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EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 - XRS Corp | d290606dex321.htm |
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 - XRS Corp | d290606dex311.htm |
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 - XRS Corp | d290606dex312.htm |
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 - XRS Corp | d290606dex322.htm |
EXCEL - IDEA: XBRL DOCUMENT - XRS Corp | Financial_Report.xls |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 2011
For the quarterly period ended December 31, 2011 or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-27166
Xata Corporation
(Exact Name of Registrant as Specified in its Charter)
Minnesota | 41-1641815 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
965 Prairie Center Drive, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (952) 707-5600
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
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 x No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
As of January 31, 2012, the following securities of the Registrant were outstanding: 10,681,573 shares of Common Stock, $0.01 par value per share, 2,212,267 shares of Series B Preferred Stock, 1,269,036 shares of Series C Preferred Stock, 1,566,580 shares of Series D Preferred Stock, 1,353,605 of Series F Preferred Stock and 10,066,663 shares of Series G Preferred Stock.
Table of Contents
Index
Page No. | ||||||||
PART I. |
FINANCIAL INFORMATION |
|||||||
Item 1. | Consolidated Financial Statements (Unaudited): |
|||||||
Consolidated Statements of Operations for the Three Months ended December 31, 2011 and 2010 |
3 | |||||||
Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011 |
4 | |||||||
5 | ||||||||
Consolidated Statements of Cash Flows for the Three Months ended December 31, 2011 and 2010 |
6 | |||||||
7 | ||||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operation |
20 | ||||||
Item 4. | 26 | |||||||
PART II. |
||||||||
Item 1. |
27 | |||||||
Item 1A. |
27 | |||||||
Item 2. |
27 | |||||||
Item 3. |
27 | |||||||
Item 4. |
27 | |||||||
Item 5. |
27 | |||||||
Item 6. |
27 | |||||||
28 | ||||||||
EXHIBITS |
2
Table of Contents
Consolidated Statements of Operations (Unaudited)
For the Three Months
Ended December 31, |
||||||||
(In thousands, except per share data) | 2011 | 2010 | ||||||
Revenue |
||||||||
Software |
$ | 11,686 | $ | 11,341 | ||||
Hardware systems |
4,464 | 1,733 | ||||||
Services |
451 | 904 | ||||||
|
|
|
|
|||||
Total revenue |
16,601 | 13,978 | ||||||
Costs and expenses |
||||||||
Cost of goods sold |
8,651 | 5,658 | ||||||
Selling, general and administrative |
6,120 | 6,113 | ||||||
Research and development |
3,488 | 2,224 | ||||||
|
|
|
|
|||||
Total costs and expenses |
18,259 | 13,995 | ||||||
|
|
|
|
|||||
Operating loss |
(1,658 | ) | (17 | ) | ||||
Net interest and other expense |
(111 | ) | (83 | ) | ||||
Loss before income taxes |
(1,769 | ) | (100 | ) | ||||
Income tax benefit |
(100 | ) | (15 | ) | ||||
|
|
|
|
|||||
Net loss |
(1,669 | ) | (85 | ) | ||||
Preferred stock dividends |
(56 | ) | (53 | ) | ||||
Preferred stock deemed dividends |
50 | 18 | ||||||
|
|
|
|
|||||
Net loss to common shareholders |
$ | (1,675 | ) | $ | (120 | ) | ||
|
|
|
|
|||||
Net loss per common share - basic and diluted |
$ | (0.16 | ) | $ | (0.01 | ) | ||
Weighted average common and common share equivalents: |
||||||||
Basic and diluted |
10,675 | 9,740 |
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
Consolidated Balance Sheets (Unaudited)
(In thousands) | December 31, 2011 |
September 30, 2011 |
||||||
ASSETS | ||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 11,166 | $ | 12,407 | ||||
Accounts receivable, less allowances of $340 at December 31, 2011 and $378 at September 30, 2011 |
8,901 | 8,556 | ||||||
Inventories |
3,259 | 3,374 | ||||||
Deferred product costs |
1,148 | 1,148 | ||||||
Prepaid expenses and other current assets |
1,017 | 1,006 | ||||||
|
|
|
|
|||||
Total current assets |
25,491 | 26,491 | ||||||
Equipment, leased equipment and leasehold improvements, net |
10,141 | 9,155 | ||||||
Intangible assets, net |
11,592 | 12,158 | ||||||
Goodwill |
16,749 | 16,474 | ||||||
Deferred product costs, net of current portion |
778 | 857 | ||||||
Other assets |
787 | 690 | ||||||
|
|
|
|
|||||
Total assets |
$ | 65,538 | $ | 65,825 | ||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current liabilities |
||||||||
Current portion of debt obligations |
$ | 1,989 | $ | 1,746 | ||||
Accounts payable |
5,422 | 5,003 | ||||||
Accrued expenses |
5,183 | 4,533 | ||||||
Deferred revenue |
3,266 | 3,442 | ||||||
|
|
|
|
|||||
Total current liabilities |
15,860 | 14,724 | ||||||
Debt obligations, net of current portion |
1,176 | 1,386 | ||||||
Deferred revenue, net of current portion |
1,706 | 1,874 | ||||||
Deferred tax liabilities |
609 | 596 | ||||||
Other long-term liabilities |
487 | 559 | ||||||
|
|
|
|
|||||
Total liabilities |
19,838 | 19,139 | ||||||
Shareholders equity |
||||||||
Preferred stock, no par, 50,000 shares authorized; 16,570 shares designated; shares issued and outstanding: 16,469 at December 31, 2011 and 16,426 at September 30, 2011 |
44,209 | 44,149 | ||||||
Common stock, par value $0.01 per share; 100,000 shares authorized; 10,681 shares issued and outstanding at December 31, 2011 and September 30, 2011 |
107 | 107 | ||||||
Contingent common stock earn-out |
1,912 | 1,912 | ||||||
Additional paid-in capital |
47,498 | 47,249 | ||||||
Accumulated deficit |
(48,778 | ) | (47,103 | ) | ||||
Accumulated other comprehensive income |
752 | 372 | ||||||
|
|
|
|
|||||
Total shareholders equity |
45,700 | 46,686 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 65,538 | $ | 65,825 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
Preferred Stock |
Common Stock |
Contingent Common Stock Earn-Out |
Additional Paid-In Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total | ||||||||||||||||||||||||||||||
(In thousands) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||
Balance at September 30, 2010 |
16,344 | $ | 43,980 | 9,816 | $ | 98 | $ | 6,452 | $ | 41,539 | $ | (44,129 | ) | $ | 561 | $ | 48,501 | |||||||||||||||||||
Stock-based compensation |
| | | | | 1,137 | | | 1,137 | |||||||||||||||||||||||||||
Issuance of common stock for share-based compensation awards |
| | 35 | 1 | | | | | 1 | |||||||||||||||||||||||||||
Issuance of common stock for settlement of contingent earn-out |
| | 810 | 8 | (2,390 | ) | 2,382 | | | | ||||||||||||||||||||||||||
Reversal of unearned common stock portion of contingent earn-out |
| | | | (2,150 | ) | 2,150 | | | | ||||||||||||||||||||||||||
Conversion of Series F preferred stock into common stock |
(2 | ) | (5 | ) | 2 | | | 5 | | | | |||||||||||||||||||||||||
Exercise of options |
| | 18 | | 36 | | | 36 | ||||||||||||||||||||||||||||
Preferred stock dividends |
84 | 214 | | | | | (216 | ) | | (2 | ) | |||||||||||||||||||||||||
Preferred stock deemed dividends |
| (40 | ) | | | | | 40 | | | ||||||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | (189 | ) | (189 | ) | |||||||||||||||||||||||||
Net loss |
| | | | | | (2,798 | ) | | (2,798 | ) | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||
Total comprehensive loss |
(2,987 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at September 30, 2011 |
