Attached files
file | filename |
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EX-32.1 - EX-32.1 - Interactive Intelligence Group, Inc. | inin-20140630ex321ae91d5.htm |
EX-31.2 - EX-31.2 - Interactive Intelligence Group, Inc. | inin-20140630ex312dcb41d.htm |
EX-31.1 - EX-31.1 - Interactive Intelligence Group, Inc. | inin-20140630ex311a167c1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Interactive Intelligence Group, Inc. | Financial_Report.xls |
EX-32.2 - EX-32.2 - Interactive Intelligence Group, Inc. | inin-20140630ex322015063.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
(Mark One)
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☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2014
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: 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) |
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(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) |
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 ☑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 ☑ |
No ☐ |
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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Accelerated filer |
☐ |
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Non-accelerated filer (Do not check if a smaller reporting company) |
☐ |
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Smaller reporting company |
☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of July 31, 2014, there were 20,973,531 shares outstanding of the registrant’s common stock, $0.01 par value.
PART I. FINANCIAL INFORMATION |
Page |
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Item 1. |
Financial Statements. |
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Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 |
2 | |
3 | ||
Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2014 |
4 | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 |
5 | |
6 | ||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
18 |
Item 3. |
30 |
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Item 4. |
30 |
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PART II. OTHER INFORMATION |
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Item 1. |
30 |
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Item 1A. |
Error! Bookmark not defined. |
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Item 2. |
31 |
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Item 6. |
32 |
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34 |
1
Item 1. Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements.
Interactive Intelligence Group, Inc. |
||||||
Condensed Consolidated Balance Sheets |
||||||
As of June 30, 2014 and December 31, 2013 |
||||||
(in thousands, except share amounts) |
||||||
June 30, |
December 31, |
|||||
2014 |
2013 |
|||||
Assets |
unaudited |
|||||
Current assets: |
||||||
Cash and cash equivalents |
$ |
34,534 |
$ |
65,881 | ||
Short-term investments |
38,664 | 32,162 | ||||
Accounts receivable, net of allowance for doubtful accounts |
||||||
of $1,083 at June 30, 2014 and $1,233 at December 31, 2013 |
64,957 | 80,414 | ||||
Deferred tax assets, net |
27,673 | 23,684 | ||||
Prepaid expenses |
26,317 | 21,989 | ||||
Other current assets |
19,372 | 13,566 | ||||
Total current assets |
211,517 | 237,696 | ||||
Long-term investments |
12,784 | 9,787 | ||||
Property and equipment, net |
42,907 | 36,919 | ||||
Goodwill |
46,026 | 37,298 | ||||
Intangible assets, net |
25,357 | 20,613 | ||||
Other assets, net |
18,701 | 10,909 | ||||
Total assets |
$ |
357,292 |
$ |
353,222 | ||
Liabilities and Shareholders' Equity |
||||||
Current liabilities: |
||||||
Accounts payable |
$ |
9,148 |
$ |
8,727 | ||
Accrued liabilities |
18,145 | 15,162 | ||||
Accrued compensation and related expenses |
13,842 | 17,494 | ||||
Deferred product revenues |
10,399 | 10,412 | ||||
Deferred services revenues |
79,886 | 81,630 | ||||
Total current liabilities |
131,420 | 133,425 | ||||
Long-term deferred revenues |
21,590 | 23,914 | ||||
Deferred tax liabilities, net |
1,901 | 2,388 | ||||
Other long-term liabilities |
7,423 | 4,140 | ||||
