q210q.htm
UNITED
STATES
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, 2007
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: 0-25259
Bottomline
Technologies (de), Inc.
(Exact
name of registrant as specified in its charter)
|
|
Delaware
|
02-0433294
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
|
325
Corporate Drive
Portsmouth,
New Hampshire
|
03801-6808
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(603)
436-0700
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x 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
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 x
|
|
|
Non-Accelerated
Filer ¨
(Do
not check if a smaller
reporting company)
|
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 x
The
number of shares outstanding of the registrant’s common stock as of January 31,
2008 was 24,930,238.
|
|
|
Page
No.
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item 1.
Financial Statements
|
|
|
|
Unaudited
Condensed Consolidated Balance Sheets as of December 31, 2007 and
June 30, 2007
|
3
|
|
|
Unaudited
Condensed Consolidated Statements of Operations for the three months
ended
December 31, 2007 and 2006
|
4
|
|
|
Unaudited
Condensed Consolidated Statements of Operations for the six months
ended
December 31, 2007 and 2006
|
5
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the six months
ended
December 31, 2007 and 2006
|
6
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
|
|
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
|
23
|
|
|
Item 4.
Controls and Procedures
|
23
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item 1A.
Risk Factors
|
24
|
|
|
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
|
30
|
|
|
Item 4.
Submission of Matters to a Vote of Security Holders
|
30
|
|
|
Item 6.
Exhibits
|
30
|
|
|
SIGNATURE
|
31
|
PART
I. FINANCIAL INFORMATION
Item 1.
|
Financial
Statements
|
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Balance Sheets
(in
thousands)
|
|
December
31,
2007
|
|
|
June 30,
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
70,160 |
|
|
$ |
38,997 |
|
Marketable
securities
|
|
|
1,052 |
|
|
|
26,876 |
|
Accounts
receivable, net of allowance for doubtful accounts and returns of
$1,453
at December 31, 2007 and $1,590 at June 30, 2007
|
|
|
24,477 |
|
|
|
24,169 |
|
Other
current assets
|
|
|
4,274 |
|
|
|
5,402 |
|
Total
current assets
|
|
|
99,963 |
|
|
|
95,444 |
|
Property
and equipment, net
|
|
|
8,053 |
|
|
|
8,270 |
|
Intangible
assets, net
|
|
|
78,136 |
|
|
|
84,296 |
|
Other
assets
|
|
|
1,529 |
|
|
|
1,784 |
|
Total
assets
|
|
$ |
187,681 |
|
|
$ |
189,794 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
5,783 |
|
|
$ |
6,650 |
|
Accrued
expenses
|
|
|
7,831 |
|
|
|
8,475 |
|
Deferred
revenue
|
|
|
25,364 |
|
|
|
24,998 |
|
Total
current liabilities
|
|
|
38,978 |
|
|
|
40,123 |
|
Deferred
revenue, non-current
|
|
|
2,076 |
|
|
|
2,498 |
|
Deferred
income taxes
|
|
|
5,204 |
|
|
|
6,258 |
|
Other
liabilities
|
|
|
816 |
|
|
|
479 |
|
Total
liabilities
|
|
|
47,074 |
|
|
|
49,358 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
26 |
|
|
|
25 |
|
Additional
paid-in capital
|
|
|
271,762 |
|
|
|
263,229 |
|
Accumulated
other comprehensive income
|
|
|
7,549 |
|
|
|
8,292 |
|
Treasury
stock
|
|
|
(17,524 |
) |
|
|
(11,285 |
) |
Accumulated
deficit
|
|
|
(121,206 |
) |
|
|
(119,825 |
) |
Total
stockholders’ equity
|
|
|
140,607 |
|
|
|
140,436 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
187,681 |
|
|
$ |
189,794 |
|
See
accompanying notes.
Bottomline
Technologies (de),
Inc.
Unaudited
Condensed Consolidated Statements of Operations
(in
thousands, except per share amounts)
|
|
Three
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
3,393 |
|
|
$ |
4,082 |
|
Subscriptions
and transactions
|
|
|
7,342 |
|
|
|
6,743 |
|
Service
and maintenance
|
|
|
18,083 |
|
|
|
15,492 |
|
Equipment
and supplies
|
|
|
3,014 |
|
|
|
3,334 |
|
Total
revenues
|
|
|
31,832 |
|
|
|
29,651 |
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
237 |
|
|
|
186 |
|
Subscriptions
and transactions
|
|
|
3,913 |
|
|
|
2,787 |
|
Service
and maintenance (1)
|
|
|
7,556 |
|
|
|
7,401 |
|
Equipment
and supplies
|
|
|
2,091 |
|
|
|
2,470 |
|
Total
cost of revenues
|
|
|
13,797 |
|
|
|
12,844 |
|
Gross
profit
|
|
|
18,035 |
|
|
|
16,807 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing (1)
|
|
|
7,847 |
|
|
|
8,226 |
|
Product
development and engineering (1)
|
|
|
4,226 |
|
|
|
4,145 |
|
General
and administrative (1)
|
|
|
4,727 |
|
|
|
5,227 |
|
Amortization
of intangible assets
|
|
|
2,682 |
|
|
|
2,412 |
|
Total
operating expenses
|
|
|
19,482 |
|
|
|
20,010 |
|
Loss
from operations
|
|
|
(1,447 |
) |
|
|
(3,203 |
) |
Other
income, net
|
|
|
896 |
|
|
|
770 |
|
Loss
before provision (benefit) for income taxes
|
|
|
(551 |
) |
|
|
(2,433 |
) |
Provision
(benefit) for income taxes
|
|
|
123 |
|
|
|
(317 |
) |
Net
loss
|
|
$ |
(674 |
) |
|
$ |
(2,116 |
) |
Basic
and diluted net loss per share:
|
|
$ |
(0.03 |
) |
|
$ |
(0.09 |
) |
Shares
used in computing basic and diluted net loss per share:
|
|
|
23,887 |
|
|
|
23,622 |
|
(1)
|
Stock
based compensation is
allocated as follows:
|
|
|
Three Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cost
of revenues: service and maintenance
|
|
$ |
236 |
|
|
$ |
171 |
|
Sales
and marketing
|
|
|
686 |
|
|
|
762 |
|
Product
development and engineering
|
|
|
200 |
|
|
|
194 |
|
General
and administrative
|
|
|
980 |
|
|
|
977 |
|
|
|
$ |
2,102 |
|
|
$ |
2,104 |
|
See
accompanying notes.
Bottomline
Technologies (de),
Inc.
Unaudited
Condensed Consolidated Statements of Operations
(in
thousands, except per share amounts)
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
6,758 |
|
|
$ |
5,933 |
|
Subscriptions
and transactions
|
|
|
14,184 |
|
|
|
13,227 |
|
Service
and maintenance
|
|
|
35,768 |
|
|
|
28,998 |
|
Equipment
and supplies
|
|
|
6,484 |
|
|
|
6,714 |
|
Total
revenues
|
|
|
63,194 |
|
|
|
54,872 |
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
425 |
|
|
|
383 |
|
Subscriptions
and transactions
|
|
|
7,884 |
|
|
|
5,393 |
|
Service
and maintenance (1)
|
|
|
15,388 |
|
|
|
13,763 |
|
Equipment
and supplies
|
|
|
4,614 |
|
|
|
4,996 |
|
Total
cost of revenues
|
|
|
28,311 |
|
|
|
24,535 |
|
Gross
profit
|
|
|
34,883 |
|
|
|
30,337 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing (1)
|
|
|
15,366 |
|
|
|
14,817 |
|
Product
development and engineering (1)
|
|
|
8,452 |
|
|
|
7,853 |
|
General
and administrative (1)
|
|
|
9,185 |
|
|
|
9,446 |
|
Amortization
of intangible assets
|
|
|
5,330 |
|
|
|
3,873 |
|
Total
operating expenses
|
|
|
38,333 |
|
|
|
35,989 |
|
Loss
from operations
|
|
|
(3,450 |
) |
|
|
(5,652 |
) |
Other
income, net
|
|
|
1,793 |
|
|
|
1,739 |
|
Loss
before benefit for income taxes
|
|
|
(1,657 |
) |
|
|
(3,913 |
) |
Benefit
for income taxes
|
|
|
(182 |
) |
|
|
(317 |
) |
Net
loss
|
|
$ |
(1,475 |
) |
|
$ |
(3,596 |
) |
Basic
and diluted net loss per share
|
|
$ |
(0.06 |
) |
|
$ |
(0.15 |
) |
Shares
used in computing basic and diluted net loss per share:
|
|
|
23,745 |
|
|
|
23,526 |
|
(1)
|
Stock
based compensation is
allocated as follows:
|
|
|
Six Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cost
of revenues: service and maintenance
|
|
$ |
468 |
|
|
$ |
289 |
|
Sales
and marketing
|
|
|
1,297 |
|
|
|
1,457 |
|
Product
development and engineering
|
|
|
383 |
|
|
|
392 |
|
General
and administrative
|
|
|
1,880 |
|
|
|
1,802 |
|
|
|
$ |
4,028 |
|
|
$ |
3,940 |
|
See
accompanying notes.
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,475 |
) |
|
$ |
(3,596 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
4,028 |
|
|
|
3,940
|
|
Amortization
of intangible assets
|
|
|
5,330 |
|
|
|
3,873
|
|
Depreciation
and amortization of property and equipment
|
|
|
1,610 |
|
|
|
1,447
|
|
Deferred
income tax benefit
|
|
|
(408 |
) |
|
|
(412 |
) |
Excess
tax benefits associated with stock compensation
|
|
|
(108 |
) |
|
|
(29 |
) |
Provision
for allowances on accounts receivable
|
|
|
— |
|
|
|
(122 |
) |
Provision
for obsolete inventory
|
|
|
10 |
|
|
|
(28 |
) |
Gain
on foreign exchange
|
|
|
(112 |
) |
|
|
(52 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(231 |
) |
|
|
828
|
|
Inventory,
prepaid expenses and other assets
|
|
|
1,160 |
|
|
|
819
|
|
Accounts
payable, accrued expenses and deferred revenue and
deposits
|
|
|
(1,343 |
) |
|
|
(2,313 |
) |
Net
cash provided by operating activities
|
|
|
8,461 |
|
|
|
4,355
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Acquisition
of business and assets, net of cash acquired
|
|
|
— |
|
|
|
(16,970 |
) |
Purchases
of available-for-sale securities
|
|
|
(225 |
) |
|
|
(10,350 |
) |
Proceeds
from sales of available-for-sale securities
|
|
|
26,050 |
|
|
|
20,450
|
|
Purchases
of held-to-maturity securities
|
|
|
(51 |
) |
|
|
—
|
|
Proceeds
from sales of held-to-maturity securities
|
|
|
51 |
|
|
|
—
|
|
Purchases
of property, plant and equipment, net
|
|
|
(1,270 |
) |
|
|
(1,209 |
) |
Net
cash provided by (used in) investing activities
|
|
|
24,555 |
|
|
|
(8,079 |
) |
Financing
activities:
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
(6,708 |
) |
|
|
(4,003 |
) |
Proceeds
from employee stock purchase plan and exercise of stock
options
|
|
|
4,988 |
|
|
|
1,279
|
|
Excess
tax benefits associated with stock compensation
|
|
|
108 |
|
|
|
29
|
|
Payment
of bank financing fees
|
|
|
(20 |
) |
|
|
(20 |
) |
Capital
lease payments
|
|
|
(15 |
) |
|
|
(29 |
) |
Net
cash used in financing activities
|
|
|
(1,647 |
) |
|
|
(2,744 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(206 |
) |
|
|
477
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
31,163 |
|
|
|
(5,991 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
38,997 |
|
|
|
38,752
|
|
Cash
and cash equivalents at end of period
|
|
$ |
70,160 |
|
|
$ |
32,761 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with acquisitions
|
|
|
— |
|
|
$ |
5,206 |
|
See
accompanying notes.