16,426 | 44,149 | 10,681 | 107 | 1,912 | 47,249 | (47,103 | ) | 372 | 46,686 | ||||||||||||||||||||||||||
Stock-based compensation |
| | | | | 249 | | | 249 | |||||||||||||||||||||||||||
Preferred stock dividends |
43 | 110 | | | | | (56 | ) | | 54 | ||||||||||||||||||||||||||
Preferred stock deemed dividends |
| (50 | ) | | | | | 50 | | | ||||||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | 380 | 380 | |||||||||||||||||||||||||||
Net loss |
| | | | | | (1,669 | ) | | (1,669 | ) | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||
Total comprehensive loss |
(1,289 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2011 |
16,469 | $ | 44,209 | 10,681 | $ | 107 | $ | 1,912 | $ | 47,498 | $ | (48,778 | ) | $ | 752 | $ | 45,700 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months
Ended December 31, |
||||||||
(In thousands) | 2011 | 2010 | ||||||
Operating activities |
||||||||
Net loss |
$ | (1,669 | ) | $ | (85 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
1,955 | 1,440 | ||||||
Loss on sale or disposal of equipment and leased equipment |
64 | | ||||||
Stock-based compensation |
249 | 205 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable, net |
222 | 4,932 | ||||||
Inventories |
115 | (1,011 | ) | |||||
Deferred product costs |
79 | 433 | ||||||
Prepaid expenses and other assets |
(109 | ) | 101 | |||||
Accounts payable |
(455 | ) | (1,728 | ) | ||||
Accrued expenses and other liabilities |
74 | (973 | ) | |||||
Deferred revenue |
(345 | ) | (1,807 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
180 | 1,507 | ||||||
Investing activities |
||||||||
Purchase of equipment and leasehold improvements |
(907 | ) | (553 | ) | ||||
Proceeds from the sale of equipment |
2 | | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(905 | ) | (553 | ) | ||||
Financing activities |
||||||||
Payments on debt obligations |
(512 | ) | (342 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(512 | ) | (342 | ) | ||||
Effects of exchange rate on cash |
(4 | ) | 44 | |||||
|
|
|
|
|||||
(Decrease) increase in cash and cash equivalents |
(1,241 | ) | 656 | |||||
Cash and cash equivalents |
||||||||
Beginning |
12,407 | 13,374 | ||||||
|
|
|
|
|||||
Ending |
$ | 11,166 | $ | 14,030 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
6
Table of Contents
Notes to the Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies
Xata Corporation (Xata or the Company) develops, markets and services fully integrated, onboard fleet management solutions for the private fleets and for-hire fleet carriers within the commercial trucking industry. The Company sells its products in the United States and Canada. The Companys solutions utilize proprietary software and related hardware components and accessories to enable customers to optimize the utilization of their assets and enhance the productivity of fleet operations across the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of Transportation (DOT) regulations and enhanced customer service.
Basis of Presentation and Preparation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Turnpike Global Technologies, Inc. (Turnpike). Intercompany accounts and transactions have been eliminated. The preparation of these unaudited consolidated financial statements in conformity with the accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in these unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Certain prior period amounts in the unaudited consolidated financial statements and notes thereto have been reclassified to conform to the current periods presentation.
In addition, the unaudited consolidated financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. Therefore these unaudited consolidated financial statements should be read in conjunction with the Companys annual consolidated financial statements and the notes thereto for the fiscal year ended September 30, 2011, included in its Annual Report on Form 10-K. Unless otherwise stated, references to particular years or quarters refers to the Companys fiscal years ended in September and the associated quarters of those fiscal years.
Revenue Recognition
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements including hardware systems, which include embedded software essential to the functionality of the hardware systems, software subscriptions and services requested by the customer, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence (VSOE) of fair value, if available, (ii) third-party evidence (TPE) of selling price if VSOE is not available, and (iii) best estimate of the selling price if neither VSOE nor TPE is available. The Company limits the amount of revenue recognized for delivered elements with standalone value to an amount that is not contingent upon future delivery of additional products or services or the meeting of any specified performance conditions.
The Companys process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Considering the changing market conditions, as it relates to the Xata Turnpike solution, the Company concluded that the value received by the customer in the optimization of its fleet operations is derived from the use of the hardware system in conjunction with the software subscription. Therefore, the Company has concluded that for a customer, the purchase of a hardware system without the related software subscription would have no standalone value. As a result, beginning in fiscal 2012, revenue generated from the sale of all multi-element Xata Turnpike solutions, in which a hardware system is purchased by the customer, is being recognized ratably over the estimated life of a Xata Turnpike customer.
7
Table of Contents
Cash Equivalents
All highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents.
Allowance for Doubtful Accounts
The Company grants credit to customers in the normal course of business. Credit is extended based on an evaluation of a customers financial condition. Accounts receivable are typically due from customers within 30 days and are stated at amounts net of an allowance for doubtful accounts. Balances outstanding for a period longer than the contractual payment terms are considered past due. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable and periodic credit evaluations of the customers financial condition. The Company reserves for accounts receivable when they are determined to be uncollectible by increasing bad debt expense, which is included in selling, general and administrative expense within the accompanying consolidated statements of operations. Payments subsequently received, or otherwise determined to be collectible, are treated as recoveries that reduce bad debt expense.
Inventories
Inventories are stated at the lower of cost, computed using the average cost method, which approximates the first-in, first-out method, or market. Inventories are comprised of various components and finished goods.
Warranties
The Company provides warranty on its solutions. Liability under the warranty policies is based upon a review of the number of units sold, historical and anticipated claim experience and cost per claim. Adjustments are made to accruals as claim data and historical experience warrant.
As of December 31, 2011 and September 30, 2011, the Company had accruals for warranties of $0.9 million and $0.8 million, respectively. These amounts are included in the line item entitled accrued expenses in the accompanying consolidated balance sheets.
