $370,000 and will be paid over the next two and a half years. A corresponding liability has been recorded for this amount. In connection with FASB ASC 805, the fair value of any contingent consideration is established at the acquisition date and included in the total purchase price. The contingent consideration is then adjusted to fair value as an increase or decrease in current earnings in each reporting period.
Pro Forma Results
We have not furnished pro forma financial information related to our CallTime and Agori acquisitions because such information is not material individually or in the aggregate to the overall financial results of the Company.
Latitude Acquisition
The Company entered into a stock purchase agreement, dated as of October 5, 2010, with Global Software Services, Inc., doing business as Latitude Software (“Latitude”), a privately-held provider of accounts receivable management software and services. Pursuant to the terms of the stock purchase agreement, the Company purchased 100% of Latitude’s outstanding capital stock for an aggregate purchase price of $15.6 million, including $1.6 million related to the working capital of Latitude, funded with cash-on-hand. The Company had deposited $1.1 million of the purchase price into an escrow account to ensure funds were available to pay any indemnification claims. Subsequent to September 30, 2011, these funds have been distributed to the former shareholders of Latitude. Latitude is operating as a subsidiary of the Company. The Company acquired Latitude as part of its growth strategy of adding industry-specific applications and expertise that complement the Company’s core products. The Company is continuing to create tighter integration between Latitude’s applications and its core Interaction Center Platform® technology, enhance Latitude solutions for first-party debt collections, incorporate Latitude’s solutions in the Company’s cloud-based offerings, and internationalize Latitude’s solutions. The acquisition was accounted for using the acquisition method of accounting in accordance with FASB ASC 805. The results of Latitude’s operations for the three and nine months ended September 30, 2011 included $2.3 million and $5.3 million, respectively, of revenues and $54,000 and $1.0 million, respectively, of net losses. Latitude’s results were included in the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2011.
The purchase price allocations for the Company’s acquisition of Latitude are based on a third-party valuation report which was prepared in accordance with the provisions of FASB ASC 805. The following table summarizes the fair value of the intangible and other assets acquired and liabilities assumed at the date of the acquisition (in thousands):
October 1, 2010
|
||||
Cash
|
$ | 338 | ||
Accounts receivable, net
|
1,998 | |||
Prepaids
|
57 | |||
Property, plant and equipment, net
|
697 | |||
Accounts payable
|
(448 | ) | ||
Accrued compensation
|
(237 | ) | ||
Intangible assets
|
10,000 | |||
Goodwill
|
8,519 | |||
Total assets acquired
|
20,924 | |||
Deferred services revenue
|
(967 | ) | ||
Deferred tax liability
|
(4,294 | ) | ||
Net assets acquired
|
$ | 15,663 |
The fair value of financial assets acquired includes accounts receivable with a fair and contractual value of $2.0 million. The receivables consist of amounts due from customers for products licensed and/or services rendered.
The Company recorded a deferred tax liability of $4.3 million associated with the intangible assets recorded in connection with the Latitude acquisition. This resulted in a corresponding adjustment recorded to goodwill. The Company is in the process of completing a research and development study for Latitude for 2010, which may result in a related research and development credit recorded as a deferred tax asset. Adjustments for these tax matters may result in a corresponding adjustment to tax expense. The Company expects the study to be completed in the fourth quarter of 2011.
Professional fees recognized as of September 30, 2011 for the Latitude acquisition totaled approximately $122,000, with all fees recognized prior to the third quarter of 2011 and include transaction costs such as legal, accounting, valuation and other professional services, which were expensed as incurred. These costs are included within general and administrative expenses on the condensed consolidated statements of income.
13
The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, was primarily attributed to expected synergies from Latitude’s debt collection software, experienced staff and existing client base. Included within goodwill is the assembled workforce, comprised of 40 employees, which does not qualify for separate recognition. None of the goodwill is expected to be deductible for tax purposes.