Total liabilities |
162,334 | 163,867 | ||||
Shareholders' equity: |
||||||
Preferred stock, no par value; |
||||||
10,000,000 authorized; no shares issued and outstanding |
- |
- |
||||
Common stock, $0.01 par value; 100,000,000 authorized; |
||||||
20,957,663 issued and outstanding at June 30, 2014, |
||||||
20,504,106 issued and outstanding at December 31, 2013 |
210 | 205 | ||||
Additional paid-in capital |
184,402 | 170,072 | ||||
Accumulated other comprehensive loss, net of tax |
(1,046) | (1,676) | ||||
Retained earnings |
11,392 | 20,754 | ||||
Total shareholders' equity |
194,958 | 189,355 | ||||
Total liabilities and shareholders' equity |
$ |
357,292 |
$ |
353,222 |
See Accompanying Notes to Condensed Consolidated Financial Statements
2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
||||||||||||
For the Three and Six Months Ended June 30, 2014 and 2013 |
||||||||||||
(in thousands, except per share amounts) |
||||||||||||
(unaudited) |
||||||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Revenues: |
||||||||||||
Product |
$ |
21,548 |
$ |
27,909 |
$ |
44,394 |
$ |
55,900 | ||||
Recurring |
44,617 | 35,106 | 88,026 | 68,933 | ||||||||
Services |
13,665 | 13,227 | 26,858 | 24,647 | ||||||||
Total revenues |
79,830 | 76,242 | 159,278 | 149,480 | ||||||||
Costs of revenues: |
||||||||||||
Costs of product |
6,553 | 7,214 | 13,337 | 15,092 | ||||||||
Costs of recurring |
15,924 | 10,024 | 30,639 | 19,957 | ||||||||
Costs of services |
11,298 | 9,846 | 21,815 | 17,707 | ||||||||
Amortization of intangible assets |
137 | 49 | 186 | 98 | ||||||||
Total costs of revenues |
33,912 | 27,133 | 65,977 | 52,854 | ||||||||
Gross profit |
45,918 | 49,109 | 93,301 | 96,626 | ||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
30,151 | 26,040 | 57,649 | 49,541 | ||||||||
Research and development |
15,906 | 13,168 | 29,705 | 25,692 | ||||||||
General and administrative |
10,898 | 8,584 | 21,325 | 16,198 | ||||||||
Amortization of intangible assets |
476 | 468 | 948 | 931 | ||||||||
Total operating expenses |
57,431 | 48,260 | 109,627 | 92,362 | ||||||||
Operating income (loss) |
(11,513) | 849 | (16,326) | 4,264 | ||||||||
Other income (expense): |
||||||||||||
Interest income, net |
275 | 250 | 557 | 449 | ||||||||
Other income (expense) |
(190) | 27 | (386) | (1,375) | ||||||||
Total other income (expense) |
85 | 277 | 171 | (926) | ||||||||
Income (loss) before income taxes |
(11,428) | 1,126 | (16,155) | 3,338 | ||||||||
Income tax benefit |
(4,630) | (1,775) | (6,793) | (1,020) | ||||||||
Net income (loss) |
$ |
(6,798) |
$ |
2,901 |
$ |
(9,362) |
$ |
4,358 | ||||
Other comprehensive income (loss): |
||||||||||||
Foreign currency translation adjustment |
97 | 16 | 656 | 121 | ||||||||
Unrealized investment loss - net of tax |
(9) | (196) | (26) | (228) | ||||||||
Comprehensive income (loss) |
$ |
(6,710) |
$ |
2,721 |
$ |
(8,732) |
$ |
4,251 | ||||
Net income (loss) per share: |
||||||||||||
Basic |
$ |
(0.33) |
$ |
0.15 |
$ |
(0.45) |
$ |
0.22 | ||||
Diluted |
(0.33) | 0.14 | (0.45) | 0.21 | ||||||||
Shares used to compute net income (loss) per share: |
||||||||||||
Basic |
20,851 | 19,946 | 20,771 | 19,826 | ||||||||
Diluted |
20,851 | 20,935 | 20,771 | 20,847 |
See Accompanying Notes to Condensed Consolidated Financial Statements
3
Condensed Consolidated Statement of Shareholders' Equity |
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For the Six Months Ended June 30, 2014 |
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(in thousands) |
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(unaudited) |
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Additional |
Accumulated Other |
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Common Stock |
Paid-in |
Comprehensive |
Retained |
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Shares |
Amount |
Capital |
Income (Loss) |
Earnings |
Total |
|||||||||||
Balances, December 31, 2013 |
20,504 |
$ |
205 |
$ |
170,072 |
$ |
(1,676) |
$ |
20,754 |
$ |
189,355 | |||||
Stock-based compensation expense |
- |
- |
6,936 |
- |
- |
6,936 | ||||||||||
Issuances of restricted shares |
- |
- |
4,692 |
- |