Foreign Currency Translation
The financial statements of the subsidiary located outside of the U.S. are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated at the rates of exchange at the balance sheet date. Income and expense items are translated using the average exchange rates during the period. The resultant translation adjustments are included in accumulated other comprehensive income, a separate component of shareholders equity.
Recently Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05), which amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.
8
Table of Contents
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12), which serves to defer the presentation of reclassification adjustments out of accumulated other comprehensive income required by ASU 2011-05.
The provisions of the new guidance noted above are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt ASU 2011-05 and ASU 2011-12 retrospectively by the date required, and does not anticipate that either ASU will have a material effect on its financial position or results of operations.
There were no other new accounting pronouncements issued or effective during the three months ended December 31, 2011, that have had or are expected to have a material impact on the consolidated financial statements.
Note 2. Revenue and Cost of Goods Sold Information
The Company operates and manages the business as a single reportable segment. Factors used to identify the single reportable segment include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. For the three months ended December 31, 2011 and 2010, the Company reported the following revenue and related cost of goods sold (in thousands):
For the Three Months Ended December 31, |
||||||||
2011 | 2010 | |||||||
Revenue: |
||||||||
Software |
$ | 11,686 | $ | 11,341 | ||||
Hardware systems |
4,464 | 1,733 | ||||||
Services |
451 | 904 | ||||||
Other |
| | ||||||
|
|
|
|
|||||
Total revenue |
$ | 16,601 | $ | 13,978 | ||||
|
|
|
|
For the Three Months Ended December 31, |
||||||||
2011 | 2010 | |||||||
Cost of goods sold: |
||||||||
Software |
$ | 3,216 | $ | 2,773 | ||||
Hardware systems |
4,766 | 2,041 | ||||||
Services |
669 | 865 | ||||||
Other |
| (21 | ) | |||||
|
|
|
|
|||||
Total cost of goods sold |
$ | 8,651 | $ | 5,658 | ||||
|
|
|
|
Software revenue includes monthly software subscriptions from the XataNet and Xata Turnpike solutions, embedded leasing charges on Xata Turnpike solutions where the customer selected the no upfront hardware cost option, monthly fees from the MobileMax solution and activation fees. Hardware systems revenue includes hardware with embedded software and, for the XataNet solution, software that can be hosted by the customer, warranty and repair revenue. Services revenue includes training, implementation, installation, and professional services revenue.
9
Table of Contents
Cost of software consists of communication costs, hosting costs, depreciation of Xata Turnpike RouteTracker units (where the customer selected the no upfront hardware cost option) and direct personnel costs related to network, infrastructure, as well as Xata Turnpike technical support. Cost of hardware systems consists of the direct product costs, warranty costs, product repair costs and direct personnel costs related to XataNet and MobileMax technical support. Cost of services consists of third-party vendor costs and direct costs related to service personnel.
Note 3. Net Loss per Common Share
Basic loss per common share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding for the period. Generally, diluted net income per common share reflects the potential dilution that could occur if securities or other obligations to issue common stock such as options, restricted stock awards, restricted stock units, warrants or convertible preferred stock, were exercised or converted into common stock that then shared in the earnings of the Company. However, diluted net loss per common share is equal to basic net loss per common share for all periods presented because the effect of including such securities or obligations would have been antidilutive.
Potentially dilutive securities representing 16.5 million and 16.4 million shares of common stock outstanding as of December 31, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
Note 4. Supplemental Cash Flow Information
The following table summarizes supplemental cash flow information (in thousands):
For the Three Months
Ended December 31, |
||||||||
2011 | 2010 | |||||||
Cash payments for interest |
$ | 109 | $ | 40 | ||||
Assets acquired under capital lease obligation |
546 | 679 | ||||||
Preferred stock deemed dividends |
(50 | ) | (18 | ) | ||||
Preferred stock dividends |
56 | 53 | ||||||
Preferred stock dividends paid |
110 | 106 | ||||||
Issuance of common stock for settlement of contingent earn-out |
| 2,390 |
10
Table of Contents
Note 5. Equipment, Leased Equipment and Leasehold Improvements
Equipment, leased equipment and leasehold improvements consist of (in thousands):
December 31, 2011 |
September 30, 2011 |
|||||||
Engineering and SaaS equipment |
$ | 11,384 | $ | 8,888 | ||||
Office furniture and equipment |
853 | 844 | ||||||
RouteTracker assets |
5,966 | 5,435 | ||||||
Leasehold improvements |
2,663 | 2,600 | ||||||
Assets not placed in service |
78 | 973 | ||||||
|
|
|
|
|||||
20,944 | 18,740 | |||||||
Less: accumulated depreciation |
(10,803 | ) | (9,585 | ) | ||||
|
|
|
|
|||||
Equipment, leased equipment and leasehold improvements, net |
$ | 10,141 | $ | 9,155 | ||||
|
|
|
|
The total amount of assets under capital lease and held by the Company included in equipment and leased equipment was $6.1 million and $5.6 million as of December 31, 2011 and September 30, 2011. Related accumulated depreciation for these assets was $3.1 million and $2.6 million as of December 31, 2011 and September 30, 2011.
Depreciation expense for software-as-a-service (SaaS) and RouteTracker assets of $1.0 million and $0.5 million was recorded as a cost of goods sold in the accompanying consolidated statements of operations for the three months ended December 31, 2011 and 2010, respectively.
Depreciation expense for all other assets, included in selling, general and administrative expenses in the accompanying consolidated statements of operations, was $0.3 million for each of the three months ended December 31, 2011 and 2010.
Note 6: Goodwill and Identifiable Intangible Assets
Goodwill
The change in the net carrying amount of goodwill for the three months ended December 31, 2011 was as follows (in thousands):
Balance at September 30, 2011 |
$ | 16,474 | ||
Foreign currency translation adjustment |
275 | |||
|
|
|||
Balance at December 30, 2011 |
$ | 16,749 | ||
|
|
The Company completed its annual impairment testing on the first day of the fourth quarter of fiscal 2011 and concluded that no impairment existed.
11
Table of Contents
Identifiable Intangible Assets
Identifiable intangible assets subject to amortization were as follows as of December 31, 2011 (in thousands):
Weighted Average Life (years) |
Cost | Accumulated Amortization |
Foreign Currency Translation Adjustment |
Net | ||||||||||||||||
Acquired customer contracts |
7.8 | $ | 14,900 | $ | (7,120 | ) | $ | 61 | $ | 7,841 | ||||||||||
Acquired technology |
7.0 | 2,700 | (844 | ) | 115 | 1,972 | ||||||||||||||
Reseller relationships |
6.0 | 1,500 | (547 | ) | 65 | 1,018 | ||||||||||||||
Trademark |
10.0 | 900 | (197 | ) | 38 | 741 | ||||||||||||||
Other identifiable intangibles |
7.0 | 49 | (28 | ) | | 21 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
7.7 | $ | 20,049 | $ | (8,735 | ) | $ | 279 | $ | 11,592 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Amortization of acquired technology of $0.1 million was recorded as a cost of goods sold in the accompanying consolidated statements of operations for three months ended December 31, 2011 and 2010, respectively. Amortization expense of all other identifiable intangible assets, included in selling, general and administrative expenses in the accompanying consolidated statements of operations, was $0.6 million for each of the three months ended December 31, 2011 and 2010.