Customer relationships, core technology and non-competition agreements are amortized based upon historical patterns in which the economic benefits are expected to be realized. Other finite-lived identifiable intangible assets are amortized on a straight-line basis. The following are the identifiable intangible assets acquired and their respective economic useful lives at the date of acquisition (dollars in thousands):
As of September 30, 2011
|
||||||||||||||||
Gross Amount
|
Accumulated Amortization
|
Net Amount
|
Economic Useful Life
(in years)
|
|||||||||||||
Trade name
|
$ | 1,670 | $ | -- | $ | 1,670 |
Indefinite
|
|||||||||
Customer relationships
|
6,270 | 522 | 5,748 | 12 | ||||||||||||
Core technology
|
980 | 75 | 905 | 13 | ||||||||||||
Non-competition agreements
|
1,080 | 180 | 900 | 6 | ||||||||||||
Total
|
$ | 10,000 | $ | 777 | $ | 9,223 |
Pro Forma Results
The following table shows unaudited pro forma results of operations as if we had acquired Latitude on January 1, 2010 (in thousands, except per share amounts):
Three Months Ended
|
Nine Months Ended
|
|||||||
September 30, 2010
|
September 30, 2010
|
|||||||
Revenue
|
$ | 44,287 | $ | 122,161 | ||||
Net Income
|
3,574 | 8,881 | ||||||
EPS – Basic
|
0.20 | 0.51 | ||||||
EPS - Diluted
|
0.19 | 0.47 |
The unaudited pro forma results of operations are not necessarily indicative of the actual results that would have occurred had the transaction actually taken place at the beginning of the periods indicated.
14
10.
|
REORGANIZATION
|
The shareholders of Interactive Intelligence at its Annual Meeting of Shareholders on June 10, 2011, approved a proposal to reorganize Interactive Intelligence as a holding company incorporated in Indiana. The reorganization became effective July 1, 2011. In the reorganization:
● Each outstanding share of Interactive Intelligence’s common stock automatically converted into one share of common stock of ININ Group, and the
current shareholders of Interactive Intelligence became shareholders of ININ Group on a one-for-one basis, holding the same number of shares and
the same ownership percentage after the reorganization as they held prior to the reorganization.
● Interactive Intelligence became a wholly-owned subsidiary of ININ Group.
● All current subsidiaries of Interactive Intelligence became direct or indirect subsidiaries of ININ Group.
● Each of the outstanding options to acquire shares of Interactive Intelligence’s common stock became options to acquire an identical number of shares of
ININ Group common stock with the same terms and conditions as before the reorganization.
● Each outstanding RSU became an RSU for an identical number of shares of ININ Group common stock.
● Interactive Intelligence’s board of directors and executive officers became the board of directors and executive officers of ININ Group, holding the
same positions.
● ININ Group was listed on Nasdaq under “ININ”, Interactive Intelligence’s previous symbol.
● ININ Group replaced Interactive Intelligence as the publicly held corporation.
The primary objectives of the reorganization were to provide the Company with enhanced strategic, operational, and financing flexibility, improve its ability to determine financial results and profitability of different lines of business, and better manage tax expenses and exposure to liabilities. The reorganization is more fully described in the proxy statement/prospectus relating to the Annual Meeting of Shareholders filed with the SEC on April 29, 2011.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide our investors with an understanding of our past performance, our financial condition and our prospects and should be read in conjunction with other sections of this Quarterly Report on Form 10-Q. Investors should carefully review the information contained in this report under Part II, Item 1A “Risk Factors” and in the Part I, Item 1A “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The following will be discussed and analyzed:
·
|
Forward-Looking Information
|
·
|
Overview
|
·
|
Financial Highlights
|
·
|
Historical Results of Operations
|
·
|
Comparison of Three and Nine Months Ended September 30, 2011 and 2010
|
·
|
Liquidity and Capital Resources
|
·
|
Critical Accounting Policies and Estimates
|
Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that involves risks and uncertainties which may cause actual results to differ materially from those predicted in the forward-looking statements. Forward-looking statements can often be identified by the use of such verbs as “expects”, “anticipates”, “believes”, “intend”, “plan”, “may”, “should”, “will”, “would”, “will be”, “will continue”, “will likely result”, or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors, including, but not limited to, unstable economic conditions, rapid technological changes in the industry, our ability to maintain profitability, to manage successfully our growth, to manage successfully our increasingly complex third-party relationships resulting from the software and hardware components being licensed or sold with our solutions, to maintain successful relationships with certain suppliers which may be impacted by competition in the technology industry, to maintain successful relationships with our current and any new partners, to maintain and improve our current products, to develop new products, to protect our proprietary rights adequately, to successfully integrate acquired businesses and other factors set forth in our United States Securities and Exchange Commission (“SEC”) filings.