Bottomline
Technologies (de), Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
December
31, 2007
Note
1—Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation of the interim
financial information have been included. Operating results for the three and
six month periods ended December 31, 2007 are not necessarily indicative of
the
results that may be expected for any other interim period or for the fiscal
year
ending June 30, 2008. For further information, refer to the financial
statements and footnotes included in the Company’s Annual Report on Form 10-K as
filed with the Securities and Exchange Commission (SEC) on September 12,
2007.
Certain
prior period amounts have been reclassified to conform to the current year
presentation.
Note
2—Business Acquisitions
On
October 13, 2006 the Company, through its U.K. subsidiary, acquired all of
the outstanding share capital of Formscape Group, Ltd. (Formscape). Formscape
is
a U.K. headquartered company with operations in the United States, the U.K.
and
Germany that provides software solutions for automating purchase-to-pay,
document and financial transaction processes.
In
connection with the acquisition, the Company accrued costs associated with
Formscape facility exit activities, which were finalized during the quarter
ended September 30, 2007. A summary of the exit accrual activity from the
acquisition date through December 31, 2007 is presented below.
|
|
|
|
|
|
Exit Accrual
|
|
Initial
estimate, included in preliminary purchase price allocation for
Formscape
|
|
$ |
913 |
|
Adjustments
to original estimate, recorded through goodwill
|
|
|
(130 |
) |
Payments
charged against the accrual
|
|
|
(805 |
) |
Impact
of changes in foreign currency exchange rates
|
|
|
42
|
|
Remaining
accrual at December 31, 2007
|
|
$ |
20 |
|
The
following unaudited pro-forma financial information presents the combined
results of operations of the Company and Formscape as if that acquisition had
occurred as of July 1, 2006 after giving effect to certain adjustments such
as increased amortization expense of acquired intangible assets, a decrease
in
interest income as a result of cash paid for the acquisition and the dilutive
effect of common stock issued by the Company as part of the purchase
consideration. This pro-forma financial information does not necessarily reflect
the results of operations that would have actually occurred had the Company
and
Formscape been a single entity during this period.
|
|
|
|
|
|
|
|
|
Unaudited, Pro Forma
Three Months Ended
December 31,
2006
|
|
|
Unaudited, Pro Forma
Six
Months Ended
December 31,
2006
|
|
|
|
(in
thousands, except per share amounts)
|
|
Revenues
|
|
$ |
30,375 |
|
|
$ |
60,144 |
|
Net
loss
|
|
|
(2,078 |
) |
|
|
(5,845 |
) |
Net
loss per basic and diluted share
|
|
|
(0.11 |
) |
|
|
(0.24 |
)
|
Note
3—Net Loss Per Share
The
following table sets forth the computation of basic and diluted net loss per
share:
|
|
|
|
|
|
|
|
|
Three
Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(674 |
) |
|
$ |
(2,116 |
) |
|
$ |
(1,475 |
) |
|
$ |
(3,596 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in computing basic and diluted net
loss
per share:
|
|
|
23,887 |
|
|
|
23,622 |
|
|
|
23,745 |
|
|
|
23,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$ |
(0.03 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.15 |
) |
Note
4—Comprehensive Income or Loss
Comprehensive
income or loss represents net income plus the results of certain stockholders’
equity changes not reflected in the unaudited condensed consolidated statements
of operations. The components of comprehensive income or loss are as
follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Net
loss
|
|
$ |
(674 |
) |
|
$ |
(2,116 |
) |
|
$ |
(1,475 |
) |
|
$ |
(3,596 |
) |
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(1,814 |
) |
|
|
2,798
|
|
|
|
(743 |
) |
|
|
3,304
|
|
Comprehensive
income (loss)
|
|
$ |
(2,488 |
) |
|
$ |
682 |
|
|
$ |
(2,218 |
) |
|
$ |
(292 |
) |
Note
5—Operations by Segments and Geographic Areas
Segment
Information
SFAS
No. 131, “Disclosures about Segments of an Enterprise and Related
Information”, establishes standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise for which separate financial information is available that
is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing
performance.
The
Company’s operating segments are organized principally by the type of product or
services offered and by geography. As of July 1, 2007, the Company revised
the structure of its internal operating segments and changed the nature of
the
financial information that is provided to and used by the Company’s chief
operating decision makers. The change in segment structure as of July 1,
2007 resulted in the Company’s accounts payable automation product offerings
being included as a component of its Outsourced Solutions segment rather than
its Payment and Transactional Documents segment. This change is reflected for
all periods presented. In accordance with SFAS 131, the Company has aggregated
similar operating segments into three reportable segments as
follows:
Payments
and Transactional
Documents. The Company’s Payments and Transactional Documents segment is
a supplier of software products that provide a range of financial business
process management solutions including making and collecting payments, sending
and receiving invoices, and generating and storing business documents. This
segment also provides a range of standard professional services and equipment
and supplies that complement and enhance the Company’s core software products.
Revenue associated with this segment is typically recorded upon delivery. This
segment also incorporates the Company’s check printing solutions in the U.K.,
revenue for which is typically recorded on a per transaction basis or ratably
over the expected life of the customer relationship.
Banking
Solutions. The
Banking Solutions segment provides solutions that are specifically designed
for
banking and financial institution customers. These solutions typically involve
longer implementation periods and a significant level of
professional
resources. Due to the tailored nature of these products, revenue is generally
recognized over the period of project performance on a percentage of completion
basis.
Outsourced
Solutions. The
Outsourced Solutions segment provides customers with outsourced and hosted
solution offerings that facilitate invoice receipt and presentment and spend
management. The Company’s Legal eXchange solution, which provides customers the
opportunity to create more efficient processes for managing invoices generated
by outside law firms while offering access to important legal spend factors
such
as budgeting, expense monitoring and outside counsel performance is also
included within this segment. This segment also incorporates the Company’s
accounts payable automation solutions. Revenue within this segment is generally
recognized on a subscription or transaction basis or proportionately over the
estimated life of the customer relationship.
Each
operating segment has separate sales forces and, periodically, a sales person
in
one operating segment will sell products and services that are typically sold
within a different operating segment. In such cases, the transaction is
generally recorded by the operating segment to which the sales person is
assigned. Accordingly, segment results can include the results of transactions
that have been allocated to a specific segment based on the contributing sales
resources, rather than the nature of the product or service. Conversely, a
transaction can be recorded by the operating segment primarily responsible
for
delivery to the customer, even if the sales person is assigned to a different
operating segment.
The
Company’s chief operating decision makers assess segment performance based on a
variety of factors that can include segment revenue and a segment measure of
profit or loss. Each segment’s measure of profit or loss is on a pre-tax basis,
and excludes stock compensation expense and acquisition-related expenses such
as
amortization of intangible assets and charges related to acquired in-process
research and development. There are no inter-segment sales; accordingly, the
measure of segment revenue and profit or loss reflects only revenues from
external customers. The costs of certain corporate level expenses, primarily
general and administrative expenses, are allocated to the Company’s operating
segments at predetermined rates that approximate cost.
The
Company does not track or assign its assets by operating segment.
The
following represents a summary of the Company’s reportable
segments:
|
|
|
|
|
|
|
|
|
Three
Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
$ |
21,073 |
|
|
$ |
19,009 |
|
|
$ |
41,220 |
|
|
$ |
34,761 |
|
Banking
Solutions
|
|
|
4,782 |
|
|
|
4,499 |
|
|
|
10,408 |
|
|
|
8,452 |
|
Outsourced
Solutions
|
|
|
5,977 |
|
|
|
6,143 |
|
|
|
11,566 |
|
|
|
11,659 |
|
Total
revenues
|
|
$ |
31,832 |
|
|
$ |
29,651 |
|
|
|
63,194 |
|
|
$ |
54,872 |
|
Segment
measure of profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
$ |
4,290 |
|
|
$ |
2,539 |
|
|
$ |
8,215 |
|
|
$ |
5,067 |
|
Banking
Solutions
|
|
|
(64 |
) |
|
|
(348 |
) |
|
|
504 |
|
|
|
(1,062 |
) |
Outsourced
Solutions
|
|
|
(889 |
) |
|
|
(878 |
) |
|
|
(2,811 |
) |
|
|
(1,844 |
) |
Total
measure of segment profit
|
|
$ |
3,337 |
|
|
$ |
1,313 |
|
|
$ |
5,908 |
|
|
$ |
2,161 |
|
A
reconciliation of the measure of segment profit to GAAP net loss, before the
provision for income taxes, is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Segment
measure of profit
|
|
$ |
3,337 |
|
|
$ |
1,313 |
|
|
$ |
5,908 |
|
|
$ |
2,161 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
(2,682 |
) |
|
|
(2,412 |
) |
|
|
(5,330 |
) |
|
|
(3,873 |
) |
Stock
compensation expense
|
|
|
(2,102 |
) |
|
|
(2,104 |
) |
|
|
(4,028 |
) |
|
|
(3,940 |
) |
Other
income, net
|
|
|
896 |
|
|
|
770 |
|
|
|
1,793 |
|
|
|
1,739 |
|
Loss
before provision for income taxes
|
|
$ |
(551 |
) |
|
|
(2,433 |
) |
|
$ |
(1,657 |
) |
|
|
(3,913 |
) |
The
following depreciation expense amounts are included in the segment measure
of
profit:
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Depreciation
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
$ |
339 |
|
|
$ |
432 |
|
|
$ |
704 |
|
|
$ |
776 |
|
Banking
Solutions
|
|
|
121 |
|
|
|
116 |
|
|
|
245 |
|
|
|
226 |
|
Outsourced
Solutions
|
|
|
335 |
|
|
|
227 |
|
|
|
661 |
|
|
|
445 |
|
Total
depreciation expense
|
|
$ |
795 |
|
|
$ |
775 |
|
|
$ |
1,610 |
|
|
$ |
1,447 |
|
Geographic
Information
Revenues,
based on the point of sales not the location of the customer, by geographic
area, were as follows:
|
|
|
|
|
|
|
|
|
Three
Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Revenues
from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
17,423 |
|
|
$ |
16,306 |
|
|
$ |
35,162 |
|
|
$ |
29,842 |
|
Europe
|
|
|
13,996 |
|
|
|
12,961 |
|
|
|
27,247 |
|
|
|
24,245 |
|
Australia
|
|
|
413 |
|
|
|
384
|
|
|
|
785 |
|
|
|
785
|
|
Total
revenues from unaffiliated customers
|
|
|
31,832 |
|
|
$ |
29,651 |
|
|
|
63,194 |
|
|
$ |
54,872 |
|
Long-lived
assets, which are based on geographic location, were as follows:
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Long-lived
assets, net
|
|
|
|
|
|
|
United
States
|
|
$ |
4,689 |
|
|
$ |
4,664 |
|
Europe
|
|
|
4,720 |
|
|
|
5,195 |
|
Australia
|
|
|
173 |
|
|
|
195 |
|
Total
long-lived assets, net
|
|
|
9,582 |
|
|
$ |
10,054 |
|
Note
6—Income Taxes
The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”), an interpretation of FASB Statement No. 109 (“SFAS 109”),
on July 1, 2007. In accordance with the transition provisions of FIN 48,
the cumulative effect of applying the pronouncement was reported as an
adjustment to the July 1, 2007 balance of accumulated deficit. As a result
of the adoption of FIN 48, the Company recorded a decrease to its tax reserves
and its accumulated deficit in the amount of $94,000 during the first quarter
of
fiscal year 2008.