- |
4,692 | ||||||||||
Exercise of stock options |
373 | 5 | 4,966 |
- |
- |
4,971 | ||||||||||
Issuances of common stock |
8 |
- |
543 |
- |
- |
543 | ||||||||||
Issuance of restricted stock units, net of tax withholdings |
73 |
- |
(2,625) |
- |
- |
(2,625) | ||||||||||
Reduction of tax benefits from stock-based payment arrangements |
- |
- |
(182) |
- |
- |
(182) | ||||||||||
Net loss |
- |
- |
- |
- |
(9,362) | (9,362) | ||||||||||
Foreign currency translation adjustment |
- |
- |
- |
656 |
- |
656 | ||||||||||
Net unrealized investment loss - net of tax |
- |
- |
- |
(26) |
- |
(26) | ||||||||||
Balances, June 30, 2014 |
20,958 |
$ |
210 |
$ |
184,402 |
$ |
(1,046) |
$ |
11,392 |
$ |
194,958 |
See Accompanying Notes to Condensed Consolidated Financial Statements
4
Condensed Consolidated Statements of Cash Flows |
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For the Six Months Ended June 30, 2014 and 2013 |
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(in thousands) |
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(unaudited) |
|||||
June 30, |
|||||
2014 |
2013 |
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Operating activities: |
|||||
Net income (loss) |
$ |
(9,362) |
$ |
4,358 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|||||
Depreciation |
7,175 | 5,023 | |||
Amortization |
1,134 | 1,029 | |||
Other non-cash items |
363 | 1,255 | |||
Stock-based compensation expense |
6,936 | 4,535 | |||
Excess tax benefit from stock-based payment arrangements |
- |
(525) | |||
Deferred income tax |
(4,658) | 729 | |||
Accretion of investment discount |
(161) | (385) | |||
Loss on disposal of fixed assets |
23 |
- |
|||
Changes in operating assets and liabilities, net of acquisitions: |
|||||
Accounts receivable |
12,201 | (1,903) | |||
Prepaid expenses |
(4,274) | (3,592) | |||
Other current assets |
(2,718) | (6,115) | |||
Accounts payable |
421 | 278 | |||
Accrued liabilities |
2,793 | (6,807) | |||
Accrued compensation and related expenses |
(3,652) | (1,962) | |||
Deferred product revenues |
(15) | 6,025 | |||
Deferred services revenues |
(4,066) | 10,271 | |||
Other assets and liabilities |
1,702 | 585 | |||
Net cash provided by operating activities |
3,842 | 12,799 | |||
Investing activities: |
|||||
Sales of available-for-sale investments |
22,785 | 13,576 | |||
Purchases of available-for-sale investments |
(32,167) | (22,100) | |||
Purchases of property and equipment |
(13,078) | (12,893) | |||
Capitalized internal use software cost |
(6,339) | (208) | |||
Acquisitions, net of cash acquired |
(9,297) | (725) | |||
Unrealized loss (gain) on investment |
18 | (54) | |||
Net cash used in investing activities |
(38,078) | (22,404) | |||
Financing activities: |
|||||
Proceeds from stock options exercised |
4,971 | 7,569 | |||
Proceeds from issuance of common stock |
543 | 404 | |||
Tax withholding on restricted stock awards |
(2,625) | (899) | |||
Excess tax benefit from stock-based payment arrangements |
- |
525 | |||
Net cash provided by financing activities |
2,889 | 7,599 | |||
Net decrease in cash and cash equivalents |
(31,347) | (2,006) | |||
Cash and cash equivalents, beginning of period |
65,881 | 45,057 | |||
Cash and cash equivalents, end of period |
$ |
34,534 |
$ |
43,051 | |
Cash paid during the period for: |
|||||
Interest |
$ |
- |
$ |
- |
|
Income taxes |
1,687 | 6,954 | |||
Other non-cash item: |
|||||
Purchase of property and equipment payable at end of period |
892 | 355 |
See Accompanying Notes to Condensed Consolidated Financial Statements
5
Interactive Intelligence Group, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2014 and 2013 (unaudited)
1.FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Interactive Intelligence Group, Inc. (“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 United States Securities and Exchange Commission (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, 2013 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, 2013, included in the Company’s most recent Annual Report on Form 10-K as filed with the SEC on March 12, 2014. 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.