Future amortization expense, as of December 31, 2011, is expected to be as follows (in thousands):
Years ending September 30, | ||||
2012 |
$ | 2,019 | ||
2013 |
2,692 | |||
2014 |
2,692 | |||
2015 |
2,686 | |||
2016 |
1,140 | |||
Thereafter |
363 | |||
|
|
|||
Total expected amortization expense |
$ | 11,592 | ||
|
|
As of December 31, 2011, the carrying value of the Companys goodwill and identifiable intangible assets was $28.3 million and represented 43.1 percent of total assets. If the Company experiences revenue declines, continuing operating losses or does not meet operating forecasts, the Company may be subject to future impairments. Additionally, changes in assumptions regarding the future performance of the Companys business, or significant declines in the stock price or the market as a whole could result in additional impairment indicators. Because of the significance of the Companys goodwill and identifiable intangible assets, any future impairment of these assets could have a material and adverse effect on the Companys financial results.
Note 7. Stock-Based Compensation
The Company has 615,690 shares of common stock authorized and available for future equity awards as of December 31, 2011. Equity awards granted are deducted from the shares available for grant under the Companys 2007 Long-Term Incentive and Stock Option Plan. Similarly, equity awards cancelled are added back to the shares available for grant under the Companys stock plans.
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Stock Options
The following table summarizes information relating to stock option activity for the three months ended December 31, 2011 (in thousands, except per share data):
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
Options outstanding at September 30, 2011 |
2,482 | $ | 3.26 | |||||||||||||
Granted |
123 | 1.40 | ||||||||||||||
Cancelled: |
||||||||||||||||
Forfeited |
(30 | ) | 2.43 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2011 |
2,575 | $ | 3.18 | 7.4 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options exercisable at December 31, 2011 |
1,411 | $ | 3.75 | 6.3 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options expected to vest after December 31, 2011 |
1,164 | $ | 2.49 | 8.9 | $ | | ||||||||||
|
|
|
|
|
|
|
|
Aggregate intrinsic value represents the value of the Companys closing stock price on the last trading day of the fiscal period in excess of the exercise prices multiplied by the number of options outstanding, exercisable or expected to vest. The Companys options maintain no intrinsic value at December 31, 2011 as the stock price on the last trading day was lower than the exercise prices of all options outstanding, exercisable and expected to vest at December 31, 2011.
The weighted average fair value at the date of grant and the assumptions used to determine such values are indicated in the following table for the three months ended December 31, 2011 (number of shares in thousands):
Number of shares granted |
123 | |||
Fair value per share |
$ | 0.58 | ||
Risk-free interest rate |
1.44 | % | ||
Expected volatility |
41.67 | % | ||
Expected life (in years) |
6.00 | |||
Dividend yield |
|
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Information regarding options outstanding and exercisable as of December 31, 2011, is as follows (in thousands, except per share data):
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Range of exercise price |
Number of Shares |
Weighted Average Remaining Contractual Life (Years) |
Weighted Average Exercise Price |
Number of Shares |
Weighted Average Remaining Contractual Life (Years) |
Weighted Average Exercise Price |
||||||||||||||||||
$1.40 - $1.85 |
133 | 9.8 | $ | 1.43 | | | $ | | ||||||||||||||||
2.00 - 2.99 |
1,758 | 8.1 | 2.59 | 742 | 7.3 | 2.56 | ||||||||||||||||||
3.00 - 3.94 |
87 | 7.4 | 3.31 | 72 | 7.3 | 3.32 | ||||||||||||||||||
4.33 - 4.88 |
35 | 4.6 | 4.64 | 35 | 4.6 | 4.64 | ||||||||||||||||||
5.03 - 5.40 |
562 | 4.9 | 5.31 | 562 | 4.9 | 5.31 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||||
2,575 | 7.4 | $ | 3.18 | 1,411 | 6.3 | $ | 3.75 | |||||||||||||||||
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|
As of December 31, 2011, there was $0.8 million of total unrecognized compensation costs related to stock option awards. The Company will recognize these costs over the remaining vesting periods of these options. The weighted average period over which the costs will be recognized is 1.5 years.
Restricted Stock Awards
The following table summarizes information relating to restricted stock award activity for the three months ended December 31, 2011 (number of shares in thousands):
Number of Shares |
Weighted Average Grant Date Fair Value |
|||||||
Restricted stock unvested and outstanding at September 30, 2011 |
8 | $ | 5.40 | |||||
Vested |
(2 | ) | 5.40 | |||||
|
|
|
|
|||||
Restricted stock unvested and outstanding at December 31, 2011 |
6 | $ | 5.40 | |||||
|
|
|
|
The total fair value of shares vested during the three months ended December 31, 2011 was $3,000.
As of December 31, 2011, there was $17,000 of total unrecognized compensation costs related to restricted stock awards. The Company will recognize these costs over the remaining vesting periods of these awards. The weighted average period over which the costs will be recognized is 0.8 years.
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Restricted Stock Units
The following table summarizes information relating to restricted stock unit activity for the three months ended December 31, 2011 (number of shares in thousands):
Number of Shares |
Weighted Average Grant Date Fair Value |
Aggregate Intrinsic Value |
||||||||||
Restricted stock units outstanding at September 30, 2011 |
387 | $ | 2.59 | |||||||||
Granted |
57 | 1.40 | ||||||||||
Cancelled: |
||||||||||||
Forfeited |
(15 | ) | 2.32 | |||||||||
|
|
|
|
|
|
|||||||
Restricted stock units outstanding at December 31, 2011 |
429 | $ | 2.44 | $ | 545 | |||||||
|
|
|
|
|
|
|||||||
Restricted stock units vested and unsettled at December 31, 2011 |
38 | $ | 2.86 | $ | 48 | |||||||
|
|
|
|
|
|
|||||||
Restricted stock units expected to vest after December 31, 2011 |
391 | $ | 2.40 | $ | 497 | |||||||
|
|
|
|
|
|
Aggregate intrinsic value represents the value of the Companys closing stock price on the last trading day of the fiscal period multiplied by the number of restricted stock units outstanding or expected to vest.
As of December 31, 2011, there was $0.6 million of total unrecognized compensation costs related to restricted stock units. The Company will recognize these costs over the remaining vesting periods of these units. The weighted average period over which the costs will be recognized is 1.6 years.
Common Stock Warrants
There were 4,772,000 warrants outstanding and exercisable as of December 31, 2011 and September 30, 2011. The weighted average exercise price of the outstanding warrants as of December 31, 2011 was $3.13. The outstanding warrants have a weighted average remaining life of 4.0 years.