Upon
adoption of FIN 48 the Company had approximately $293,000 of unrecognized tax
benefits, of which $22,000 represented accrued interest, all of which would
affect the Company’s effective tax rate if recognized. The Company has
classified the entire portion of its unrecognized tax benefits as non-current
liabilities, as it does not anticipate settling any of these tax positions
with
a cash payment within the next twelve months. There were no material changes
to
the amount of unrecognized tax benefits for the three and six months ended
December 31, 2007. The Company currently anticipates that its unrecognized
tax
benefits will decrease within the next twelve months by approximately $230,000,
as a result of the expiration of certain statutes of limitations associated
with
intercompany transactions subject to tax in multiple jurisdictions.
The
Company recognizes interest and penalties related to uncertain tax positions
as
a component of income tax expense, but to date has not recorded any amounts
related to potential penalties. To the extent that the accrued interest does
not
ultimately become payable, the amounts accrued will be derecognized and
reflected as an income tax benefit in the period that such a determination
is
made. As of June 30, 2007 and December 31, 2007, the Company’s accrued
interest related to uncertain tax positions was not material.
The
Company files U.S. federal income tax returns and returns in various state,
local and foreign jurisdictions. Generally, the Company is no longer subject
to
U.S. federal, state and local, or foreign income tax examinations by tax
authorities for years before 2001. Currently, the Company is under examination
solely in one state jurisdiction for the tax years 2002 through 2004. The
Company believes that the ultimate resolution of these open years will not
have
a material adverse impact on the Company’s consolidated financial position,
results of operations or cash flows.
For
the
three months ended December 31, 2007, the Company recorded income tax expense
of
$123,000. This expense was largely due to tax expense in the U.S. and
Australia, and was partially offset by an income tax benefit associated with
the
Company’s U.K. operations. In the three months ended December 31,
2006, the Company recorded a net tax benefit of $317,000. This net
benefit position was due to a tax benefit associated with Company’s U.K.
operations, offset in part by income tax expense in the U.S., Australia and
Germany. In each of the quarters ended December 31, 2007 and 2006,
the income tax expense recorded in the U.S. was attributable to an increase
in
deferred tax liabilities associated with goodwill that is deductible for U.S.
tax purposes but not amortized for financial reporting purposes. The
U.S. tax expense also consisted of a small amount of state income tax expense
which will be incurred irrespective of the Company’s net operating loss
carryforwards.
The
Company recorded a net tax benefit of $182,000 and $317,000 during the six
months ended December 31, 2007 and 2006, respectively. In the
six months ended December 31, 2007, the net benefit position was due to an
income tax benefit associated with the Company’s European operations, offset in
part by income tax expense in the U.S. and Australia. Further, this
net benefit position includes the one-time impact of a tax benefit arising
from
the enactment of legislation that decreased the Company’s tax rates in the U.K.
and Germany (this legislation was enacted during the quarter ended September
30,
2007, and the benefit from this tax rate change will not re-occur in subsequent
quarters). In the six months ended December 31, 2006, the net
benefit position was due to the Company’s U.K. operations, partially offset by
tax expense in the U.S. and Australia.
Note
7—Goodwill and Other Intangible Assets
The
following tables set forth the information for intangible assets subject to
amortization and for intangible assets not subject to amortization:
|
|
|
|
|
|
As
of December
31, 2007
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
|
|
(in
thousands)
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
Core
technology
|
|
$ |
24,835 |
|
|
$ |
(20,237 |
) |
|
$ |
4,598 |
|
Customer
related
|
|
|
36,728 |
|
|
|
(16,711 |
) |
|
|
20,017 |
|
Patent
|
|
|
953 |
|
|
|
(136 |
) |
|
|
817 |
|
Total
|
|
|
62,516 |
|
|
|
(37,084 |
) |
|
|
25,432 |
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
52,704 |
|
Total
intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
78,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
June 30, 2007
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
|
|
(in
thousands)
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
Core
technology
|
|
$ |
24,982 |
|
|
$ |
(18,572 |
) |
|
$ |
6,410 |
|
Customer
related
|
|
|
36,851 |
|
|
|
(13,330 |
) |
|
|
23,521 |
|
Patent
|
|
|
953 |
|
|
|
(100 |
) |
|
|
853 |
|
Below
market lease
|
|
|
94 |
|
|
|
(67 |
) |
|
|
27 |
|
Total
|
|
$ |
62,880 |
|
|
$ |
(32,069 |
) |
|
$ |
30,811 |
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
53,485 |
|
Total
intangible assets, net
|
|
|
|
|
|
|
|
|
|
$ |
84,296 |
|
Estimated
amortization expense for fiscal year 2008 and subsequent fiscal years is as
follows:
|
|
|
|
|
|
In thousands
|
|
2008
|
|
$ |
10,595 |
|
2009
|
|
|
8,764 |
|
2010
|
|
|
6,168 |
|
2011
|
|
|
3,768 |
|
2012
|
|
|
892 |
|
2013
and thereafter
|
|
|
575 |
|
Note
8—Recent Accounting Pronouncements
SFAS
141(R)
In
December 2007, the FASB issued
Statement No. 141(R), “Business Combinations” (“SFAS 141(R)”) which will
significantly change the accounting for and reporting of business combination
transactions. The most significant changes in the accounting for business
combinations under SFAS 141(R) include:
·
|
Valuation
of any acquirer shares issued as purchase consideration will be measured
at fair value as of the acquisition
date;
|
·
|
Contingent
purchase consideration, if any, will generally be measured and recorded
at
the acquisition date, at fair value, with any subsequent change in
fair
value reflected in earnings rather than through an adjustment to
the
purchase price allocation;
|
·
|
Acquired
in-process research and development costs, which have historically
been
expensed immediately upon acquisition, will now be capitalized at
their
acquisition date fair values, measured for impairment (without recurring
amortization) over the remaining development period and, upon completion
of a successful development project, amortized to expense over the
asset’s
estimated useful life;
|
·
|
Acquisition
related costs will be expensed as incurred rather than capitalized
as part
of the purchase price allocation;
|
·
|
Acquisition
related restructuring cost accruals will be reflected within the
acquisition accounting only if certain specific criteria are met
as of the
acquisition date; the prior accounting convention, which permitted
an
acquirer to record restructuring accruals within the purchase price
allocation as long as certain, broad criteria had been met, generally
around formulating, finalizing and communicating certain exit activities,
will no longer be permitted.
|
SFAS
141(R) is effective for the first annual reporting period beginning on or after
December 15, 2008 and earlier adoption is not permitted. Accordingly, the
Company will adopt SFAS 141(R) on July 1, 2009. The Company expects that the
adoption of this pronouncement will significantly affect how it accounts for
business combination transactions consummated after the adoption date, in the
areas noted above.
SFAS
160
In
December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting
for noncontrolling interests and establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary, including the requirement
that
the noncontrolling interest be classified as a component of equity. SFAS 160
is
required to be adopted simultaneously with SFAS 141(R). The Company is not
presently a party to any transaction in which it has a noncontrolling interest
and, accordingly, does not currently believe that this pronouncement will have
a
significant impact on its financial condition, results of operations or cash
flows.
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
This
Quarterly Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The statements contained in this report that are not
purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Without limiting the foregoing, the words
“may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” and similar expressions are
intended to identify forward-looking statements. All
forward-looking
statements
included in this Quarterly Report on Form 10-Q are based on information
available to us up to, and including, the date of this report, and we assume
no
obligation to update any such forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below
under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 1A. Risk Factors” and elsewhere in this Form 10-Q. You
should carefully review those factors and also carefully review the risks
outlined in other documents that we file from time to time with the Securities
and Exchange Commission.
Overview
We
provide electronic payment, invoice and document management solutions to
corporations, financial institutions and banks around the world. Our solutions
are used to streamline, automate and manage processes and transactions involving
global payments, invoice receipt and approval, collections, cash management,
risk mitigation, document management, reporting and document archive. We offer
software designed to run on-site at the customer’s location as well as hosted
solutions. Historically, our software has been sold predominantly on a perpetual
license basis. Today, however, certain of our newer offerings are being sold
on
a subscription and transaction basis.
Our
corporate customers rely on our solutions to automate their payment and accounts
payable processes and to streamline and manage the production and retention
of
electronic documents. We also provide a hosted solution, Legal eXchange, that
receives, manages and controls legal invoices and the related spend management
for insurance companies and other large consumers of outside legal services.
Our
offerings also include software solutions that banks use to provide web-based
payment and reporting capabilities to their corporate customers.
Our
solutions complement and leverage our customers’ existing information systems,
accounting applications and banking relationships. As a result, our solutions
can be deployed quickly and efficiently. To help our customers receive the
maximum value from our products and meet their own particular needs, we also
provide professional services for installation, training, consulting and product
enhancement. Additionally, we offer our customers a broad range of equipment
and
supplies that complement our software products.
For
the
first six months of fiscal year 2008, our revenues increased to $63.2 million
from $54.9 million in the same period of last fiscal year. This revenue increase
was primarily attributable to the revenue contribution from Formscape, which
we
acquired in October 2006, increased revenues within our banking solutions
segment as a result of increased demand for those products and an increase
of
approximately $1.8 million as a result of an increase in foreign currency
exchange rates associated with the British Pound Sterling which has
appreciated against the U.S. Dollar over the past year. In the first half
of fiscal 2008, we derived approximately 44% of our revenue through our
international operations, the majority of which was attributable to our
operations in the U.K. We expect future revenue growth to be driven by the
continued market adoption of our Legal eXchange product in the U.S., increased
sales of our payments and transactional documents products, increased purchases
of our products by new and existing bank and financial institution customers
in
both North America and international markets and the continued contribution
of
revenue from our newer subscription and transaction based products.
We
had a
net loss of $1.5 million in the six months ended December 31, 2007 compared
to
net loss of $3.6 million in the six months ended December 31, 2006. The decrease
in our net loss during the six months ended December 31, 2007 as compared to
the
same period ended December 31, 2006 was due to the revenue increase outlined
above, offset in part by increases in our cost of revenues and operating expense
categories as our business has continued to grow. The increase in intangible
asset amortization reflects the expense impact of our October 2006 Formscape
acquisition. Increases in product development expense and subscription and
transactions cost of revenues reflect our continued investment in our hosted,
banking and accounts payable automation products, including our ongoing
investments in our hosted infrastructure and customer delivery capabilities
for
these products. Increases in other operating expense categories largely reflect
our overall increased operating costs as a result of the Formscape acquisition
and general business growth. Our cost of revenues and operating expenses also
reflect increases of approximately $894,000 and $1.0 million,
respectively, in the six months ended December 31, 2007 as compared to the
six
months ended December 31, 2006 due to an increase in foreign currency exchange
rates associated with the British Pound Sterling.
Critical
Accounting Policies
We
believe that several accounting policies are important to understanding our
historical and future performance. We refer to these policies as “critical”
because these specific areas generally require us to make judgments and
estimates about matters that are uncertain at the time we make the estimate,
and
different estimates—which also would have been reasonable—could have been used,
which would have resulted in different financial results.
The
critical accounting policies we identified in our most recent Annual Report
on
Form 10-K for the fiscal year ended June 30, 2007 related to stock-based
compensation, revenue recognition, goodwill and intangible assets and the
valuation of acquired intangible assets. It is important that the discussion
of
our operating results that follows be read in conjunction with
the
critical accounting policies disclosed in our Annual Report on Form 10-K, as
filed with the SEC on September 12, 2007. There have been no changes to our
critical accounting policies during the three or six months ended December
31,
2007.