Overview
The shareholders of Interactive Intelligence, Inc. (“Interactive Intelligence”) approved a proposal to reorganize Interactive Intelligence as a holding company incorporated in Indiana at the 2011 Annual Meeting of Shareholders. Effective July 1, 2011, Interactive Intelligence Group, Inc. (“ININ Group”) replaced Interactive Intelligence as the publicly held corporation. The terms “we”, “us”, “our” or the “Company” mean Interactive Intelligence for the periods through and including June 30, 2011, and ININ Group for the periods after June 30, 2011. For further information see Notes 1 and 10 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
15
We are a leading provider of software applications. Our principal product is a suite of applications that provides customers with a software-based multi-channel communications platform. We are a recognized leader in the worldwide contact center market, where our software applications provide a range of pre-integrated functionality. We use this same platform to offer our solutions for business communications, including business process automation. Our solutions are delivered both on-premise and through “cloud-based” models hosted in our data centers. Our solutions are used by businesses and organizations in industries such as teleservices, financial services, higher education, utilities, healthcare, retail, technology, government and business services.
Our strategy is to expand our reach in three ways: through continued penetration of our unified Internet Protocol business communication solutions, through business process automation, and through the acquisition of complementary applications and distribution channels. In addition, we plan to invest in current partners to drive deeper penetration into existing accounts and existing markets, leverage our multi-national partners to expand global markets in which we operate and cultivate new strategic partners to grow our global presence.
For further information on our business and the products and services we offer, refer to the Part I, Item 1 “Business” section of our Annual Report on Form 10-K for the year ended December 31, 2010.
Our management monitors certain key measures to assess our financial results. In particular, we track trends on product orders, contracted professional services, and cloud-based orders from quarter to quarter and in comparison to the prior year actual results and current year projected amounts. We also review leading market indicators to look for trends in economic conditions. In addition to orders and revenues, management reviews costs of revenue and operating expenses and staffing levels to ensure we are managing new expenditures and controlling costs. For additional discussions regarding trends and our expectations for the remainder of 2011, see “Financial Highlights” on page 17.
In addition to the above, our management monitors diluted earnings per share (“EPS”), a key measure of performance also used by analysts and investors, based on accounting principles generally accepted in the United States of America (“GAAP”) and on a non-GAAP basis. Management uses non-GAAP EPS, non-GAAP net income and non-GAAP operating income to analyze our business. These non-GAAP measures include revenue which was not recognized on a GAAP basis due to purchase accounting adjustments and exclude non-cash stock-based compensation expense, non-cash purchase accounting adjustments and non-cash income tax expense. During the fourth quarter of 2010, we began including purchase accounting adjustments in our GAAP to non-GAAP reconciliation and historical amounts shown below are presented using the revised format. These measures are not in accordance with, or an alternative for, GAAP, and may be different from non-GAAP measures used by other companies. Stock-based compensation expense and purchase accounting adjustments are primarily non-cash and income tax expense is partially non-cash. We believe that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to our management and investors regarding financial and business trends related to our results of operations. Further, our management believes that these non-GAAP measures improve management’s and investors’ ability to compare our financial performance with other companies in the technology industry. Because stock-based compensation expense, purchase accounting adjustments and non-cash income tax expense amounts can vary significantly between companies, it is useful to compare results excluding these amounts. Our management also uses financial statements that exclude stock-based compensation expense related to stock options, purchase accounting adjustments and non-cash income tax expense for our internal budgets.