Note 8. Financing Arrangements
Debt obligations consist of the following (in thousands):
December 31, 2011 |
September 30, 2011 |
|||||||
Capitalized leases |
$ | 3,116 | $ | 3,016 | ||||
Other long-term debt obligations |
| 68 | ||||||
Contingent earn-out |
49 | 48 | ||||||
|
|
|
|
|||||
Total debt obligations |
3,165 | 3,132 | ||||||
Less current portion of debt obligations |
1,989 | 1,746 | ||||||
|
|
|
|
|||||
Total debt obligations, net of current portion |
$ | 1,176 | $ | 1,386 | ||||
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|
|
In connection with the acquisition of Turnpike, the Company acquired a Master Lease Agreement with Buffalo City Center Leasing, LLC (BCCL) effective October 1, 2007, for financing of Xata Turnpike RouteTracker hardware units. Leases under the Master Lease Agreement have a term of twenty-seven months and effective interest rates of between 16.1 percent and 16.5 percent with monthly payments including principal and interest. The Master Lease Agreement expired on October 4, 2010. The Company entered into the First Amendment to the
15
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Master Lease Agreement (the Amendment) on January 7, 2011, which extended the term of the Master Lease Agreement through the end of the lease term of Xata Turnpike RouteTracker hardware units leased under the Master Lease Agreement.
Effective June 17, 2011, the Company entered into a second Master Lease Agreement with BCCL for the financing of additional Xata Turnpike RouteTracker hardware units. Leases under the second Master Lease Agreement have a term of twenty-one months and effective interest rates of between 10.3 percent and 15.0 percent with monthly payments including principal and interest. The second Master Lease Agreement extends for three years or through the end of the lease term of any Xata Turnpike RouteTracker hardware units leased under the Master Lease Agreement.
Note 9. Fair Value of Financial Instruments
The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures (ASC 820). The Company has money market fund assets and a contingent earn-out liability to non-accredited U.S. shareholders that are carried at fair value. The following paragraphs provide additional information regarding the valuation of these balances, on a recurring basis as of December 31, 2011.
Money Market Funds
The Company maintained money market funds, which are included in cash and cash equivalents in the accompanying consolidated balance sheets of $10.9 million and $11.0 million as of December 31 2011 and September 30, 2011, respectively. The valuation techniques used to measure the fair value of the Companys money market funds, which were classified as Level 1, were derived from quoted market prices as substantially all of these instruments have maturity dates (if any) within three months from the date of purchase and active markets for these instruments exist. There were no material transfers in or out of Level 1 during the three months ended December 31, 2011.
Contingent Earn-out Liability
The Company recorded a contingent earn-out liability, which was included in debt obligations in the accompanying consolidated balance sheets of $49,000 and $48,000 as of December 31, 2011 and September 30, 2011, respectively. The Companys valuation techniques used to measure the fair value of the contingent earn-out, which were classified as Level 2, were based on the stock price on the date of the Turnpike acquisition and the estimated probability of earn-out target achievements. The change in the contingent earn-out liability has been summarized in the rollforward below (in thousands):
Balance as of September 30, 2011 |
$ | 48 | ||
Add: |
||||
Interest accrued on remaining contingent earn-out obligation |
1 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 49 | ||
|
|
Note 10. Commitments and Contingencies
Operating Lease Commitments
The Company leases its offices, warehouse, and certain office equipment under noncancelable operating leases, which generally have escalating rentals over the term of the lease. The facility leases require that the Company pay a portion of the real estate taxes, maintenance, utilities and insurance (collectively, common area costs).
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Future minimum lease commitments under these noncancelable operating leases, excluding common area costs, as of December 31, 2011, are as follows (in thousands):
Years ending September 30, | ||||
2012 |
$ | 526 | ||
2013 |
682 | |||
2014 |
650 | |||
2015 |
227 | |||
2016 |
55 | |||
|
|
|||
Total |
$ | 2,140 | ||
|
|
Rental expense, including common area costs, was $0.2 million and $0.3 million for the three months ended December 31, 2011 and 2010, respectively.
401(k) Plan
The Company has a 401(k) plan covering substantially all U.S. employees and the plan is operated on a calendar-year basis. The Company provides an employer matching contribution equal to 50% of an employees contribution for employee deferrals of up to 6% of their compensation. Matching contributions for each of the three months ended December 31, 2011 and 2010, totaled $90,000 and $91,000, respectively.
Purchase Commitments
From time to time in the ordinary course of the business the Company enters into purchase commitments for inventory, third party software licenses, etc. The Company evaluates these commitments on a quarterly basis to ensure that all commitments made will be realized in the ordinary course of business given the terms of the commitment and that no event has occurred that has impaired such commitment.
As of December 31, 2011, the Company had an outstanding commitment to purchase $3.9 million of hardware systems components. As of December 31, 2011, the Company believes that the commitments made will be achieved over the terms established.
Legal
Xata has been named a defendant in a lawsuit in the United States District Court, Northern District of Texas. The plaintiff alleges Xata created and sold electronic position-based fleet management and tracking systems that infringe on the plaintiffs patents. Previously, the plaintiff had named 241 trucking companies in various lawsuits across the United States alleging the companies used the systems complained of. Some of these companies are, or were, customers of Xata; therefore Xata is obligated to defend the cases. Xata filed a declaratory judgment lawsuit against the plaintiff in the United States District Court of Minnesota alleging the plaintiffs cases against the individual trucking companies were invalid and seeking to have all cases consolidated in one jurisdiction. As a result, all cases have now been consolidated in Minnesota. The plaintiff is seeking financial damages in a nonspecific amount, but exceeding $75,000.
The Company records liabilities for an estimated loss from a loss contingency where the outcome of the matter is probable and can be reasonably estimated. Factors that are considered when determining whether the conditions for accrual have been met include the (a) nature of the litigation, claim, or assessment, (b) progress of the case, including progress after the date of the financial statements but before the issuance date of the financial statements, (c) opinions of legal counsel and (d) managements intended response to the litigation, claim, or assessment. Where the reasonable estimate of the probable loss is a range, the Company records the most likely estimate of the loss. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range is accrued. Gain contingencies are not recorded until realized. As of December 31, 2011 and 2010, there were no reserves recorded for loss contingencies.
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The Company does and will continue to periodically reexamine its estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on its consolidated financial position, results of operations and cash flows for the proceedings and claims could change in the future.
Note 11. Shareholders Equity
Common Stock
The Company is authorized to issue up to 100,000,000 shares of common stock.
Preferred Stock
The Company has authorized an undesignated class of preferred stock of 50,000,000 shares. The Board of Directors can issue preferred stock in one or more series and fix the terms of such stock without shareholder approval. Preferred stock may include the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions.