Recent
Accounting Pronouncements
SFAS
141(R)
In
December 2007, the FASB issued Statement No. 141(R), “Business Combinations”, or
SFAS 141(R), which will significantly change the accounting for and reporting
of
business combination transactions. The most significant changes in the
accounting for business combinations under SFAS 141(R)
include:
·
|
valuation
of any acquirer shares issued as purchase consideration will be
measured
at fair value as of the acquisition
date;
|
·
|
contingent
purchase consideration, if any, will generally be measured and
recorded at
the acquisition date, at fair value, with any subsequent change
in fair
value reflected in earnings rather than through an adjustment to
the
purchase price allocation;
|
·
|
acquired
in-process research and development costs, which have historically
been
expensed immediately upon acquisition, will now be capitalized
at their
acquisition date fair values, measured for impairment (without
recurring
amortization) over the remaining development period and, upon completion
of a successful development project, amortized to expense over
the asset’s
estimated useful life;
|
·
|
acquisition
related costs will be expensed as incurred rather than capitalized
as part
of the purchase price allocation;
and
|
·
|
acquisition
related restructuring cost accruals will be reflected within the
acquisition accounting only if certain specific criteria are met
as of the
acquisition date; the prior accounting convention, which permitted
an
acquirer to record restructuring accruals within the purchase price
allocation as long as certain, broad criteria had been met, generally
around formulating, finalizing and communicating certain exit activities,
will no longer be permitted.
|
SFAS
141(R) is effective for the first annual reporting period beginning on or
after
December 15, 2008 and earlier adoption is not permitted. Accordingly, we
will
adopt SFAS 141(R) on July 1, 2009. We expect that the adoption of this
pronouncement will significantly affect how we account for business combination
transactions consummated after the adoption date, in the areas noted
above.
SFAS
160
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51”, or SFAS
160. SFAS 160 clarifies the accounting for noncontrolling interests and
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary, including the requirement that the noncontrolling interest
be
classified as a component of equity. SFAS 160 is required to be adopted
simultaneously with SFAS 141(R). We are not presently a party to any transaction
in which we have a noncontrolling interest and, accordingly, do not currently
believe that this pronouncement will have a significant impact on our financial
condition, results of operations or cash flows.
FIN
48
We
adopted
the provisions of Financial Accounting Standards Board (FASB) Interpretation
No.48, “Accounting for Uncertainty in Income Taxes”, or FIN 48, an
interpretation of FASB Statement No. 109 on July 1, 2007. As a result
of our adoption of FIN 48, we recorded a decrease to our tax reserves and
our
accumulated deficit in the amount of $94,000 during the quarter ended September
30, 2007.
Three
Months Ended December 31, 2007 Compared to the Three Months Ended December
31,
2006
Revenues
by segment
As
of
July 1, 2007, we revised the structure of our internal operating segments
and changed the nature of the financial information that is provided to and
used
by our chief operating decision makers. We have aggregated similar operating
segments into three reportable segments: Payments and Transactional Documents,
Banking Solutions and Outsourced Solutions. The change in segment structure
as
of July 1, 2007 resulted in our accounts payable automation product offerings
being included as a component of our Outsourced Solutions segment rather than
our Payment and Transactional Documents
segment.
The change in segment composition is reflected for all financial periods
presented. The following table represents our revenues by segment:
|
|
Three
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between Periods 2007
Compared
to 2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Payments
and Transactional Documents
|
|
$ |
21,073 |
|
|
|
66.2
|
|
|
$ |
19,009 |
|
|
|
64.1
|
|
|
$ |
2,064 |
|
|
|
10.9 |
|
Banking
Solutions
|
|
|
4,782 |
|
|
|
15.0 |
|
|
|
4,499 |
|
|
|
15.2 |
|
|
|
283 |
|
|
|
6.3 |
|
Outsourced
Solutions
|
|
|
5,977 |
|
|
|
18.8 |
|
|
|
6,143 |
|
|
|
20.7 |
|
|
|
(166 |
) |
|
|
(2.7 |
) |
|
|
$ |
31,832 |
|
|
|
100.0 |
|
|
$ |
29,651 |
|
|
|
100.0 |
|
|
$ |
2,181 |
|
|
|
7.4 |
|
Payments
and Transactional
Documents. The revenue increase for the three months ended December 31,
2007 was primarily attributable to an increase in the software maintenance
revenue contribution from Formscape and an increase in foreign currency exchange
rates. We expect revenue for the Payments and Transactional Documents segment
to
increase during the remainder of the fiscal year as a result of increased
purchases of our licensed products by both new and existing
customers.
Banking
Solutions. The
increase in revenue for the three months ended December 31, 2007 was as a result
of the revenue from the continuation of several large banking projects. We
expect revenues for the Banking Solutions segment to increase during the
remainder of the fiscal year, primarily as a result of the contribution of
revenue from ongoing projects.
Outsourced
Solutions. The
revenue decrease for the three months ended December 31, 2007 was primarily
a
result of a decrease in revenues from certain of our legacy accounts payable
automation products in Europe, offset in part by revenue increases from our
Legal eXchange offerings as a result of new customers and an increase in foreign
currency exchange rates. We expect revenue for the Outsourced Solutions segment
to increase during the remainder of the fiscal year.
Revenues
by category
|
|
Three
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
3,393 |
|
|
|
10.7
|
|
|
$ |
4,082 |
|
|
|
13.8
|
|
|
$ |
(689 |
)
|
|
|
(16.9 |
) |
Subscriptions
and transactions
|
|
|
7,342 |
|
|
|
23.0 |
|
|
|
6,743 |
|
|
|
22.8 |
|
|
|
599 |
|
|
|
8.9 |
|
Service
and maintenance
|
|
|
18,083 |
|
|
|
56.8 |
|
|
|
15,492 |
|
|
|
52.2 |
|
|
|
2,591 |
|
|
|
16.7 |
|
Equipment
and supplies
|
|
|
3,014 |
|
|
|
9.5 |
|
|
|
3,334 |
|
|
|
11.2 |
|
|
|
(320 |
) |
|
|
(9.6 |
) |
Total
revenues
|
|
$ |
31,832 |
|
|
|
100.0 |
|
|
$ |
29,651 |
|
|
|
100.0 |
|
|
|
2,181 |
|
|
|
7.4 |
|
Software
Licenses. The
decrease in software license revenues was due principally to a decrease in
perpetual license revenues from Formscape, partially offset by an increase
in
foreign currency exchange rates. We expect software license revenues to increase
during the remainder of the fiscal year.
Subscriptions
and Transactions.
The increase in subscription and transaction revenues was due principally
to an increase in the revenue contribution from our Legal eXchange offering
as a
result of new customers and an increase in foreign currency exchange rates.
We
expect subscription and transaction revenues to continue to increase during
the
remainder of the fiscal year as a result of orders for our newer subscription
and transaction based product offerings and as a result of the revenue
contribution from new Legal eXchange customers.
Service
and Maintenance. The
increase in service and maintenance revenues occurred as a result of increases
in the software maintenance revenue contribution from Formscape, an increase
in
professional services revenues associated with ongoing large banking projects
and an increase in foreign currency exchange rates. We expect that service
and
maintenance
revenues
will increase during the remainder of the fiscal year as a result of the revenue
contribution from ongoing projects in our Banking Solutions
segment.
Equipment
and Supplies.
Equipment and supplies revenue decreased in the three months ended December
31,
2007 as compared to the three months ended December 31, 2006 due primarily
to a
decrease in orders as we continued to de-emphasize the lower margin transactions
within this aspect of our business. We expect that equipment and supplies
revenues will remain relatively consistent during the remainder of the fiscal
year, but expect that this revenue stream will continue to decrease as a
percentage of our total revenues.
Cost
of revenues by category
|
|
Three
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
237 |
|
|
|
0.7
|
|
|
$ |
186 |
|
|
|
0.6
|
|
|
$ |
51 |
|
|
|
27.4 |
|
Subscriptions
and transactions
|
|
|
3,913 |
|
|
|
12.3 |
|
|
|
2,787 |
|
|
|
9.4 |
|
|
|
1,126 |
|
|
|
40.4 |
|
Service
and maintenance
|
|
|
7,320 |
|
|
|
23.0 |
|
|
|
7,230 |
|
|
|
24.4 |
|
|
|
90 |
|
|
|
1.2 |
|
Stock
compensation expense
|
|
|
236 |
|
|
|
0.7 |
|
|
|
171 |
|
|
|
0.6 |
|
|
|
65 |
|
|
|
38.0 |
|
Equipment
and supplies
|
|
|
2,091 |
|
|
|
6.6 |
|
|
|
2,470 |
|
|
|
8.3 |
|
|
|
(379 |
) |
|
|
(15.3 |
) |
Total
cost of revenues
|
|
$ |
13,797 |
|
|
|
43.3 |
|
|
$ |
12,844 |
|
|
|
43.3 |
|
|
$ |
953 |
|
|
|
7.4 |
|
Gross
profit
|
|
$ |
18,035 |
|
|
|
56.7 |
|
|
$ |
16,807 |
|
|
|
56.7 |
|
|
$ |
1,228 |
|
|
|
7.3 |
|
Software
Licenses. Software
license costs consist of expenses incurred by us to manufacture, package and
distribute our software products and related documentation and costs of
licensing third party software that is incorporated into or sold with certain
of
our products. Software license costs increased to 7% of software license
revenues in the three months ended December 31, 2007 from 5% in the three months
ended December 31, 2006. The increase in software license cost of revenues
was
primarily due to a transaction with a banking customer in the three months
ended
December 31, 2007 that required a large third party royalty. We expect that
software license costs will improve slightly, as a percentage of software
license revenues, during the remainder of the fiscal year.
Subscriptions
and Transactions.
Subscriptions and transaction costs include salaries and other related
costs for our professional services teams as well as costs related to our
hosting infrastructure such as depreciation and facilities related expenses.
Subscriptions and transactions costs increased to 53% of subscription and
transaction revenues in the three months ended December 31, 2007 from 41% in
the
three months ended December 31, 2006. The increase in subscription and
transaction costs was due principally to our continued investment in our
accounts payable automation solutions, particularly our hosted infrastructure
and our customer delivery capabilities. We expect that subscription and
transactions costs will remain relatively consistent in dollar terms but will
decrease as a percentage of subscription and transaction revenue as this revenue
stream continues to increase over the remainder of the fiscal year.
Service
and Maintenance.
Service and maintenance costs include salaries and other related costs
for our customer service, maintenance and help desk support staffs, as well
as
third party contractor expenses used to complement our professional services
team. Service and maintenance costs decreased as a percentage of service and
maintenance revenues to 41% in the three months ended December 31, 2007 as
compared to 47% in the three months ended December 31, 2006. The decrease in
service and maintenance costs as a percentage of service and maintenance
revenues was due primarily to the increase in software maintenance revenue
from
Formscape, which did not result in a corresponding increase in costs, and an
improvement in professional services gross margins in our Banking Solutions
segment. We expect that service and maintenance costs will remain
relatively consistent, as a percentage of service and maintenance revenues,
during the remainder of the fiscal year.
Equipment
and Supplies.
Equipment and supplies costs include the costs associated with equipment and
supplies that we resell, as well as freight, shipping and postage costs
associated with the delivery of our products. Equipment and supplies costs
decreased to 69% of equipment and supplies revenues in the three months ended
December 31, 2007 compared to 74% of equipment and supplies revenues in the
three months ended December 31, 2006. The decrease in equipment and supplies
costs as a percentage of equipment and supplies revenues was due to our
continued de-emphasis of lower margin equipment and supplies transactions.
We
expect that equipment and supplies costs will remain relatively consistent
as a
percentage of equipment and supplies revenues for the remainder of the fiscal
year.