Revisions and Adjustments
Effective January 1, 2014, the Company revised certain personnel related expenses which were included in cost of recurring revenues in prior periods to sales and marketing expenses. In prior years, these costs were not significant; however, as these costs have continued to increase in line with the Company’s growth strategy related to its cloud offerings, the Company concluded that it is appropriate to report these personnel related expenses as sales and marketing. For the three and six months ended June 30, 2013, $209,000 and $418,000 have been revised to sales and marketing expenses based on this new expense presentation. The revision did not have any impact on the overall results previously reported.
2.SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
For a complete summary of the Company’s significant accounting policies and 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, 2013.
In July 2013, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update (“ASU”) 2013-11, Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This updated guidance requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. This ASU does not require new recurring disclosures. The Company adopted this guidance in the first quarter of 2014 and noted no material impact on its consolidated financial statements upon adoption.
In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (“FASB ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. FASB ASU No. 2014-09 will replace most existing GAAP revenue recognition guidance when it becomes
6
effective. This guidance becomes effective for the Company on January 1, 2017. Early adoption is not permitted. This guidance permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that FASB ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the guidance on its ongoing financial reporting.
The Company capitalizes costs related to its next generation cloud communication platform and certain projects for internal use in accordance with FASB Accounting Standards Codification (“ASC”) 350-40, Internal Use Software. Once a solution has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The capitalization of costs ceases upon completion of all substantial testing. Costs incurred in the preliminary stages of development, maintenance and training costs are expensed as incurred. During the three and six months ended June 30, 2014, the Company capitalized $2.7 million and $4.5 million, respectively, of costs related to the development of its next generation cloud communication platform. The Company will continue to capitalize development costs related to this project and will begin amortizing such costs once the software is released for general availability, which is expected to be in the fourth quarter of 2014.
Additionally, in 2013 the Company purchased new business software to meet its internal administrative needs and it has no plans to market such software externally. During the three and six months ended June 30, 2014, the Company capitalized $0.8 million and $1.4 million, respectively, of costs associated with development and implementation of this software.
During the three and six months ended June 30, 2014, there were no other material changes to the Company’s significant accounting policies or critical accounting estimates.
3.NET INCOME (LOSS) PER SHARE
Basic net income (loss) 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. Potential common shares consist of shares of common stock issuable upon the exercise of stock options and vesting of restricted stock units (“RSUs”). The calculation of diluted net income per share excludes shares underlying stock options outstanding that would be anti-dilutive. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive. The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except share and per share amounts):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Net income (loss), as reported (A) |
$ |
(6,798) |
$ |
2,901 |
$ |
(9,362) |
$ |
4,358 | ||||
Weighted average shares of common stock outstanding (B) |
20,851 | 19,946 | 20,771 | 19,826 | ||||||||
Dilutive effect of employee stock options and RSUs |
- |
989 |
- |
1,021 | ||||||||
Common stock and common stock equivalents (C) |
20,851 | 20,935 | 20,771 | 20,847 | ||||||||
Net income (loss) per share: |
||||||||||||
Basic (A/B) |
$ |
(0.33) |
$ |
0.15 |
$ |
(0.45) |
$ |
0.22 | ||||
Diluted (A/C) |
(0.33) | 0.14 | (0.45) | 0.21 |
The Company’s calculation of diluted net income (loss) per share for the three and six months ended June 30, 2014 excludes RSUs and stock options to purchase approximately 969,000 and 1.1 million shares of the Company’s common stock, respectively, as their effect would be anti-dilutive, compared to 253,000 and 223,000 during the same periods in 2013.