Series B
In December 2003, the Company sold 1,612,300 shares of Series B Preferred Stock for $4.1 million, or $2.54 per share. Each share of the Series B Preferred Stock is convertible into one share of the Companys common stock. The Series B Preferred Stock pays a cumulative dividend of 4.0 percent of the original issue price per annum (payable semi-annually) on each outstanding share of Series B Preferred Stock. The dividend is payable in additional shares of Series B Preferred Stock or cash, at the option of the holders, plus accrued unpaid dividends.
In fiscal 2011, the Company issued 84,000 shares of Series B Preferred Stock to Trident Capital ManagementV, LLC (Trident Capital) for payment of accrued dividends. Based on the market value of the Companys common stock on the date of the dividend payment, the payment of the dividend in additional shares of Series B Preferred Stock resulted in a non-cash dividend of $0.2 million in fiscal 2011.
In the first quarter of fiscal 2012, the Company issued 43,000 shares of Series B Preferred Stock to Trident Capital for payment of accrued dividends. Based on the market value of the Companys common stock on the date of the dividend payment, the payment of the dividend in additional shares of Series B Preferred Stock resulted in a non-cash dividend of $0.1 million for the three months ended December 31, 2011.
There were 2,212,267 shares and 2,168,773 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively.
Series C
In September 2005, the Company sold 1,269,000 shares of Series C Preferred Stock for $5.0 million, or $3.94 per share. Each share of the Series C Preferred Stock is convertible into one share of the Companys common stock.
There were 1,269,036 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively.
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Series D
In June 2007, the Company sold 1,567,000 shares of Series D Preferred Stock for $6.0 million, or $3.83 per share. Each share of the Series D Preferred Stock is convertible into one share of the Companys common stock.
There were 1,566,580 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively.
Series F
In February 2009, the Company sold 1,355,857 shares of Series E Preferred Stock for $3.0 million, or $2.22 per share. Each share of the Series E Preferred Stock was converted into one share of the Series F Preferred Stock in April 2009 and the Certificate of Designation for the Series E Preferred Stock was cancelled. Each share of Series F Preferred Stock is convertible into one share of the Companys common stock. In February 2011, 2,252 shares of Series F Preferred Stock were converted to common stock.
There were 1,353,605 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively.
Series G
In December 2009 in connection with financing the acquisition of Turnpike, the Company issued convertible debt totaling $30.2 million. The convertible debt was converted into 10,066,663 shares of Series G preferred stock at $3.00 per share on February 19, 2010, subsequent to shareholder approval. Each share of Series G Preferred Stock is convertible into one share of the Companys common stock.
There were 10,066,663 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively.
In addition, as part of the debt conversion, the Company issued 7-year warrants to purchase 3,019,995 shares of its common stock at an exercise price of $3.00 per share. The aggregate fair value of the warrants was $3.9 million. The warrants permit cashless exercise.
Contingent Common Stock Earn-Out
In connection with the acquisition of Turnpike, the Company committed to pay total earn-outs up to an additional 2,500,000 shares of common stock upon the achievement of certain performance goals for the 2010, 2011 and 2012 fiscal years. The fiscal 2011 performance goals were not achieved. As a result, the value of the 809,993 shares of common stock that were to be issued was reclassified within shareholders equity. In addition, the portion scheduled to be settled in cash of $68,000 was recorded as income.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
Except for the historical information contained herein, the matters discussed in this Report on Form 10-Q are forward-looking statements involving risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Numerous factors, risks and uncertainties affect the Companys operating results and could cause the Companys actual results to differ materially from forecasts and estimates or from any other forward-looking statements made by, or on behalf of, the Company, and there can be no assurance that future results will meet expectations, estimates or projections. Risks and uncertainties about us include, but are not limited to, the following:
| As we have generated operating losses recently, additional operating losses may occur in the future and may be in excess of amounts that could be funded from operations, thus, we may be dependent upon external investment to support our operations during these periods; |
| Our growth and profitability depend on our timely introduction and market acceptance of new products, our ability to continue to fund research and development activities, and our ability to establish and maintain strategic partner relationships; |
| We will have dependence on propriety technology and communication networks owned and controlled by others, and accordingly, their problems may adversely impact us; and |
| For the foreseeable future, we are dependent upon existing customers renewing contracts and purchasing additional service or products. |
Further information regarding these and other risks is included in Risk Factors in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, in this Form 10-Q and in our other filings we make with the SEC.
Overview
Xata Corporation and its wholly owned subsidiary (collectively, Xata or the Company or we or our or us) is one of the leading providers of fleet management solutions to the commercial trucking industry. Our innovative technologies and value-added services are intended to enable customers to optimize the utilization of their assets and enhance the productivity of fleet operations across the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of Transportation (DOT) regulations, and enhanced customer service.
Founded in 1985, Xata began providing fleet management solutions to the private fleet segment of the commercial trucking industry. Xata currently addresses the private fleet segment through XataNet, its flagship software-as-a-service (SaaS) solution. With the acquisition of GeoLogic Solutions, Inc. (GeoLogic) in January of 2008, Xata expanded its solutions to include the MobileMax product line, which provides wireless asset management solutions specifically designed to meet the needs of the for-hire segment of the commercial trucking industry.
During fiscal 2010, Xata acquired Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC (collectively, Turnpike). Turnpike enabled Xata to expand its addressable market to include fleets of all sizes ranging from large premier fleets to individual owner operators with a low cost, no upfront hardware cost solution.
Over the past 25 years, Xata has developed relationships with the nations largest fleets including CVS Pharmacy, Dean Foods, Sysco, US Foods, and xpedx to find and develop technologies that provide information about their fleets and transform that data into actionable intelligence. With the acquisition of Turnpike, Xata has gained relationships with additional customers such as Coca-Cola and Loblaws.
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During its history, Xata has remained steadfastly focused on providing its customers real-time data they can use to make better-informed decisions to improve their operations. Xata continues to be an industry innovator. As the first company to combine both driver and vehicle data with the power of mobile phones, Xata was the first in the industry to offer compliance applications on mobile devices.