Operating
Expenses
|
|
Three
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to 2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
$ |
7,161 |
|
|
|
22.5
|
|
|
$ |
7,464 |
|
|
|
25.2
|
|
|
$ |
(303 |
)
|
|
|
(4.1 |
)
|
Stock
compensation expense
|
|
|
686 |
|
|
|
2.2 |
|
|
|
762 |
|
|
|
2.6 |
|
|
|
(76 |
) |
|
|
(10.0 |
) |
Product
development and engineering
|
|
|
4,026 |
|
|
|
12.6 |
|
|
|
3,951 |
|
|
|
13.3 |
|
|
|
75 |
|
|
|
1.9 |
|
Stock
compensation expense
|
|
|
200 |
|
|
|
0.6 |
|
|
|
194 |
|
|
|
0.7 |
|
|
|
6 |
|
|
|
3.1 |
|
General
and administrative
|
|
|
3,747 |
|
|
|
11.8 |
|
|
|
4,250 |
|
|
|
14.3 |
|
|
|
(503 |
) |
|
|
(11.8 |
) |
Stock
compensation expense
|
|
|
980 |
|
|
|
3.1 |
|
|
|
977 |
|
|
|
3.3 |
|
|
|
3 |
|
|
|
0.3 |
|
Amortization
of intangible assets
|
|
|
2,682 |
|
|
|
8.4 |
|
|
|
2,412 |
|
|
|
8.1 |
|
|
|
270 |
|
|
|
11.2 |
|
Total
operating expenses
|
|
$ |
19,482 |
|
|
|
61.2 |
|
|
$ |
20,010 |
|
|
|
67.5 |
|
|
$ |
(528 |
) |
|
|
(2.6 |
) |
Sales
and Marketing. Sales
and marketing expenses consist primarily of salaries and other related costs
for
sales and marketing personnel, sales commissions, travel, public relations
and
marketing materials and trade show participation. Sales and marketing expenses
decreased slightly in the three months ended December 31, 2007 as compared
to
the three months ended December 31, 2006. The decrease was primarily
attributable to a decrease in headcount in the U.K., offset by an increase
in
foreign currency exchange rates. We expect that sales and marketing expenses
will increase over the remainder of the fiscal year, as we continue to add
sales
resources and increase our marketing initiatives.
Product
Development and Engineering.
Product development and engineering expenses consist primarily of
personnel costs to support product development, which continues to be focused
on
enhancements and revisions to products based on customer feedback and general
marketplace demands. Our product development and engineering expenses remained
relatively consistent between the three months ended December 31, 2007 and
the
three months ended December 31, 2006. We expect that product development and
engineering expenses will remain relatively consistent during the remainder
of
the fiscal year.
General
and Administrative.
General and administrative expenses consist primarily of salaries and
other related costs for operations and finance employees and legal and
accounting services. The decrease in general and administrative expenses was
primarily attributable to cost reductions in our U.K. operations associated
with
the consolidation of facilities, decreases in staff recruiting and relocation
costs and decreases in third party professional services fees, offset in part
by
an increase in foreign currency exchange rates. We expect that general and
administrative expenses will remain relatively consistent during the remainder
of the fiscal year.
Stock
Compensation
Expense. Stock compensation expense remained consistent during
the three months ended December 31, 2007 as compared to the three months ended
December 31, 2006. The expense associated with share based payments
is recorded as expense within the same functional expense category in which
cash
compensation for the applicable employee is recorded. For the three months
ended
December 31, 2007 and 2006, stock compensation expense was allocated as
follows:
|
|
Three Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cost
of revenues, service and maintenance
|
|
$ |
236 |
|
|
$ |
171 |
|
Sales
and marketing
|
|
|
686 |
|
|
|
762 |
|
Product
development and engineering
|
|
|
200 |
|
|
|
194 |
|
General
and administrative
|
|
|
980 |
|
|
|
977 |
|
|
|
$ |
2,102 |
|
|
$ |
2,104 |
|
For
the
remainder of fiscal 2008, we expect to incur quarterly stock compensation
expense that is relatively consistent with the level of stock compensation
expense recorded in our second quarter.
Amortization
of Intangible Assets.
Amortization expense increased slightly as a result of a full quarter
of
amortization of intangible assets arising from our acquisition of Formscape.
We
expect that total amortization expense for fiscal 2008 will approximate $10.6
million.
Provision
for Income Taxes.
During the quarter ended December 31, 2007, we recorded income tax
expense of $123,000. This was largely due to income tax expense in
the U.S. and Australia, offset in part by an income tax benefit associated
with
our U.K. operations. In the quarter ended December 31, 2006, we
recorded an income tax benefit of $317,000. This benefit was
attributable to our U.K. operations, offset in part by income tax expense in
the
U.S., Australia and Germany. In each of the quarters ended December
31, 2007 and 2006, the income tax expense recorded in the U.S. was due to an
increase in deferred tax liabilities associated with goodwill that is deductible
for U.S. tax purposes but is not amortized for financial reporting
purposes. The U.S. tax expense also consisted of a small amount of
state income tax expense which we had incurred irrespective of our net operating
loss carryforwards.
Six
Months Ended December 31, 2007 Compared to the Six Months Ended
December 31, 2006
Revenues
by segment
As
of
July 1, 2007, we revised the structure of our internal operating segments
and changed the nature of the financial information that is provided to and
used
by our chief operating decision makers. We have aggregated similar operating
segments into three reportable segments: Payments and Transactional Documents,
Banking Solutions and Outsourced Solutions. The change in segment structure
as
of July 1, 2007 resulted in our accounts payable automation product offerings
being included as a component of our segment rather than our Payment and
Transactional Documents segment. The change in segment composition is reflected
for all financial periods presented. The following table represents our revenues
by segment:
|
|
|
|
|
|
|
|
|
Six
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Payments
and Transactional Documents
|
|
$ |
41,220 |
|
|
|
65.2
|
|
|
$ |
34,761 |
|
|
|
63.4
|
|
|
$ |
6,459 |
|
|
|
18.6
|
|
Banking
Solutions
|
|
|
10,408 |
|
|
|
16.5 |
|
|
|
8,452 |
|
|
|
15.4 |
|
|
|
1,956 |
|
|
|
23.1 |
|
Outsourced
Solutions
|
|
|
11,566 |
|
|
|
18.3 |
|
|
|
11,659 |
|
|
|
21.2 |
|
|
|
(93 |
) |
|
|
(0.8 |
) |
|
|
$ |
63,194 |
|
|
|
100.0 |
|
|
$ |
54,872 |
|
|
|
100.0 |
|
|
$ |
8,322 |
|
|
|
15.2 |
|
Payments
and Transactional
Documents. The revenue increase for the six months ended
December 31, 2007 was primarily attributable to a full six months revenue
contribution from Formscape, which we acquired in October 2006, and an increase
in foreign currency exchange rates.
Banking
Solutions. The
revenue increase for the six months ended December 31, 2007 was
attributable to an increase in the revenue contribution from several large,
ongoing, banking projects.
Outsourced
Solutions. The
revenue decrease for the six months ended December 31, 2007 was primarily
the result of a decrease in revenues from certain of our legacy accounts payable
automation products in Europe, offset in part by increases in revenues from
our
Legal eXchange offering as a result of new customers and an increase in foreign
currency exchange rates.
Revenues
by category
|
|
Six
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
6,758 |
|
|
|
10.7
|
|
|
$ |
5,933 |
|
|
|
10.8
|
|
|
$ |
825 |
|
|
|
13.9 |
|
Subscriptions
and transactions
|
|
|
14,184 |
|
|
|
22.4 |
|
|
|
13,227 |
|
|
|
24.1 |
|
|
|
957 |
|
|
|
7.2 |
|
Service
and maintenance
|
|
|
35,768 |
|
|
|
56.6 |
|
|
|
28,998 |
|
|
|
52.9 |
|
|
|
6,770 |
|
|
|
23.3 |
|
Equipment
and supplies
|
|
|
6,484 |
|
|
|
10.3 |
|
|
|
6,714 |
|
|
|
12.2 |
|
|
|
(230 |
) |
|
|
(3.4 |
) |
Total
revenues
|
|
|
63,194 |
|
|
|
100.0 |
|
|
|
54,872 |
|
|
|
100.0 |
|
|
|
8,322 |
|
|
|
15.1 |
|
Software
Licenses. The
increase in software license revenues was principally due to an increase in
license revenue in our Banking Solutions segment, a full six months of revenue
contribution from Formscape, which we acquired in October 2006, and an increase
in foreign currency exchange rates.
Subscriptions
and Transactions.
The increase in subscription and transaction revenues was due principally
to the revenue contribution from new Legal eXchange customers, an increase
in
foreign currency exchange rates, and general growth in our subscription and
transactional based revenue. We expect subscription and transaction revenues
to
increase during the remainder of the fiscal year as a result of orders for
our
newer subscription and transaction based product offerings and as a result
of
the revenue contribution from new Legal eXchange customers.
Service
and Maintenance. The
increase in service and maintenance revenues occurred primarily as a result
of a
full six months of revenue contribution from Formscape, which we acquired in
October 2006, an increase in revenues associated with our Banking Solutions
products as a result of several large, ongoing banking projects and an increase
in foreign currency exchange rates.
Equipment
and Supplies. The
decrease in equipment and supplies revenues was principally due to our continued
de-emphasis of lower margin transactions within this aspect of our
business.
Cost
of revenues by category
|
|
Six
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
425 |
|
|
|
0.7
|
|
|
$ |
383 |
|
|
|
0.7
|
|
|
$ |
42 |
|
|
|
11.0 |
|
Subscriptions
and transactions
|
|
|
7,884 |
|
|
|
12.5 |
|
|
|
5,393 |
|
|
|
9.8 |
|
|
|
2,491 |
|
|
|
46.2 |
|
Service
and maintenance
|
|
|
14,920 |
|
|
|
23.6 |
|
|
|
13,474 |
|
|
|
24.6 |
|
|
|
1,446 |
|
|
|
10.7 |
|
Stock
compensation expense
|
|
|
468 |
|
|
|
0.7 |
|
|
|
289 |
|
|
|
0.5 |
|
|
|
179 |
|
|
|
61.9 |
|
Equipment
and supplies
|
|
|
4,614 |
|
|
|
7.3 |
|
|
|
4,996 |
|
|
|
9.1 |
|
|
|
(382 |
) |
|
|
(7.6 |
) |
Total
cost of revenues
|
|
$ |
28,311 |
|
|
|
44.8 |
|
|
$ |
24,535 |
|
|
|
44.7 |
|
|
$ |
3,776 |
|
|
|
15.4 |
|
Gross
profit
|
|
$ |
34,883 |
|
|
|
55.2 |
|
|
$ |
30,337 |
|
|
|
55.3 |
|
|
$ |
4,546 |
|
|
|
15.0 |
|
Software
Licenses. Software
license costs consist of expenses incurred by us to manufacture, package and
distribute our software products and related documentation and costs of
licensing third party software that is incorporated into or sold with certain
of
our products. Software license costs remained relatively consistent at 6% of
software license revenues in the six months ended December 31, 2007 and
2006.
Subscriptions
and Transactions.
Subscriptions and transaction costs include salaries and other related
costs for our professional services teams as well as costs related to our
hosting infrastructure such as depreciation and facilities related expenses.
Subscriptions and transaction costs represented 56% of subscriptions and
transaction revenues in the six months ended December 31, 2007 as compared
to
41% in the six months ended December 31, 2006. The increase in
subscriptions
and
transaction costs was due to our continued investment in our hosted and accounts
payable automation solutions, particularly our hosted infrastructure and our
customer delivery capabilities.
Service
and Maintenance.
Service and maintenance costs include salaries and other related costs
for our customer service, maintenance and help desk support staffs, as well
as
third party contractor expenses used to complement our professional services
team. Service and maintenance costs decreased to 42% as a percentage of service
and maintenance revenues during the six months ended December 31, 2007 as
compared to 46% in the six months ended December 31, 2006. The
decrease in service and maintenance cost of revenue as a percentage of service
and maintenance revenue was due to an increase in the contribution of software
maintenance revenues from Formscape, which we acquired in October 2006, and
an
increase in professional services gross margins in our Banking Solutions
segment.
Equipment
and Supplies.