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included below (in thousands, except per share amounts):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income, as reported
|
$ | 3,281 | $ | 3,503 | $ | 10,203 | $ | 7,826 | ||||||||
Purchase accounting adjustments:
|
||||||||||||||||
Increase to revenues:
|
||||||||||||||||
Recurring
|
64 | -- | 162 | 8 | ||||||||||||
Services
|
-- | 1 | 48 | 4 | ||||||||||||
Reduction of operating expenses:
|
||||||||||||||||
Customer relationships
|
257 | 9 | 625 | 27 | ||||||||||||
Technology
|
35 | 16 | 105 | 48 | ||||||||||||
Non-compete agreements
|
45 | -- | 135 | -- | ||||||||||||
Acquisition costs
|
75 | -- | 407 | -- | ||||||||||||
Total
|
476 | 26 | 1,482 | 87 | ||||||||||||
Non-cash stock-based compensation expense:
|
||||||||||||||||
Cost of recurring revenues
|
119 | 68 | 328 | 159 | ||||||||||||
Cost of services
|
36 | 18 | 71 | 69 | ||||||||||||
Sales and marketing
|
458 | 332 | 1,283 | 974 | ||||||||||||
Research and development
|
392 | 285 | 1,196 | 881 | ||||||||||||
General and administrative
|
406 | 326 | 1,126 | 922 | ||||||||||||
Total
|
1,411 | 1,029 | 4,004 | 3,005 | ||||||||||||
Non-cash income tax expense
|
636 | 2,410 | 1,912 | 5,198 | ||||||||||||
Non-GAAP net income
|
$ | 5,804 | $ | 6,968 | $ | 17,601 | $ | 16,116 | ||||||||
Operating income, as reported
|
$ | 4,685 | $ | 5,607 | $ | 15,097 | $ | 14,254 | ||||||||
Purchase accounting adjustments
|
476 | 26 | 1,482 | 87 | ||||||||||||
Non-cash stock-based compensation expense
|
1,411 | 1,029 | 4,004 | 3,005 | ||||||||||||
Non-GAAP operating income
|
$ | 6,572 | $ | 6,662 | $ | 20,583 | $ | 17,346 | ||||||||
Diluted EPS, as reported
|
$ | 0.16 | $ | 0.19 | $ | 0.51 | $ | 0.42 | ||||||||
Purchase accounting adjustments
|
0.02 | 0.00 | 0.07 | 0.00 | ||||||||||||
Non-cash stock-based compensation expense
|
0.07 | 0.06 | 0.20 | 0.16 | ||||||||||||
Non-cash income tax expense
|
0.04 | 0.12 | 0.10 | 0.28 | ||||||||||||
Non-GAAP diluted EPS
|
$ | 0.29 | $ | 0.37 | $ | 0.88 | $ | 0.86 |
16
Financial Highlights
The table below shows our total revenues (in millions) for the most recent five quarters and the years ended December 31, 2010, 2009 and 2008 and the percentage change over the previous period.
Period
|
Revenues
|
Year-Over-Year Growth %
|
||||||
Three Months Ended:
|
||||||||
September 30, 2011
|
$ | 52.1 | 25 | % | ||||
June 30, 2011
|
52.0 | 34 | % | |||||
March 31, 2011
|
47.7 | 36 | % | |||||
December 31, 2010
|
50.7 | 41 | % | |||||
September 30, 2010
|
41.8 | 26 | % | |||||
Year Ended December 31:
|
||||||||
2010
|
$ | 166.3 | 27 | % | ||||
2009
|
131.4 | 8 | % | |||||
2008
|
121.4 | 10 | % |
On October 5, 2010, we entered into a stock purchase agreement with the shareholders of Global Software Services, Inc., doing business as Latitude Software (“Latitude”), where we purchased 100% of the outstanding capital stock of Latitude. In addition, on February 28, 2011 we entered into a stock purchase agreement with the shareholders of Agori Communications GmbH (“Agori”), where we purchased 100% of Agori’s outstanding capital stock. On July 1, 2011, we entered into a stock purchase agreement with CallTime Technology Sdn. Bhd., the ultimate parent company of CallTime Solutions Ltd. (“CallTime”), where we purchased 100% of CallTime’s outstanding capital stock. Additional details of each acquisition are as follows:
Company
|
Description of Company
|
Purchase Price
|
Funding of Purchase Price
|
Working Capital Amount Acquired
|
Escrow Amount
|
# of Employees
|
Latitude
|
Provider of accounts receivable management software and services
|
$15.6 million
|
Cash on hand
|
$1.6 million
|
$1.1 million
|
40
|
Agori
|
Reseller
|
$4.9 million
|
Cash on hand
|
$808,000
|
$493,000
|
16
|
CallTime