4.INVESTMENTS
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:
7
· |
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, commercial paper, certificates of deposit and U.S. government securities. 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 table 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 sheets, measured at fair value as of June 30, 2014 and December 31, 2013 (in thousands):
Fair Value Measurements at June 30, 2014 Using |
||||||||||||
Quoted Prices in |
Significant |
Significant |
||||||||||
Active Markets for |
Other Observable |
Unobservable |
||||||||||
Identical Assets |
Inputs |
Inputs |
||||||||||
Description |
Total |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Cash & cash equivalents: |
||||||||||||
Cash |
$ |
30,399 |
$ |
30,399 |
$ |
- |
$ |
- |
||||
Money market funds |
4,135 | 4,135 |
- |
- |
||||||||
Total |
$ |
34,534 |
$ |
34,534 |
$ |
- |
$ |
- |
||||
Short-term investments: |
||||||||||||
Agency bonds |
$ |
1,002 |
$ |
- |
$ |
1,002 |
$ |
- |
||||
Corporate notes |
33,717 |
- |
33,717 |
- |
||||||||
Commercial paper |
3,945 |
- |
3,945 |
- |
||||||||
Total |
$ |
38,664 |
$ |
- |
$ |
38,664 |
$ |
- |
||||
Long-term investments: |
||||||||||||
Corporate notes |
$ |
11,783 |
$ |
- |
$ |
11,783 |
$ |
- |
||||
US government securities |
1,001 |
- |
1,001 |
- |
||||||||
Total |
$ |
12,784 |
$ |
- |
$ |
12,784 |
$ |
- |
8
Fair Value Measurements at December 31, 2013 Using |
||||||||||||
Quoted Prices in |
Significant |
Significant |
||||||||||
Active Markets for |
Other Observable |
Unobservable |
||||||||||
Identical Assets |
Inputs |
Inputs |
||||||||||
Description |
Total |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Cash & cash equivalents: |
||||||||||||
Cash |
$ |
57,715 |
$ |
57,715 |
$ |
- |
$ |
- |
||||
Money market funds |
8,166 | 8,166 |
- |
- |
||||||||
Total |
$ |
65,881 |
$ |
65,881 |
$ |
- |
$ |
- |
||||
Short-term investments: |
||||||||||||
Agency bonds |
$ |
1,008 |
$ |
- |
$ |
1,008 |
$ |
- |
||||
Corporate notes |
28,307 |
- |
28,307 |
- |
||||||||
Commercial paper |
2,297 |
- |
2,297 |
- |
||||||||
Certificates of deposit |
550 |
- |
550 |
- |
||||||||
Total |
$ |
32,162 |
$ |
- |
$ |
32,162 |
$ |
- |
||||
Long-term investments: |
||||||||||||
Corporate notes |
$ |
9,787 |
$ |
- |
$ |
9,787 |
$ |
- |
||||
Total |
$ |
9,787 |
$ |
- |
$ |
9,787 |
$ |
- |
5.ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Company records unbilled accounts receivable, which represents amounts recognized as revenues for invoices that have not yet been sent to customers. This balance fluctuates depending on the contractual billing milestones and work performed related to projects specified in the contract. When the work performed is ahead of the billing milestones related to a services engagement, unbilled accounts receivable will be recorded. The balance of unbilled accounts receivable recorded as of June 30, 2014 and December 31, 2013 was $9.4 million and $6.5 million, respectively.
No customer or partner accounted for more than 10% of the Company’s accounts receivable as of June 30, 2014 or December 31, 2013 or for more than 10% of the Company’s revenues for the three and six months ended June 30, 2014 or 2013. The Company’s top five customers or partners collectively represented 19% and 27% of the Company’s accounts receivables balance at June 30, 2014 and December 31, 2013, respectively.
No individual country accounted for more than 10% of the Company’s revenues except for the United States, which accounted for 62% and 63% of the Company’s revenues in the three and six months ended June 30, 2014, and 64% and 65% of the Company’s revenues in the three and six months ended June 30, 2013, respectively. The Company attributes revenues to countries based on the country in which the customer or partner is located.
6. |
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 the Company (the “2006 Plan”), stock appreciation rights, restricted stock, 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. At the Company’s 2013 Annual Meeting of Shareholders held on May 22, 2013, the Company’s shareholders approved an amendment to the 2006 Plan to increase the number of shares available for issuance under the 2006 Plan by 2,000,000 shares. A maximum of 9,050,933 shares are available for delivery under the 2006 Plan, which consists of (i) 5,350,000 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
9
the business day immediately preceding the date of grant. As of June 30, 2014, there were approximately 1.8 million shares of stock available for issuance for equity compensation awards under the 2006 Plan.