Equipment and supplies costs include the costs associated with equipment
and supplies that we resell, as well as freight, shipping and postage costs
associated with the delivery of our products. Equipment and supplies costs
decreased to 71% of equipment and supplies revenues in the six months ended
December 31, 2007 compared to 74% of equipment and supplies revenues in the
six months ended December 31, 2006. The decrease in equipment and supplies
costs as a percentage of equipment and supplies revenues was attributable to
our
continued de-emphasis of lower margin equipments and supplies
transactions.
Operating
Expenses
|
|
Six
Months
Ended December 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared
to
2006
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
$ |
14,069 |
|
|
|
22.3
|
|
|
$ |
13,360 |
|
|
|
24.3
|
|
|
$ |
709 |
|
|
|
5.3 |
|
Stock
compensation expense
|
|
|
1,297 |
|
|
|
2.0 |
|
|
|
1,457 |
|
|
|
2.7 |
|
|
|
(160 |
) |
|
|
(11.0 |
) |
Product
development and engineering
|
|
|
8,069 |
|
|
|
12.8 |
|
|
|
7,461 |
|
|
|
13.6 |
|
|
|
608 |
|
|
|
8.1 |
|
Stock
compensation expense
|
|
|
383 |
|
|
|
0.6 |
|
|
|
392 |
|
|
|
0.7 |
|
|
|
(9 |
) |
|
|
(2.3 |
) |
General
and administrative
|
|
|
7,305 |
|
|
|
11.6 |
|
|
|
7,644 |
|
|
|
13.9 |
|
|
|
(339 |
) |
|
|
(4.4 |
) |
Stock
compensation expense
|
|
|
1,880 |
|
|
|
3.0 |
|
|
|
1,802 |
|
|
|
3.3 |
|
|
|
78 |
|
|
|
4.3 |
|
Amortization
of intangible assets
|
|
|
5,330 |
|
|
|
8.4 |
|
|
|
3,873 |
|
|
|
7.1 |
|
|
|
1,457 |
|
|
|
37.6 |
|
Total
operating expenses
|
|
$ |
38,333 |
|
|
|
60.7 |
|
|
$ |
35,989 |
|
|
|
65.6 |
|
|
$ |
2,344 |
|
|
|
6.5 |
|
Sales
and Marketing. Sales
and marketing expenses consist primarily of salaries and other related costs
for
sales and marketing personnel, sales commissions, travel, public relations
and
marketing materials and trade show participation. The increase in
sales and marketing expenses was primarily attributable to a full six months
of
headcount related costs associated with the Formscape acquisition and an
increase in foreign currency exchange rates.
Product
Development and Engineering.
Product development and engineering expenses consist primarily of
personnel costs to support product development, which continues to be focused
on
enhancements and revisions to our products based on customer feedback and
general marketplace demands. The increase in product development and engineering
expenses was primarily attributable to a full six months of costs associated
with the Formscape acquisition, increased development costs related to our
Legal
eXchange product and an increase in foreign currency exchange
rates.
General
and Administrative.
General and administrative expenses consist primarily of salaries and
other related costs for operations and finance employees and legal and
accounting services. The decrease in general and administrative expenses was
primarily attributable to cost reductions in our U.K. operations as a result
of
facility consolidations, a decrease in staff recruiting and relocation fees
and
a decrease in third party professional services fees, offset in part by a full
six months of costs associated with the Formscape acquisition and an increase
in
foreign currency exchange rates.
Stock
Compensation Expense.
Stock compensation expense remained relatively consistent during the six months
ended December 31, 2007 as compared to the six months ended December 31,
2006. The expense associated with share based payments is recorded as
expense within the same functional expense category in which cash compensation
for the applicable employee is recorded. For the six months ended
December 31, 2007 and 2006, stock compensation expense was allocated as
follows:
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cost
of revenues, service and maintenance
|
|
$ |
468 |
|
|
$ |
289 |
|
Sales
and marketing
|
|
|
1,297 |
|
|
|
1,457 |
|
Product
development and engineering
|
|
|
383 |
|
|
|
392 |
|
General
and administrative
|
|
|
1,880 |
|
|
|
1,802 |
|
|
|
$ |
4,028 |
|
|
$ |
3,940 |
|
Amortization
of Intangible Assets.
Amortization expense increased as a result of the amortization of
intangible assets arising from our October 2006 acquisition of
Formscape.
Provision
for Income Taxes.
We recorded a net tax benefit of $182,000 and $317,000 during the six
months ended December 31, 2007 and 2006, respectively. In the six
months ended December 31, 2007, the net benefit position was due to an income
tax benefit associated with our European operations, offset in part by income
tax expense in the U.S. and Australia. Further, this net benefit
position included the one-time impact of a tax benefit arising from the
enactment of legislation that decreased our tax rate in the U.K. and
Germany. In the six months ended December 31, 2006, the net benefit
position was due to an income tax benefit associated with our U.K. operations,
partially offset by tax expense in the U.S. and Australia.
Liquidity
and Capital Resources
One
of
our goals is to maintain and improve our capital structure. The key metrics
we
focus on in assessing the strength of our liquidity are summarized in the table
below:
|
|
Six
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cash
provided by operating activities
|
|
$ |
8,461 |
|
|
$ |
4,355 |
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Cash,
cash equivalents and marketable securities
|
|
$ |
71,212 |
|
|
$ |
65,873 |
|
Working
capital
|
|
|
60,985
|
|
|
|
55,321
|
|
We
have
financed our operations primarily from cash provided by operating activities
and
the sale of our common stock. We generated positive operating cash flows in
the
six months ended December 31, 2007 and in each of our last six completed fiscal
years. We believe that the cash generated from our operations and the cash,
cash
equivalents and marketable securities on hand will be sufficient to meet our
working capital and capital expenditure requirements for the foreseeable future.
We also may receive additional investments from, and make investments in,
customers or other companies. However, any such transactions would require
the
approval of our board of directors, and in some cases, stockholder and
potentially bank or regulatory approval. We also may undertake additional
business or asset acquisitions or divestitures.
Operating
Activities
|
|
Six Months Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Net
loss
|
|
$ |
(1,475 |
) |
|
$ |
(3,596 |
) |
Non-cash
adjustments
|
|
|
10,350 |
|
|
|
8,617 |
|
Changes
in working capital
|
|
|
(414 |
) |
|
|
(666 |
) |
Net
cash provided by operating activities
|
|
|
8,461 |
|
|
|
4,355 |
|
The
increase in net cash provided by operating activities for the six months ended
December 31, 2007 was due to a decrease in our net loss, affected by favorable
non-cash adjustments, offset in part by decreases in accounts payable, accrued
expenses and deferred revenue and an increase in accounts receivable. Net cash
provided by operating activities for the six
months
ended December 31, 2006 was due to our net loss, affected by favorable non-cash
adjustments and collections on accounts receivable, offset in part by decreases
in accrued expenses and deferred revenue. Non-cash adjustments are transactions
that result in the recognition of financial statement expense but not a
corresponding cash receipt or disbursement, such as stock compensation expense,
amortization of intangible assets, depreciation and amortization of property
and
equipment and provision for allowances of accounts receivable.
Investing
Activities
|
|
Six
Months Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Acquisition
of business and assets, net of cash acquired
|
|
$ |
— |
|
|
$ |
(16,970 |
) |
Purchases
of available-for-sale securities
|
|
|
(225 |
) |
|
|
(10,350 |
) |
Proceeds
from sale of available-for-sale securities
|
|
|
26,050 |
|
|
|
20,450 |
|
Purchases
of held-to-maturity securities
|
|
|
(51 |
) |
|
|
— |
|
Proceeds
from sales of held-to-maturity securities
|
|
|
51 |
|
|
|
— |
|
Purchases
of property and equipment
|
|
|
(1,270 |
) |
|
|
(1,209 |
) |
Net
cash provided by (used in) investing activities
|
|
|
24,555 |
|
|
|
(8,079 |
) |
In
the
six months ended December 31, 2007, cash was primarily provided through the
sale
of marketable securities and, to a lesser extent, was used to acquire property
and equipment. For the six months ended December 31, 2006, cash was primarily
provided through the sale of marketable securities and was used to fund the
acquisition of Formscape, purchase marketable securities and, to a lesser
extent, to acquire property and equipment. We currently expect to incur
quarterly capital expenditures during the remainder of fiscal 2008 that will
be
above the level of capital expenditures incurred during the first six months
of
the fiscal year as we continue to enhance our IT and hosted
infrastructure.
Financing
Activities
|
|
Six Months Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Repurchase
of common stock
|
|
$ |
(6,708 |
) |
|
$ |
(4,003 |
) |
Proceeds
from employee stock purchase plan and exercise of stock options
proceeds
|
|
|
4,988 |
|
|
|
1,279 |
|
Excess
tax benefits associated with stock compensation
|
|
|
108 |
|
|
|
29 |
|
Payment
of bank financing fees
|
|
|
(20 |
) |
|
|
(20 |
) |
Capital
lease payments
|
|
|
(15 |
) |
|
|
(29 |
) |
Net
cash used in financing activities
|
|
|
(1,647 |
) |
|
|
(2,744 |
) |
Net
cash
used in financing activities for the six months ended December 31, 2007 and
December 31, 2006 was primarily the result of the repurchase of our common
stock, offset by proceeds received from the exercise of employee stock options
and from the purchase of our stock by participants in our employee stock
purchase plan.
Off-Balance
Sheet Arrangements
During
the three months ended December 31, 2007, we did not engage in material
off-balance sheet activities, including the use of structured finance, special
purpose or variable interest entities, material trading activities in
non-exchange traded commodity contracts or transactions with persons or entities
that benefit from their non-independent relationship with us.
Contractual
Obligations
Following
is a summary of future payments that we are required to make under existing
contractual obligations as of December 31, 2007:
|
|
|
Payments
Due
by Period *
|
|
Total
|
|
Less Than 1
Year
|
|
|
1-3 Years
|
|
|
|
|
|
More
Than
5 Years
|
|
|
(in
thousands)
|
Operating
lease obligations
|
|
$ |
10,833 |
|
|
$ |
1,383 |
|
|
$ |
6,787 |
|
|
$ |
1,686 |
|
|
$ |
977 |
|
Capital
lease obligations
|
|
|
58 |
|
|
|
18 |
|
|
|
40 |
|
|
|
-- |
|
|
|
-- |
|
Other
contractual obligations
|
|
|
179 |
|
|
|
-- |
|
|
|
179 |
|
|
|
-- |
|
|
|
-- |
|
Total
|
|
$ |
11,070 |
|
|
$ |
1,401 |
|
|
$ |
7,006 |
|
|
$ |
1,686 |
|
|
$ |
977 |
|
*
Payment due dates are calculated from our most recent fiscal year
end of
June 30, 2007
|
Purchase
orders are not included in the table above. Our purchase orders represent
authorizations to purchase rather than binding agreements. The contractual
obligation amounts in the table above are associated with agreements that are
enforceable and legally binding and that specify all significant terms,
including: fixed or minimum services to be used; fixed, minimum or variable
price provisions; and the approximate timing of the transaction. Obligations
under contract that we can cancel without a significant penalty are not included
in the table above. Also excluded from the table is our estimate of unrecognized
tax benefits as of December 31, 2007 in the amount of $314,000. These amounts
have been excluded because, as of December 31, 2007, we are unable to estimate
the timing of future cash outflows, if any, associated with these liabilities
as
we do not currently anticipate settling any of these tax positions with cash
payment in the foreseeable future.
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We
are
exposed to a variety of risks, including foreign currency exchange rate
fluctuations and changes in the market value of our investments in marketable
securities primarily due to changes in the interest rates. We have not entered
into any foreign currency hedging transactions or other instruments to minimize
our exposure to foreign currency exchange rate fluctuations nor do we presently
plan to in the future. Also, we have not entered into any interest rate swap
agreements, or other instruments to minimize our exposure to interest rate
fluctuations. There has been no material change to our exposure to market risk
from that which was disclosed in our Annual Report on Form 10-K for the fiscal
year ended June 30, 2007, as filed with the SEC on September 12,
2007.
Item 4.
|
Controls
and Procedures
|
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2007. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that
it
files or submits under the Exchange Act is recorded, processed, summarized
and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by
a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that
any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship
of
possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2007, our chief executive officer
and
chief financial officer concluded that, as of such date, our disclosure controls
and procedures were effective at the reasonable assurance level.
No
change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below before making an investment
decision involving our common stock. The risks and uncertainties described
below
are not the only ones facing our company. Additional risks and uncertainties
may
also impair our business operations.
If
any of the following risks actually occur, our business, financial condition
or
results of operations would likely suffer. In that case, the trading price
of
our common stock could fall, and you may lose all or part of the money you
paid
to buy our common stock.
The
following risk factors do not reflect any material changes from those included
in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007,
as filed with the SEC on September 12, 2007.
Our
common stock has experienced and may continue to undergo extreme market price
and volume fluctuations
Stock
markets in general, and The NASDAQ Global Market in particular, have experienced
extreme price and volume fluctuations, particularly in recent years. Broad
market fluctuations of this type may adversely affect the market price of our
common stock. The stock prices for many companies in the technology sector
have
experienced wide fluctuations that often have been unrelated to their operating
performance. The market price of our common stock has experienced and may
continue to undergo extreme fluctuations due to a variety of factors,
including:
|
•
|
changes
in or our failure to meet analysts’ or investors’ estimates or
expectations;
|
|
•
|
general
and industry-specific business, economic and market conditions;
|
|
•
|
actual
or anticipated fluctuations in operating results, including those
arising
as a result of any impairment of goodwill or other intangible assets
related to past or future acquisitions;
|
|
•
|
public
announcements concerning us, including announcements of litigation,
our
competitors or our industry;
|
|
•
|
introductions
of new products or services or announcements of significant contracts
by
us or our competitors;
|
|
•
|
acquisitions,
divestitures, strategic partnerships, joint ventures, or capital
commitments by us or our competitors;
|
|
•
|
adverse
developments in patent or other proprietary rights; and
|
|
•
|
announcements
of technological innovations by our competitors.
|
Our
future financial results will be impacted by our success in selling new products
in a subscription and transaction based revenue model
A
substantial portion of our revenues and profitability were historically
generated from software license revenues. We are currently offering certain
of
our newer product sets under a subscription and transaction based revenue model,
which we believe has certain advantages over a perpetual license model,
including better predictability of revenue.
A
subscription and transaction based revenue model typically results in no
up-front revenue. Additionally, there can be no assurance that our customers,
or
the markets in which we compete, will respond favorably to the approach we
have
taken with our newer offerings. To the extent that our new subscription and
transaction based offerings do not receive general marketplace acceptance,
our
financial results could be materially and adversely affected.
We
make significant investments in existing products and new product offerings
that
can adversely affect our operating results and may not be
successful
We
operate in a highly competitive and rapidly evolving technology environment
and
believe that it is important to enhance existing product offerings and develop
new product offerings to meet strategic opportunities as they evolve.
Investments in existing product enhancements and new product offerings can
have
a negative impact on our operating results, and any existing product
enhancements or new product offerings may not be accepted in the marketplace
or
generate material revenues. For example, our operating results have recently
been affected by a significant increase in product development expenses as
we
continue to make investments in our hosted, banking and accounts payable
automation products.
Integration
of acquisitions could interrupt our business and our financial condition could
be harmed
Part
of
our operating strategy is to identify and pursue strategic acquisitions that
can
expand our geographical footprint or complement our existing product
functionality. We may in the future continue to acquire, or make
investments in, other businesses, products or technologies. Any acquisition
or
strategic investment we have made in the past or may make in the future may
entail numerous risks, including the following:
|
•
|
difficulties
integrating acquired operations, personnel, technologies or products;
|
|
•
|
inadequacy
of existing operating, financial and management information systems
to
support the combined organization or new operations;
|
|
•
|
write-offs
related to impairment of goodwill and other intangible assets;
|
|
•
|
entrance
into markets in which we have no or limited prior experience or knowledge;
|
|
•
|
diversion
of management’s focus from our core business concerns;
|
|
•
|
dilution
to existing stockholders and earnings per share;
|
|
•
|
incurrence
of substantial debt; and
|
|
•
|
exposure
to litigation from third parties, including claims related to intellectual
property or other assets acquired or liabilities assumed.
|
Any
such
difficulties encountered as a result of any merger, acquisition or strategic
investment could have a material adverse effect on our business, operating
results and financial condition.
As
a result of our acquisitions, we could be subject to significant future
write-offs with respect to intangible assets, which may adversely affect our
future operating results
We
review
our intangible assets, including goodwill, periodically for impairment. At
December 31, 2007, the carrying value of our goodwill and our other intangible
assets was approximately $53 million and $25 million, respectively. While we
reviewed our goodwill and intangible assets during the fourth quarter of fiscal
year 2007 and concluded that there was no impairment, we could be subject to
future impairment charges with respect to these intangible assets, or intangible
assets arising as a result of acquisitions in future periods. Such charges,
to
the extent occurring, would likely have a material adverse effect on our
operating results.
Our
fixed costs may lead to operating results below analyst or investor expectations
if our revenues are below anticipated levels, which could adversely affect
the
market price of our common stock
A
significant percentage of our expenses, particularly personnel and facilities
costs, are relatively fixed and based in part on anticipated revenue levels.
In
recent years, we have experienced slowing growth rates with certain of our
licensed software products. A decline in revenues without a corresponding and
timely slowdown in expense growth could negatively affect our business.
Significant revenue shortfalls in any quarter may cause significant declines
in
operating results since we may be unable to reduce spending in a timely
manner.
Quarterly
or annual operating results that are below the expectations of public market
analysts could adversely affect the market price of our common stock. Factors
that could cause fluctuations in our operating results include the
following:
|
•
|
economic
conditions, which may affect our customers’ and potential customers’
budgets for information technology expenditures;
|
|
•
|
the
timing of orders and longer sales cycles;
|
|
•
|
the
timing of product implementations, which are highly dependent on
customers’ resources and discretion;
|
|
•
|
the
incurrence of costs relating to the integration of software products
and
operations in connection with acquisitions of technologies or businesses;
and
|
|
•
|
the
timing and market acceptance of new products or product enhancements
by
either us or our competitors.
|
Because
of these factors, we believe that period-to-period comparisons of our results
of
operations are not necessarily meaningful.
Our
mix of products and services could have a significant effect on our financial
condition, results of operations and the market price of our common
stock
The
gross
margins for our products and services vary considerably. Our software revenues
generally yield significantly higher gross margins than do our subscription
and
transaction, service and maintenance and equipment and supplies revenue streams.
In recent fiscal years, we experienced a decrease in our software license fees.
If software license fees were to again decline, or if the mix of our products
and services in any given period does not match our expectations, our results
of
operations and the market price of our common stock could be significantly
adversely affected.
We
face risks associated with our international operations that could harm our
financial condition and results of operations
A
significant percentage of our revenues have been generated by our international
operations, and our future growth rates and success are in part dependent on
our
continued growth and success in international markets. We have operations in
the
U.S., U.K., Australia, France and Germany. As is the case with most
international operations, the success and profitability of these operations
are
subject to numerous risks and uncertainties that include, in addition to the
risks our business as a whole faces, the following:
|
•
|
difficulties
and costs of staffing and managing foreign operations;
|
|
•
|
currency
exchange rate fluctuations;
|
|
•
|
differing
regulatory and industry standards and certification requirements;
|
|
•
|
the
complexities of foreign tax jurisdictions;
|
|
•
|
reduced
protection for intellectual property rights in some countries; and
|
|
•
|
import
or export licensing requirements.
|
A
significant percentage of our revenues to date have come from our payment
management offerings and our future performance will depend on continued market
acceptance of these solutions
A
significant percentage of our revenues to date have come from the license and
maintenance of our payment management offerings and sales of associated products
and services. Any significant reduction in demand for our payment management
offerings could have a material adverse effect on our business, operating
results and financial condition. Our future performance could depend on the
following factors:
|
•
|
continued
market acceptance of our payment management offerings including our
overall accounts payable automation solution;
|
|
•
|
prospective
customers’ dependence upon enterprises seeking to enhance their payment
functions to integrate electronic payment capabilities;
|
|
•
|
our
ability to introduce enhancements to meet the market’s evolving needs for
secure payments and cash management solutions; and
|
|
•
|
acceptance
of software solutions offered on a hosted basis.
|
A
growing number of our customer arrangements involve selling our products and
services on a hosted basis, which may have the effect of delaying revenue
recognition and increasing development or start-up expenses
An
increasing number of our customer arrangements involve offering certain of
our
products and services on a hosted basis. These arrangements typically include
a
contractually defined service period as well as performance criteria that our
products or services are required to meet over the duration of the service
period. Arrangements entered into on a hosted basis generally delay the timing
of revenue recognition and often require the incurrence of up-front costs,
which
can be significant. We are continuing to make significant investments in certain
of our hosted offerings, such as our accounts payable automation products,
and
there can be no assurance that these products will ultimately gain broad market
acceptance. Additionally, there is a risk that we might be unable to
consistently maintain the performance requirements, or service levels, called
for under any such hosted arrangements. Such events, to the extent occurring,
could have a material and adverse effect on our operating results.
Our
future financial results will depend on our ability to manage growth
effectively
In
the
past, rapid growth has strained our managerial and other resources. If rapid
growth resumes, our ability to manage that growth will depend in part on our
ability to continue to enhance our operating, financial and management
information systems. We cannot assure you that our personnel, systems and
controls will be adequate to support future
growth.
If we are unable to manage growth effectively, the quality of our services,
our
ability to retain key personnel and our business, operating results and
financial condition could be materially adversely affected.
We
face significant competition in our targeted markets, including competition
from
companies with significantly greater resources
In
recent
years, we have encountered increasing competition in our targeted markets.
We
compete with a wide range of companies, ranging from small start-up enterprises
with limited resources, which compete principally on the basis of technology
features or specific customer relationships, to large companies, which can
leverage significant customer bases and financial resources. Given the size
and
nature of the markets we target, the implementation of our growth strategy
and
our success in competing for market share is dependent on our ability to grow
our sales and marketing capabilities and maintain an appropriate level of
financial resources.
An
increasing number of large and more complex customer contracts, or contracts
that involve the delivery of services over contractually committed periods,
generally delay the timing of our revenue recognition and in the short-term
may
adversely affect our operating results, financial condition and the market
price
of our stock
Due
to an
increasing number of large and more complex customer contracts, particularly
in
our Banking Solutions segment, we have experienced, and will likely continue
to
experience, delays in the timing of our revenue recognition. These large and
complex customer contracts generally require significant implementation work,
product customization and modification, resulting in the recognition of revenue
over the period of project completion, which normally spans several quarters.
Delays in revenue recognition on these contracts, including delays that result
from customer decisions to halt or otherwise slow down a long-term project
due
to their own staffing challenges, could affect our operating results, financial
condition and the market price of our common stock. Similarly, if we are unable
to continue to generate new large orders on a regular basis, our business
operating results and financial condition could be adversely
affected.
We
depend on key employees who are skilled in e-commerce, payment, cash and
document management and invoice presentment methodology and Internet and other
technologies
Our
success depends upon the efforts and abilities of our executive officers and
key
technical employees who are skilled in e-commerce, payment methodology and
regulation, and Internet, database and network technologies. The loss of one
or
more of these individuals could have a material adverse effect on our business.