|
Reseller
|
$11.4 million
|
Cash on hand
|
$1.4 million
|
$2.1 million
|
21
|
Total revenues, including these acquisitions, increased 25% and 31% during the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010, while our revenue growth rate excluding acquisitions was 16% and 25% during the three and nine months ended September 30, 2011, respectively, compared to the prior year. The dollar amount of orders we received increased slightly during the third quarter of 2011 compared to the same quarter a year ago when we experienced a significant increase in orders compared to 2009. The majority of the revenue increase was due to increased renewal and support fees as well as increased revenues related to our cloud-based solutions. During the third quarter of 2011, we received a significant cloud-based order for $10.0 million in future revenues that will be recognized over the next five years. Due to the fact that cloud-based orders are deferred and recognized ratably over the life of the contract, whereas premise orders are generally recognized upfront, the mix of orders received will continue to impact revenues recognized in future periods.
Total expenses increased 31% and 35%, respectively, during the three and nine months ended September 30, 2011 compared to the same periods in 2010 and as a percentage of revenue were 91% and 90%, respectively. These increases resulted from the continued investment in our operations primarily through increasing our staffing company-wide, including staffing additions as a result of our recent acquisitions, and increased expenses for outside professional services associated with the restructuring of the company, recent acquisitions and various other legal matters within the normal course of business. For the nine months ended September 30, 2011, we recognized foreign currency gains of $262,000 compared to a foreign currency loss of $1.0 million for the nine months ended September 30, 2010. Our effective tax rate in 2011 was 35%, a decrease from 41% and 42% during the three and nine months ended September 30, 2010, respectively. Overall, our net income decreased 6% during the three months ended September 30, 2011 and increased 30% during the nine months ended September 30, 2011 compared to the same periods in 2010.
Cloud-based orders increased in the third quarter of 2011 to 31% of total orders from 17% of total orders in the third quarter of 2010. Contracts for our cloud-based orders have an initial duration of one to five years with an average initial duration of three years. We currently have $29.5 million of unrecognized cloud-based revenues. During 2010 and 2011, we expanded our cloud offerings by opening data centers in the United Kingdom, Germany, Japan and Australia as we anticipate more interest in our cloud-based solutions. In addition to these new data centers, we increased our sales and marketing focus on obtaining new customers for our cloud-based solutions, expanded our professional services personnel to support our cloud-based offerings and added development resources to continually improve our cloud-based offerings. Some of the costs for this expansion such as equipment costs are recognized over time, but other costs such as salary and travel-related expenses are recognized as incurred. As we continue to expand our cloud-based offerings, the operating margins associated with these offerings will be lower than our long-term expectations; however, we believe that over time, these operating margins will be similar to our current gross margin. If our cloud-based business had operated at a 70% gross margin for the nine months ended September 30, 2011, our total consolidated operating income would have been $26.4 million, with an operating margin of 17.4%, compared to our actual operating income of $20.8 million, with an operating margin of 13.7%.
Historical Results of Operations
The following table presents certain financial data, derived from our unaudited statements of income, as a percentage of total revenues for the periods indicated. The operating results for the three and nine months ended September 30, 2011 and 2010 are not necessarily indicative of the results that may be expected for the full year or for any future period.