Technology, People, Processes
Xata takes a three-prong approach to meeting its customers fleet management needs:
| Technology. Xata provides total fleet management solutions, including hardware systems, software subscriptions and services, as applicable, through the following solutions: |
| XataNet, integrates mobile technology, driver displays and cost-effective communications with a suite of powerful, web-based applications delivered on-demand via the Internet. XataNet provides critical real-time information about our customers fleets, allows for paperless driver logs and provides summary and granular reports on driver and vehicle performance. XataNet can also integrate with back-office applications, for a seamless flow of information, and our software works with a variety of in-cab communications devices. |
| Xata Turnpike is a web-based fleet optimization solution that enables Xata to serve any size fleet that requires a simple, low-cost solution. Unlike most onboard fleet management systems that utilize an expensive, in-cab system dependent on a cellular or satellite communication platform to transmit data, Xata Turnpike transmits data via Bluetooth to a handset or tablet-based communication device that then sends the data to a Xata Turnpike portal which customers can access to view, sort and analyze their data. By utilizing off-the-shelf cell phones, smart phones, tablet computers, and rugged handhelds as driver displays and communications devices, the majority of the traditional upfront hardware systems costs are eliminated. |
| MobileMax assists for-hire carriers in managing nearly every aspect of their fleets activities to help control costs and increase the return on investment. The MobileMax solution features multi-mode communication capabilities that automatically switch between land-based and satellite communications to take advantage of the cost-savings and reliability of both terrestrial and satellite communication. MobileMax also integrates with dispatching and routing applications for a seamless flow of information. |
| People. With employee expertise in safety, fleet management and technology, Xata is able to provide consultation services to help organizations implement industry best practices and customized reporting. |
| Processes. All Xata processes are designed to make managing fleets easier. Drawing on hundreds of successful implementations with a wide variety of fleets including multibillion-dollar organizations, Xata carefully plans each phase of the implementation and follows well established methodologies. The process includes assessing our customers objectives and developing a detailed schedule that includes all aspects of the project, from implementation to conversion, integration, training and problem solving. |
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United States (GAAP) as set forth in the Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the SEC. GAAP, as set forth within the ASC, requires us to make certain estimates, judgments
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and assumptions. We believe that the estimates, judgments and assumptions upon which we rely, are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
| Revenue Recognition |
| Allowance for Doubtful Accounts |
| Goodwill and Intangible Assets Impairment Assessments |
| Warranties |
| Accounting for Income Taxes |
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require managements judgment in its application. There are also areas in which managements judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Board of Directors.
During the first quarter of fiscal 2012, the following changes were made to our critical accounting policies:
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements including hardware systems, which include embedded software essential to the functionality of the hardware systems, software subscriptions and services requested by the customer, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence (VSOE) of fair value, if available, (ii) third-party evidence (TPE) of selling price if VSOE is not available, and (iii) best estimate of the selling price if neither VSOE nor TPE is available. The Company limits the amount of revenue recognized for delivered elements with standalone value to an amount that is not contingent upon future delivery of additional products or services or the meeting of any specified performance conditions.
The Companys process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Considering the changing market conditions, as it relates to the Xata Turnpike solution, the Company concluded that the value received by the customer in the optimization of its fleet operations is derived from the use of the hardware system in conjunction with the software subscription. Therefore, the Company has concluded that for a customer, the purchase of a hardware system without the related software subscription would have no standalone value. As a result, beginning in fiscal 2012, revenue generated from the sale of all multi-element Xata Turnpike solutions, in which a hardware system is purchased by the customer, is being recognized ratably over the estimated life of a Xata Turnpike customer.
There were no other changes to the Companys critical accounting policies during the first quarter of fiscal 2012. Please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended September 30, 2011 for a more complete discussion of our critical accounting policies and estimates.
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Results of Operations for the three months ended December 31, 2011 and 2010
The following table sets forth detail related to revenue and cost of goods sold:
For the Three Months Ended December 31, |
||||||||
2011 | 2010 | |||||||
Revenue: |
||||||||
Software |
$ | 11,686 | $ | 11,341 | ||||
Hardware systems |
4,464 | 1,733 | ||||||
Services |
451 | 904 | ||||||
Other |
| | ||||||
|
|
|
|
|||||
Total revenue |
$ | 16,601 | $ | 13,978 | ||||
|
|
|
|
For the Three Months Ended December 31, |
||||||||
2011 | 2010 | |||||||
Cost of goods sold: |
||||||||
Software |
$ | 3,216 | $ | 2,773 | ||||
Hardware systems |
4,766 | 2,041 | ||||||
Services |
669 | 865 | ||||||
Other |
| (21 | ) | |||||
|
|
|
|
|||||
Total cost of goods sold |
$ | 8,651 | $ | 5,658 | ||||
|
|
|
|
Revenue
Total revenue increased 18.8 percent to $16.6 million for the three months ended December 31, 2011, compared to $14.0 million for the same period in fiscal 2011.
Software revenue, which includes monthly software subscriptions from the XataNet and Xata Turnpike solutions, embedded leasing charges on Xata Turnpike solutions where the customer selected the no upfront hardware cost option, monthly fees from the MobileMax solution and activation fees, increased 3.0 percent to $11.7 million for the three months ended December 31, 2011, compared to $11.3 million for the same period in fiscal 2011 driven by growth of 6.3 percent and 51.5 percent for XataNet and Xata Turnpike, respectively. Software revenue for the three months ended December 31, 2011 represented 70.4 percent of total revenue compared to 81.1 percent for the same period of fiscal 2011.
Hardware systems revenue, which includes hardware, with embedded software and, for the XataNet solution, software that can be hosted by the customer, warranty and repair revenue, increased 157.6 percent to comprise 26.9 percent of total revenue for the three months ended December 31, 2011, compared to 12.4 percent for the same period in fiscal 2011. The increase in hardware systems revenue was the result of increased adoption of the X5 hardware platform as customers continue to invest in our XataNet solution.
Services revenue decreased 50.1 percent to comprise 2.7 percent of total revenue for the three months ended December 31, 2011, compared to 6.5 percent for the same period in fiscal 2011. Services revenue was impacted by an increase in the hardware systems upgrades which do not require implementation services, a trend in which customers are electing to become certified in the installation process and continued growth in the number of customers adopting the Xata Turnpike solution, which provides for self-installation.
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Cost of Goods Sold and Gross Margin
Cost of software consists of communication, hosting costs, depreciation of Xata Turnpike RouteTracker units (where the customer selected the no upfront hardware cost option) and direct personnel costs related to network and infrastructure, as well as Xata Turnpike customer support. Cost of software increased 16.0 percent for the three months ended December 31, 2011, compared to the same period in fiscal 2011. Software gross margin decreased 3.0 percentage points for the three months ended December 31, 2011, compared to the same period in fiscal 2011 as a result of increased infrastructure and RouteTracker hardware unit depreciation as the Company continues to invest in its SaaS infrastructure and continues to grow the number of Xata Turnpike subscribers who have selected the no upfront cost hardware option.
Cost of hardware systems consists of the direct product costs, warranty costs, product repair costs and direct personnel costs related to XataNet and MobileMax technical support. Cost of hardware systems increased 133.5 percent for the three months ended December 31, 2011, compared to the same period in fiscal 2011. Hardware systems gross margins increased 11.0 percentage points for the three months ended December 31, 2011, compared to the same period in fiscal 2011 as a result of strong hardware systems revenue growth while support and warranty costs grew at a lower rate.
Cost of services consists of third-party vendor costs and direct costs related to service personnel. Cost of services decreased 22.7 percentage points for the three months ended December 31, 2011, compared to the same periods in fiscal 2011. Service gross margins decreased 52.7 percentage points for the three months ended December 31, 2011, compared to the same period in fiscal 2011. The decrease was driven primarily by the decline in implementation revenue and lower utilization of services personnel compared to the same period in fiscal 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel costs for the Companys sales, client management and administration functions; sales commissions, marketing and promotional expenses; executive and administrative costs; and accounting and professional fees. Selling, general and administrative expenses for the three months ended December 31, 2011 were $6.1 million or 36.9 percent of revenue compared to $6.1 million or 43.7 percent of revenue for the same period in fiscal 2011.