We currently do not maintain “key man” life insurance policies on any of our
employees. While some of our executive officers have employment or retention
agreements with us, the loss of the services of any of our executive officers
or
other key employees could have a material adverse effect on our business,
operating results and financial condition.
We
must attract and retain highly skilled personnel with knowledge in e-commerce,
payment, cash and document management and invoice presentment methodology and
Internet and other technologies
We
believe that our success is in part dependent upon our ability to attract,
hire,
train and retain highly skilled technical, sales and marketing, and support
personnel, particularly with expertise in e-commerce, payment, cash management
and invoice methodology and Internet and other technologies. Competition for
qualified personnel is intense. As a result, we may experience increased
compensation costs that may not be offset through either improved productivity
or higher sales prices. There can be no assurance that we will be successful
in
attracting, recruiting or retaining existing personnel. Based on our experience,
it takes an average of nine months for a new salesperson to become fully
productive. We cannot assure you that we will be successful in increasing the
productivity of our sales personnel, and the failure to do so could have a
material adverse effect on our business, operating results and financial
condition.
Increased
competition may result in price reductions and decreased demand for our product
solutions
The
markets in which we compete are intensely competitive and characterized by
rapid
technological change. Some competitors in our targeted markets have longer
operating histories, significantly greater financial, technical, and marketing
resources, greater brand recognition and a larger installed customer base than
we do. We expect to face additional competition as other established and
emerging companies enter the markets we address. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships to expand their product offerings and to offer more comprehensive
solutions. This growing competition may result in price reductions of our
products and services, reduced revenues and gross margins and loss of market
share, any one of which could have a material adverse effect on our business,
operating results and financial condition.
Our
success depends on our ability to develop new and enhanced products, services
and strategic partner relationships
The
markets in which we compete are subject to rapid technological change and our
success is dependent on our ability to develop new and enhanced products,
services and strategic partner relationships that meet evolving market needs.
Trends that could have a critical impact on us include:
|
•
|
evolving
industry standards, mandates and laws, such as those mandated by
the
National Automated Clearing House Association and the Association
for
Payment Clearing Services;
|
|
•
|
rapidly
changing technology, which could cause our software to become suddenly
outdated or could require us to make our products compatible with
new
database or network systems;
|
|
•
|
developments
and changes relating to the Internet that we must address as we maintain
existing products and introduce any new products; and
|
|
•
|
the
loss of any of our key strategic partners who serve as a valuable
network
from which we can leverage industry expertise and respond to changing
marketplace demands.
|
There
can
be no assurance that technological advances will not cause our products to
become obsolete or uneconomical. If we are unable to develop and introduce
new
products, or enhancements to existing products, in a timely and successful
manner, our business, operating results and financial condition could be
materially adversely affected. Similarly, if our new products did not receive
general marketplace acceptance, or if the sales cycle of any of our new products
significantly delayed the timing of revenue recognition, our results could
be
negatively affected.
Our
products could be subject to future legal or regulatory actions, which could
have a material adverse effect on our operating results
Our
software products and hosted services offerings facilitate the transmission
of
business documents and information including, in some cases, confidential
financial data related to payments, invoices and cash management. Our web-based
software products, and certain of our hosted services offerings, transmit this
data electronically. While we believe that all of our product and service
offerings comply with current regulatory and security requirements, there can
be
no assurance that future legal or regulatory actions will not impact our product
and service offerings. To the extent that regulatory or legal developments
mandate a change in any of our products or services, or alter the demand for
or
the competitive environment of our products and services, we might not be able
to respond to such requirements in a timely or successful manner. If this were
to occur, our business, operating results and financial condition could be
materially adversely affected.
Any
unanticipated performance problems or bugs in our product offerings could have
a
material adverse effect on our future financial results
If
the
products that we offer and continue to introduce do not sustain marketplace
acceptance, our future financial results will be adversely affected. Since
many
of our software solutions are still in early stages of adoption and since most
of our software products are continually being enhanced or further developed
in
response to general marketplace demands, any unanticipated performance problems
or bugs that we have not been able to detect could result in additional
development costs, diversion of technical and other resources from our other
development efforts, negative publicity regarding us and our products, harm
to
our customer relationships and exposure to potential liability claims. In
addition, if our products do not enjoy wide commercial success, our long-term
business strategy will be adversely affected, which could have a material
adverse effect on our business, operating results and financial
condition.
We
could incur substantial costs resulting from warranty claims or product
liability claims
Our
software license agreements typically contain provisions that afford customers
a
degree of warranty protection in the event that our software fails to conform
to
its written specifications. These agreements typically contain provisions
intended to limit the nature and extent of our risk of warranty and product
liability claims. There is a risk, however, that a court might interpret these
terms in a limited way or could hold part or all of these terms to be
unenforceable. Furthermore, some of our licenses with our customers are governed
by non-U.S. law, and there is a risk that foreign law might provide us less
or
different protection. While we maintain general liability insurance, including
coverage for errors and omissions, we cannot be sure that our existing coverage
will continue to be available on reasonable terms or will be available in
amounts sufficient to cover one or more large claims. Although we have not
experienced any material warranty or product liability claims to date, a
warranty or product liability claim, whether or not meritorious, could result
in
substantial costs and a diversion of management’s attention and our resources,
which could have an adverse effect on our business, operating results and
financial condition.
We
could be adversely affected if we are unable to protect our proprietary
technology and could be subject to litigation regarding our intellectual
property rights, causing serious harm to our business
We
rely
upon a combination of patent, copyright and trademark laws and non-disclosure
and other intellectual property contractual arrangements to protect our
proprietary rights. However, we cannot assure you that our patents, pending
applications for patents that may issue in the future, or other intellectual
property will be of sufficient scope and strength to provide meaningful
protection to our technology or any commercial advantage to us, or that the
patents will not be challenged, invalidated or circumvented. We enter into
agreements with our employees and customers that seek to limit and protect
the
distribution of proprietary information. Despite our efforts to safeguard and
maintain our proprietary rights, there can be no assurance that such rights
will
remain protected or that we will be able to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights.
In
recent
years, there has been significant litigation in the United States involving
patents and other intellectual property rights. We may be a party to litigation
in the future to protect our intellectual property rights or as a result of
an
alleged infringement of the intellectual property rights of others. Any such
claims, whether or not meritorious, could require us to spend significant sums
in litigation, pay damages, delay product implementations, develop
non-infringing intellectual property or acquire licenses to intellectual
property that is the subject of the infringement claim. These claims could
have
a material adverse effect on our business, operating results and financial
condition.
We
engage off-shore development resources which may not be successful and which
may
put our intellectual property at risk
In
order
to optimize our research and development capabilities and to meet development
timeframes, we contract with off-shore third party vendors in India and
elsewhere for certain development activities. While our experience to date
with
these resources has been positive, there are a number of risks associated with
off-shore development activities that include but are not limited to the
following:
|
•
|
less
efficient and less accurate communication and information flow as
a
consequence of time, distance and language barriers between our primary
development organization and the off-shore resources, resulting in
delays
or deficiencies in development efforts;
|
|
•
|
disruption
due to political or military conflicts around the world;
|
|
•
|
misappropriation
of intellectual property from departing personnel, which we may not
readily detect; and
|
|
•
|
currency
exchange rate fluctuations that could adversely impact the cost advantages
intended from these agreements.
|
To
the
extent that these or unforeseen risks occur, our operating results and financial
condition could be adversely impacted.
Some
anti-takeover provisions contained in our charter and under Delaware law could
hinder a takeover attempt
We
are
subject to the provisions of Section 203 of the General Corporation Law of
the State of Delaware prohibiting, under some circumstances, publicly-held
Delaware corporations from engaging in business combinations with some
stockholders for a specified period of time without the approval of the holders
of substantially all of our outstanding voting stock. Such provisions could
delay or impede the removal of incumbent directors and could make more difficult
a merger, tender offer or proxy contest involving us, even if such events could
be beneficial, in the short-term, to the interests of the stockholders. In
addition, such provisions could limit the price that some investors might be
willing to pay in the future for shares of our common stock. Our certificate
of
incorporation and bylaws contain provisions relating to the limitations of
liability and indemnification of our directors and officers, dividing our board
of directors into three classes of directors serving three-year terms and
providing that our stockholders can take action only at a duly called annual
or
special meeting of stockholders.
We
may incur significant costs from class action litigation as a result of expected
volatility in our common stock
In
the
past, companies that have experienced market price volatility of their stock
have been the targets of securities class action litigation. In August 2001,
we
were named as a party in one of the so-called “laddering” securities class
action suits relating to the underwriting of our initial public offering. We
could incur substantial costs and experience a diversion of our management’s
attention and resources in connection with any such litigation, which could
have
a material adverse effect on our business, financial condition and results
of
operations.
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The
following table provides information about purchases by us of our common stock
during the three months ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of
Shares Purchased
|
|
|
Average Price Paid
Per
Share
|
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans
or
Programs
|
|
|
Approximate
Dollar Value of
Shares That May
Yet be Purchased
Under
The Plans
or
Programs (1)
|
|
October 1,
2007—October 31, 2007
|
|
|
29,900
|
|
|
$ |
14.09 |
|
|
|
29,900
|
|
|
$ |
4,757,000 |
|
November 1,
2007—November 30, 2007
|
|
|
135,000 |
|
|
|
13.65 |
|
|
|
135,000 |
|
|
|
2,914,000 |
|
December 1,
2007—December 31, 2007
|
|
|
55,000 |
|
|
|
13.72 |
|
|
|
55,000 |
|
|
|
2,159,000 |
|
Total
|
|
|
219,900 |
|
|
$ |
13.73 |
|
|
|
219,900 |
|
|
$ |
2,159,000 |
|
(1)
|
In
May 2007, our board of directors announced that it had authorized
a
repurchase program for the repurchase of up to $10.0 million of our
common
stock.
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We
held
our 2007 Annual Meeting of Stockholders on November 15, 2007. The
following matters were voted upon at the Annual Meeting.
1.
|
Election
of
Directors. Holders of 21,135,403 shares of our common stock voted
to elect Daniel M. McGurl to serve for a term of three years as a
Class
III Director. Holders of 835,719 shares of our common stock
withheld votes from such director. Holders of 20,794,796 shares
of our common stock voted to elect James L. Loomis to serve for a
term of
three years as a Class III Director. Holders of 1,176,326
shares of our common stock withheld votes from such
director. Holders of 21,184,186 shares of our common stock
voted to elect Garen K. Staglin to serve for a term of three years
as a
Class III Director. Holders of 786,936 shares of our common
stock withheld votes from such
director.
|
2.
|
Ratification
of
Independent Registered Public Accounting Firm. Holders of
21,838,170 shares of our common stock voted to ratify the appointment
of
Ernst & Young LLP as our independent registered public accounting firm
for the current fiscal year. Holders of 130,543 shares of our
common stock voted against ratifying such appointment, holders of
2,409
shares abstained from voting and no shares were broker
non-votes.
|
Item 6.
Exhibits
See
the
Exhibit Index on page 32 for a list of exhibits filed as part of this Quarterly
Report on Form 10-Q, which Exhibit Index is incorporated herein by
reference.
SIGNATURE
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.
|
|
|
|
Bottomline
Technologies (de), Inc.
|
|
|
|
Date:
February 8, 2008
|
By:
|
|
|
|
Kevin
M. Donovan
Chief
Financial Officer and Treasurer
(Principal
Financial and Accounting
Officer)
|
EXHIBIT
INDEX
|
|
Exhibit
Number
|
Description
|
|
|
|
|
10.1
|
Amended
Executive Officer Bonus Plan for 2008 for Robert A.
Eberle
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive
Officer
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial
Officer
|
|
|
32.1
|
Section
1350 Certification of Principal Executive Officer
|
|
|
32.2
|
Section
1350 Certification of Principal Financial
Officer
|