17
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Product
|
43 | % | 49 | % | 44 | % | 47 | % | ||||||||
Recurring
|
46 | 40 | 44 | 42 | ||||||||||||
Services
|
11 | 11 | 12 | 11 | ||||||||||||
Total revenues
|
100 | 100 | 100 | 100 | ||||||||||||
Cost of revenues:
|
||||||||||||||||
Product
|
13 | 15 | 13 | 14 | ||||||||||||
Recurring
|
12 | 10 | 11 | 10 | ||||||||||||
Services
|
8 | 6 | 8 | 6 | ||||||||||||
Amortization of intangible assets
|
-- | -- | -- | -- | ||||||||||||
Total cost of revenues
|
33 | 31 | 32 | 30 | ||||||||||||
Gross profit
|
67 | 69 | 68 | 70 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
29 | 29 | 29 | 29 | ||||||||||||
Research and development
|
18 | 17 | 17 | 18 | ||||||||||||
General and administrative
|
10 | 10 | 11 | 10 | ||||||||||||
Amortization of intangible assets
|
1 | -- | 1 | -- | ||||||||||||
Total operating expenses
|
58 | 56 | 58 | 57 | ||||||||||||
Operating income
|
9 | 13 | 10 | 13 | ||||||||||||
Other income:
|
||||||||||||||||
Interest income, net
|
-- | -- | -- | -- | ||||||||||||
Other expense
|
-- | 1 | -- | (1 | ) | |||||||||||
Total other income
|
-- | 1 | -- | (1 | ) | |||||||||||
Income before income taxes
|
9 | 14 | 10 | 12 | ||||||||||||
Income tax expense
|
3 | 6 | 3 | 5 | ||||||||||||
Net income
|
6 | % | 8 | % | 7 | % | 7 | % |
Comparison of Three and Nine Months Ended September 30, 2011 and 2010
Revenues
Primary Sources of Revenues
We generate revenues from: (i) product revenues, which include licensing the right to use our software applications and selling hardware as a part of our solutions; (ii) recurring revenues, which include support fees from perpetual license agreements, renewal fees from annually renewable license agreements, and fees from our cloud-based offerings; and (iii) services revenues, which include professional services fees and educational services fees. Prior to the fourth quarter of 2010, revenues were reported as two types, product and services. Historical amounts have been reclassified based on this new, three-revenue presentation. Our revenues are generated by direct sales to customers and through our partner channels.
Product Revenues
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
($ in thousands)
|
||||||||||||||||
Product revenues
|
$ | 22,190 | $ | 20,671 | $ | 67,451 | $ | 54,772 | ||||||||
Change from prior year period
|
7 | % | 32 | % | 23 | % | 21 | % | ||||||||
Percentage of total revenues
|
43 | % | 49 | % | 44 | % | 47 | % |
Product revenues increased $1.5 million, or 7%, during the three months ended September 30, 2011 compared to the three months ended September 30, 2010. The dollar amount of product orders received during the third quarter of 2011 decreased 5% from the same quarter in 2010, when we experienced a significant increase in orders compared to 2009. Even though the dollar amount of orders received decreased, product revenues increased period-over-period primarily due to orders being recognized during the quarter that had previously been deferred and an 18% increase in hardware revenues, as an increasing number of large implementations involved the combination of our software and hardware.
During the nine months ended September 30, 2011, product revenues increased $12.7 million, or 23%, compared to the same period in 2010 primarily due to an 18% increase in the dollar amount of product orders received. The dollar amount of orders received from new and existing customers increased 14% and 21%, respectively, compared to the nine months ended September 30, 2010. During the first nine months of 2011, we received 49 product orders over $250,000, including nine over $1.0 million, compared to 36 product orders over $250,000, including nine over $1.0 million, during the first nine months of 2010. The dollar amount of hardware orders received increased 30% during the nine months ended September 30, 2011, as an increasing number of large implementations involved the combination of our software and hardware.
18
Not all software and hardware product orders are recognized as revenues when they are received because of certain contractual terms or the collection history with particular customers or partners. Consequently, product revenues for any particular period not only reflect the orders received and recognized in the current period but also include certain orders received but deferred in previous periods and recognized in the current period. In addition, a portion of product orders are related to maintenance and support, and they are recognized over the maintenance and support period as recurring revenues.
Recurring Revenues
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
($ in thousands)
|
||||||||||||||||
Recurring revenues
|
$ | 24,185 | $ | 16,595 | $ | 66,974 | $ | 48,842 | ||||||||
Change from prior year period
|
46 | % | 16 | % | 37 | % | 19 | % | ||||||||
Percentage of total revenues
|
46 | % | 40 | % | 44 |