Research & Development Expenses
Research and development expenses consist of personnel costs and expenses related to development of new solutions and added functionality on existing solutions. Research and development expenses were $3.5 million or 21.0 percent of revenue for the three months ended December 31, 2011, compared to $2.2 million or 15.9 percent of revenue for the same period in fiscal 2011. The increase was driven by the Companys continued investment in the development of new solutions and additional enhancements to existing solutions that meet our customers current and anticipated fleet management and regulatory needs.
Net Interest and Other Expense
Net interest and other expense was $0.1 million for the three months ended December 31, 2011, compared to $83,000 for the same period in fiscal 2011. The increase in net interest expense reflects higher debt levels associated with the Xata Turnpike RouteTracker hardware unit capital lease obligations.
Income Taxes
An income tax benefit of $0.1 million was recorded for the three months ended December 31, 2011 to recognize the tax benefits relating to net operating losses of Canadian operations and tax credits to the extent benefits would offset the deferred tax liability. On a consolidated basis, the Company does not have objectively verifiable positive evidence of future taxable income as prescribed by ASC 740-10, Income Taxes Overall (ASC 740-10).
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Accordingly, the Company concluded that a valuation allowance is appropriate. Realization of deferred tax assets is dependent on future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. The amount of the net deferred tax asset considered realizable could be increased in the future if the Company returns to profitability and it becomes more likely than not that these amounts would be realized. As of September 30, 2011, the Company had federal net operating loss carryforwards and tax credit carryforwards available for use of $45.2 million and $2.0 million, respectively.
Net Loss to Common Shareholders
The Company incurred net losses to common shareholders of $1.7 million for the three months ended December 31, 2011, compared to a net loss of $85,000 for the same period in fiscal 2011. The net losses to common shareholders reflect net preferred stock dividends and preferred stock deemed dividends of $6,000 for the three months ended December 31, 2011, compared to $35,000 for the same period in fiscal 2011.
Liquidity and Capital Resources
Operating activities provided cash was $0.2 million during the three months ended December 31, 2011, compared to $1.5 million for the same period in fiscal 2011. Cash provided by operating activities decreased by $1.3 million compared to the same period in fiscal 2011 due to an increase in working capital components coupled with an increased net loss.
Cash used in investing activities was $0.9 million for the three months ended December 31, 2011, compared to $0.6 million for the same period in fiscal 2011, which reflects the Companys continued capital investment in its SaaS infrastructure.
Cash used by financing activities of $0.5 million for the three months ended December 31, 2011, compared to $0.3 million for the same period of fiscal 2011, primarily reflected payments of capital lease obligations for Xata Turnpike RouteTracker hardware units.
Non-GAAP Financial Measures
As of December 31, 2011, Xata held $11.2 million in cash and cash equivalents and had $11.7 million of working capital. These balances compared to $12.4 million in cash and cash equivalents, and working capital of $14.1 million as of September 30, 2011. The following table is a reconciliation of working capital from current assets and current liabilities, which are the most directly comparable financial measures calculated in accordance with GAAP (in thousands):
December 31, 2011 |
September 30, 2011 |
|||||||
Current assets |
$ | 25,491 | $ | 26,491 | ||||
Current liabilities |
(15,860 | ) | (14,724 | ) | ||||
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|
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Net current assets |
9,631 | 11,767 | ||||||
Current portion of deferred revenue net of deferred costs |
2,118 | 2,294 | ||||||
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|
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Non-GAAP working capital |
$ | 11,749 | $ | 14,061 | ||||
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Working capital is a non-GAAP financial measure that management uses to assess the Companys performance. Management believes working capital provides investors with an additional view of the Companys liquidity and ability to repay current obligations. Our calculation of working capital may not be comparable to similarly titled measures reported by other companies.
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The Company believes that based on our current level of operations, our cash flow from operations, existing funds and vendor terms will provide adequate cash to fund operating needs for the foreseeable future. However, it may be necessary to obtain additional funding in order to execute an inorganic growth strategy.
Our Series B Preferred Stock prohibits payment of dividends to the holders of any other capital stock unless and until the Company has paid dividends accrued on the Series B Preferred Stock, which pays a cumulative dividend of 4.0 percent of the original issue price per annum (payable semi-annually) on each outstanding share of Series B Preferred Stock. At the option of the Series B Preferred Stock holders, such dividends are payable in additional shares of Series B Preferred Stock or cash. During the three months ended December 31, 2011 and 2010, the Company issued 43,000 and 42,000 shares, respectively, of Series B Preferred Stock for payment of accrued dividends.
Recently Issued Accounting Standards
See Note 1 in the Notes to Consolidated Financial Statements located in Part I, Item 1 of this Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our principal executive officer and principal financial officer, or persons performing similar functions, carried out an evaluation of the effectiveness, as of December 31, 2011, of the design and operation of our disclosure controls and procedures (as defined in Exchange Rule 13a-15(e)) and concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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On April 20, 2011, PJC Logistics, LLC named Xata as a defendant in a lawsuit in the United States District Court, Northern District of Texas. The plaintiff alleges Xata created and sold electronic position-based fleet management and tracking systems that infringe on the plaintiffs patents. Previously, the plaintiff had named 241 trucking companies in various lawsuits across the United States alleging the companies used the systems complained of. Some of these companies are, or were, customers of Xata and Xata is obligated to defend the cases under the indemnification sections of customer contracts. Xata filed a declaratory judgment lawsuit against the plaintiff in the United States District Court of Minnesota alleging the plaintiffs cases against the individual trucking companies were invalid and seeking to have all cases consolidated in one jurisdiction. As a result, all of those cases have now been consolidated in Minnesota. The plaintiff is seeking financial damages in a nonspecific amount, but exceeding $75,000.
In addition to the other information set forth in this report and our other SEC filings, you should carefully consider the factors discussed under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2011, as updated by our subsequent SEC filings, which could have a material impact on our business, financial condition or results of operations. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
None
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | The following materials from Xata Corporations Quarterly Report on Form 10-Q for the quarter ended December 31, 2011 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010, (ii) the Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011, (iii) the Consolidated Statements of Changes in Shareholders Equity for the three months ended December 31, 2011 and the twelve months ended September 30, 2011, (iv) the Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and 2010, and (v) Notes to Consolidated Financial Statements. |
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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.
Dated: February 8, 2012 | Xata Corporation | |||
(Registrant) | ||||
by: | /s/ Scott G. Christian | |||
Scott G. Christian | ||||
Chief Financial Officer | ||||
(Signing as Principal Financial and Accounting Officer, and as Authorized Signatory of Registrant) |
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