The Company grants RSUs and three types of stock options. The first type of stock option is non-performance-based subject only to time-based vesting, and these stock options are granted by the Company as annual grants to executives, 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. These director options are generally granted at the Company’s Annual Meeting of Shareholders during the second quarter of each fiscal year.
The Company grants RSUs to certain key employees, executives and certain new 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 (“FASB ASC 718”) for the three and six months ended June 30, 2014 and 2013 (in thousands except for per share amounts):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Stock-based compensation expense by category: |
||||||||||||
Costs of recurring revenues |
$ |
367 |
$ |
208 |
$ |
674 |
$ |
375 | ||||
Costs of services revenues |
115 | 67 | 221 | 116 | ||||||||
Sales and marketing |
1,037 | 817 | 2,133 | 1,625 | ||||||||
Research and development |
1,352 | 693 | 2,306 | 1,309 | ||||||||
General and administrative |
825 | 576 | 1,602 | 1,110 | ||||||||
Total stock-based compensation expense |
$ |
3,696 |
$ |
2,361 |
$ |
6,936 |
$ |
4,535 |
Stock Option and RSU Valuation
The Company estimated the fair value of stock options using the Black-Scholes valuation model. During the fourth quarter of 2013, the Company re-evaluated the expected life of its stock options based on historical exercise data by reviewing the exercise, expiration and termination patterns of the Company’s three types of stock options. Based on the results of this analysis: the expected life of performance-based stock options issued in the first quarter of 2014 changed from an expected life of 4.75 years used in 2013 to an expected life of 4.5 years, the expected life of non-performance-based stock options issued in the first quarter of 2014 changed from an expected life of 4.25 years used in 2013 to an expected life of 4.0 years and the expected life of annual director options issued in the second quarter of 2014 changed from an expected life of 3.5 years used in 2013 to an expected life of 4.0 years.
10
Non-performance-based options are granted during the year to newly-elected non-employee directors, if any, during the second quarter of each year to non-employee directors, and during the first quarter of each year to senior management. Performance-based options are only granted to sales employees during the first quarter of each year. The weighted-average estimated per option value of non-performance-based and performance-based options granted under the 2006 Plan during the six months ended June 30, 2014 and 2013 used the following assumptions:
Six Months Ended June 30, |
||||||
Valuation assumptions for non-performance-based options: |
2014 |
2013 |
||||
Dividend yield |
- |
% |
- |
% |
||
Expected volatility |
60.89 |
% |
55.67 - 55.80 |
% |
||
Risk-free interest rate |
1.17 |
% |
0.61 - 0.63 |
% |
||
Expected life of option (in years) |
4.00 | 4.25 | ||||
Six Months Ended June 30, |
||||||
Valuation assumptions for performance-based options: |
2014 |
2013 |
||||
Dividend yield |
- |
% |
- |
% |
||
Expected volatility |
61.00 |
% |
57.56 |
% |
||
Risk-free interest rate |
1.39 |
% |
0.73 |
% |
||
Expected life of option (in years) |
4.50 | 4.75 | ||||
Six Months Ended June 30, |
||||||
Valuation assumptions for annual director options |
2014 |
2013 |
||||
Dividend yield |
- |
% |
- |
% |
||
Expected volatility |
61.70 |
% |
49.33 |
% |
||
Risk-free interest rate |
1.17 |
% |
0.54 |
% |
||
Expected life of option (in years) |
4.00 | 3.50 |
RSUs are valued using the fair market value of the Company’s stock on the date of grant and expense is recognized 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 six months ended June 30, 2014:
Weighted- |
|||||
Average |
|||||
Exercise |
|||||
Options |
Price |
||||
Balances, beginning of year |
1,852,620 |
$ |
22.25 | ||
Options granted |
271,250 | 63.69 | |||
Options exercised |
(372,306) | 13.18 | |||
Options cancelled, forfeited or expired |
(1,250) | 17.11 | |||
Options outstanding |
1,750,314 | 30.61 | |||
Option price range |
$ |
3.56 - 66.39 |
|||
Weighted-average fair value of options granted |
$ |
31.92 | |||
Options exercisable |
1,005,316 | 21.18 |
11
The following table sets forth information regarding the Company’s stock options outstanding and exercisable as of June 30, 2014: