m10qfy08.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
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 April 30,
2008 was 25,001,688.
INDEX
|
|
|
Page
No.
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item 1.
Financial Statements
|
|
|
|
Unaudited
Condensed Consolidated Balance Sheets as of March 31, 2008 and
June 30, 2007
|
3
|
|
|
Unaudited
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2008 and 2007
|
4
|
|
|
Unaudited
Condensed Consolidated Statements of Operations for the nine months ended
March 31, 2008 and 2007
|
5
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the nine months ended
March 31, 2008 and 2007
|
6
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
|
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
|
24
|
|
|
Item 4.
Controls and Procedures
|
24
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item 1A.
Risk Factors
|
25
|
|
|
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
|
31
|
|
|
Item 6.
Exhibits
|
31
|
|
|
SIGNATURE
|
32
|
PART
I. FINANCIAL INFORMATION
Item 1.
|
Financial
Statements
|
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Balance Sheets
(in
thousands)
|
|
|
|
|
|
|
|
|
March
31,
2008
|
|
|
June 30,
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
76,877 |
|
|
$ |
38,997 |
|
Marketable
securities
|
|
|
55 |
|
|
|
26,876 |
|
Accounts
receivable, net of allowance for doubtful accounts and returns of $1,276
at March 31, 2008 and $1,590 at June 30,
2007
|
|
|
19,890 |
|
|
|
24,169 |
|
Other
current assets
|
|
|
4,540 |
|
|
|
5,402 |
|
Total
current assets
|
|
|
101,362 |
|
|
|
95,444 |
|
Property
and equipment, net
|
|
|
8,846 |
|
|
|
8,270 |
|
Intangible
assets, net
|
|
|
75,322 |
|
|
|
84,296 |
|
Other
assets
|
|
|
2,612 |
|
|
|
1,784 |
|
Total
assets
|
|
$ |
188,142 |
|
|
$ |
189,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
6,495 |
|
|
$ |
6,650 |
|
Accrued
expenses
|
|
|
7,098 |
|
|
|
8,475 |
|
Deferred
revenue
|
|
|
25,028 |
|
|
|
24,998 |
|
Total
current liabilities
|
|
|
38,621 |
|
|
|
40,123 |
|
Deferred
revenue, non-current
|
|
|
2,208 |
|
|
|
2,498 |
|
Deferred
income taxes
|
|
|
4,876 |
|
|
|
6,258 |
|
Other
liabilities
|
|
|
1,029 |
|
|
|
479 |
|
Total
liabilities
|
|
|
46,734 |
|
|
|
49,358 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
26 |
|
|
|
25 |
|
Additional
paid-in capital
|
|
|
275,247 |
|
|
|
263,229 |
|
Accumulated
other comprehensive income
|
|
|
7,534 |
|
|
|
8,292 |
|
Treasury
stock
|
|
|
(19,846 |
) |
|
|
(11,285 |
) |
Accumulated
deficit
|
|
|
(121,553 |
) |
|
|
(119,825 |
) |
Total
stockholders’ equity
|
|
|
141,408 |
|
|
|
140,436 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
188,142 |
|
|
$ |
189,794 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Statements of Operations
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Three
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
3,149 |
|
|
$ |
4,071 |
|
Subscriptions
and transactions
|
|
|
7,223 |
|
|
|
6,750 |
|
Service
and maintenance
|
|
|
18,359 |
|
|
|
16,856 |
|
Equipment
and supplies
|
|
|
3,301 |
|
|
|
3,438 |
|
Total
revenues
|
|
|
32,032 |
|
|
|
31,115 |
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
173 |
|
|
|
177 |
|
Subscriptions
and transactions
|
|
|
3,839 |
|
|
|
3,064 |
|
Service
and maintenance (1)
|
|
|
8,117 |
|
|
|
7,864 |
|
Equipment
and supplies
|
|
|
2,409 |
|
|
|
2,532 |
|
Total
cost of revenues
|
|
|
14,538 |
|
|
|
13,637 |
|
Gross
profit
|
|
|
17,494 |
|
|
|
17,478 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing (1)
|
|
|
7,411 |
|
|
|
8,073 |
|
Product
development and engineering (1)
|
|
|
4,016 |
|
|
|
4,248 |
|
General
and administrative (1)
|
|
|
4,516 |
|
|
|
5,110 |
|
Amortization
of intangible assets
|
|
|
2,629 |
|
|
|
2,701 |
|
Total
operating expenses
|
|
|
18,572 |
|
|
|
20,132 |
|
Loss
from operations
|
|
|
(1,078 |
) |
|
|
(2,654 |
) |
Other
income, net
|
|
|
998 |
|
|
|
682 |
|
Loss
before provision for income taxes
|
|
|
(80 |
) |
|
|
(1,972 |
) |
Provision
(benefit) for income taxes
|
|
|
267 |
|
|
|
(98 |
) |
Net
loss
|
|
$ |
(347 |
) |
|
$ |
(1,874 |
) |
Basic
and diluted net loss per share:
|
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
Shares
used in computing net loss per basic and diluted share:
|
|
|
23,927 |
|
|
|
23,529 |
|
|
|
|
|
|
|
|
|
|
(1)
|
Stock
based compensation is allocated as
follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of revenues: service and maintenance
|
|
$ |
271 |
|
|
$ |
231 |
|
Sales
and marketing
|
|
|
800 |
|
|
|
663 |
|
Product
development and engineering
|
|
|
209 |
|
|
|
186 |
|
General
and administrative
|
|
|
1,095 |
|
|
|
871 |
|
|
|
$ |
2,375 |
|
|
$ |
1,951 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Statements of Operations
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
9,906 |
|
|
$ |
10,005 |
|
Subscriptions
and transactions
|
|
|
21,407 |
|
|
|
19,976 |
|
Service
and maintenance
|
|
|
54,127 |
|
|
|
45,854 |
|
Equipment
and supplies
|
|
|
9,786 |
|
|
|
10,152 |
|
Total
revenues
|
|
|
95,226 |
|
|
|
85,987 |
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
598 |
|
|
|
560 |
|
Subscriptions
and transactions
|
|
|
11,723 |
|
|
|
8,457 |
|
Service
and maintenance (1)
|
|
|
23,504 |
|
|
|
21,626 |
|
Equipment
and supplies
|
|
|
7,024 |
|
|
|
7,529 |
|
Total
cost of revenues
|
|
|
42,849 |
|
|
|
38,172 |
|
Gross
profit
|
|
|
52,377 |
|
|
|
47,815 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing (1)
|
|
|
22,777 |
|
|
|
22,887 |
|
Product
development and engineering (1)
|
|
|
12,468 |
|
|
|
12,100 |
|
General
and administrative (1)
|
|
|
13,702 |
|
|
|
14,558 |
|
Amortization
of intangible assets
|
|
|
7,958 |
|
|
|
6,575 |
|
Total
operating expenses
|
|
|
56,905 |
|
|
|
56,120 |
|
Loss
from operations
|
|
|
(4,528 |
) |
|
|
(8,305 |
) |
Other
income, net
|
|
|
2,790 |
|
|
|
2,421 |
|
Loss
before provision for income taxes
|
|
|
(1,738 |
) |
|
|
(5,884 |
) |
Provision
(benefit) for income taxes
|
|
|
84 |
|
|
|
(414 |
) |
Net
loss
|
|
$
|
(1,822 |
) |
|
$ |
(5,470 |
) |
Basic
and diluted net loss per share
|
|
$ |
(0.08 |
) |
|
$ |
(0.23 |
) |
Shares
used in computing net loss per basic and diluted share:
|
|
|
23,806 |
|
|
|
23,527 |
|
|
|
|
|
|
|
|
|
|
(1)
|
Stock
based compensation is allocated as
follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of revenues: service and maintenance
|
|
$ |
740 |
|
|
$ |
520 |
|
Sales
and marketing
|
|
|
2,097 |
|
|
|
2,120 |
|
Product
development and engineering
|
|
|
592 |
|
|
|
578 |
|
General
and administrative
|
|
|
2,975 |
|
|
|
2,673 |
|
|
|
$ |
6,404 |
|
|
$ |
5,891 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
Bottomline
Technologies (de), Inc.
Unaudited
Condensed Consolidated Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,822 |
) |
|
$ |
(5,470 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
6,404 |
|
|
|
5,891 |
|
Amortization
of intangible assets
|
|
|
7,958 |
|
|
|
6,575 |
|
Depreciation
and amortization of property and equipment
|
|
|
2,525 |
|
|
|
2,265 |
|
Loss
on disposal of property and equipment
|
|
|
51 |
|
|
|
— |
|
Deferred
income tax benefit
|
|
|
(561 |
) |
|
|
(585 |
) |
Excess
tax benefits associated with stock compensation
|
|
|
(118 |
) |
|
|
(30 |
) |
Provision
for allowances on accounts receivable
|
|
|
(125 |
) |
|
|
(120 |
) |
Provision
for obsolete inventory
|
|
|
15 |
|
|
|
(39 |
) |
Gain
on foreign exchange
|
|
|
(309 |
) |
|
|
(69 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,498 |
|
|
|
1,703 |
|
Inventory,
prepaid expenses and other assets
|
|
|
921 |
|
|
|
275 |
|
Accounts
payable, accrued expenses and deferred revenue
|
|
|
(2,322 |
) |
|
|
(1,329 |
) |
Net
cash provided by operating activities
|
|
|
17,115 |
|
|
|
9,067 |
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Acquisition
of business and assets, net of cash acquired
|
|
|
— |
|
|
|
(16,975 |
) |
Purchases
of available-for-sale securities
|
|
|
(225 |
) |
|
|
(11,900 |
) |
Purchases
of held-to-maturity securities
|
|
|
(51 |
) |
|
|
— |
|
Proceeds
from sales of available-for-sale securities
|
|
|
27,050 |
|
|
|
25,350 |
|
Proceeds
from sales of held-to-maturity securities
|
|
|
51 |
|
|
|
— |
|
Purchases
of property, plant and equipment, net
|
|
|
(3,159 |
) |
|
|
(2,380 |
) |
Net
cash provided by (used in) investing activities
|
|
|
23,666 |
|
|
|
(5,905 |
) |
Financing
activities:
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
(8,611 |
) |
|
|
(8,736 |
) |
Proceeds
from employee stock purchase plan and exercise of stock
options
|
|
|
5,674 |
|
|
|
2,864 |
|
Excess
tax benefits associated with stock compensation
|
|
|
118 |
|
|
|
30 |
|
Payment
of bank financing fees
|
|
|
(20 |
) |
|
|
(25 |
) |
Capital
lease payments
|
|
|
(22 |
) |
|
|
(43 |
) |
Net
cash used in financing activities
|
|
|
(2,861 |
) |
|
|
(5,910 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(40 |
) |
|
|
616 |
|
Increase
(decrease) in cash and cash equivalents
|
|
|
37,880 |
|
|
|
(2,132 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
38,997 |
|
|
|
38,752 |
|
Cash
and cash equivalents at end of period
|
|
$ |
76,877 |
|
|
$ |
36,620 |
|
|
|
|
|
|
|
|
|
|
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
March
31, 2008
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
nine months ended March 31, 2008 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 March 31, 2008 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
|
|
|
(825 |
) |
Impact
of changes in foreign currency exchange rates
|
|
|
42 |
|
Remaining
accrual at March 31, 2008
|
|
$ |
— |
|
|
|
|
|
|
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
Nine
Months Ended
March 31,
2007
|
|
|
|
|
|
Revenues
|
|
$ |
91,529 |
|
Net
loss
|
|
|
(7,719 |
) |
Net
loss per basic and diluted share
|
|
|
(0.33 |
) |
Note
3—Net Loss Per Share
The
following table sets forth the computation of basic and diluted net loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
March 31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(347 |
) |
|
$ |
(1,874 |
) |
|
$ |
(1,822 |
) |
|
$ |
(5,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in computing basic and diluted loss per
share
|
|
|
23,927 |
|
|
|
23,529 |
|
|
|
23,806 |
|
|
|
23,527 |
|
Basic
and diluted net loss per share
|
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
March
31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Net
loss
|
|
$ |
(347 |
) |
|
$ |
(1,874 |
) |
|
$ |
(1,822 |
) |
|
$ |
(5,470 |
) |
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(15 |
) |
|
|
390 |
|
|
|
(758 |
) |
|
|
3,694 |
|
Comprehensive
loss
|
|
$ |
(362 |
) |
|
$ |
(1,484 |
) |
|
$ |
(2,580 |
) |
|
$ |
(1,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
including 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
March 31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
$ |
19,670 |
|
|
$ |
19,634 |
|
|
$ |
60,890 |
|
|
$ |
54,395 |
|
Banking
Solutions
|
|
|
6,331 |
|
|
|
5,557 |
|
|
|
16,739 |
|
|
|
14,009 |
|
Outsourced
Solutions
|
|
|
6,031 |
|
|
|
5,924 |
|
|
|
17,597 |
|
|
|
17,583 |
|
Total
revenues
|
|
|
32,032 |
|
|
|
31,115 |
|
|
|
95,226 |
|
|
|
85,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
measure of profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
|
3,274 |
|
|
|
3,181 |
|
|
|
11,488 |
|
|
|
8,249 |
|
Banking
Solutions
|
|
|
1,026 |
|
|
|
685 |
|
|
|
1,531 |
|
|
|
(376 |
) |
Outsourced
Solutions
|
|
|
(280 |
) |
|
|
(1,868 |
) |
|
|
(3,091 |
) |
|
|
(3,712 |
) |
Total
measure of segment profit
|
|
$ |
4,020 |
|
|
$ |
1,998 |
|
|
$ |
9,928 |
|
|
$ |
4,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the measure of segment profit to GAAP operating income before
provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Segment
measure of profit
|
|
$ |
4,020 |
|
|
$ |
1,998 |
|
|
$ |
9,928 |
|
|
$ |
4,161 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
(2,629 |
) |
|
|
(2,701 |
) |
|
|
(7,958 |
) |
|
|
(6,575 |
) |
Stock
compensation expense
|
|
|
(2,375 |
) |
|
|
(1,951 |
) |
|
|
(6,404 |
) |
|
|
(5,891 |
) |
Acquisition-related
expenses
|
|
|
(94 |
) |
|
|
— |
|
|
|
(94 |
) |
|
|
— |
|
Other
income, net
|
|
$ |
998 |
|
|
$ |
682 |
|
|
$ |
2,790 |
|
|
$ |
2,421 |
|
Loss
before provision for income taxes
|
|
$ |
(80 |
) |
|
$ |
(1,972 |
) |
|
$ |
(1,738 |
) |
|
$ |
(5,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following depreciation expense amounts are included in the segment measure of
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Depreciation
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
and Transactional Documents
|
|
$ |
358 |
|
|
$ |
445 |
|
|
$ |
1,063 |
|
|
$ |
1,222 |
|
Banking
Solutions
|
|
|
132 |
|
|
|
125 |
|
|
|
377 |
|
|
|
349 |
|
Outsourced
Solutions
|
|
|
425 |
|
|
|
248 |
|
|
|
1,085 |
|
|
|
694 |
|
Total
depreciation expense
|
|
$ |
915 |
|
|
$ |
818 |
|
|
$ |
2,525 |
|
|
$ |
2,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Information
Revenues,
based on the point of sales, not the location of the customer, by geographic
area were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
March 31,
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Revenues
from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
18,523 |
|
|
$ |
17,304 |
|
|
$ |
53,686 |
|
|
$ |
47,146 |
|
Europe
|
|
|
13,094 |
|
|
|
13,338 |
|
|
|
40,341 |
|
|
|
37,584 |
|
Australia
|
|
|
415 |
|
|
|
473 |
|
|
|
1,199 |
|
|
|
1,257 |
|
Total
revenues from unaffiliated customers
|
|
$ |
32,032 |
|
|
$ |
31,115 |
|
|
$ |
95,226 |
|
|
$ |
85,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets, which are based on geographical designation, were as
follows:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Long-lived
assets:
|
|
|
|
|
|
|
United
States
|
|
$ |
6,563 |
|
|
$ |
4,664 |
|
Europe
|
|
|
4,731 |
|
|
|
5,195 |
|
Australia
|
|
|
164 |
|
|
|
195 |
|
Total
long-lived assets
|
|
$ |
11,458 |
|
|
$ |
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 $0.1 million during the first
quarter of fiscal year 2008.
Upon
adoption of FIN 48 the Company had approximately $0.3 million of unrecognized
tax benefits, of which an insignificant amount 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. The amount of
unrecognized tax benefits increased by approximately $0.2 million to a total of
$0.5 million during the nine months ended March 31, 2008, primarily as a result
of intercompany transactions subject to tax in multiple jurisdictions, all of
which would affect the Company’s effective tax rate if recognized. The Company
currently anticipates that its unrecognized tax benefits will decrease within
the next twelve months by approximately $0.2 million, 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 July 1, 2007 and March 31, 2008, 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
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 March 31, 2008, the Company recorded net tax expense of $0.3
million. This expense was largely due to tax expense in the U.S. and
Australia, partially offset by an income tax benefit associated with the
Company’s U.K. operations. In the three months ended March 31, 2007,
the Company recorded a net tax benefit of $0.1 million. The net
benefit position was due to an income tax benefit associated with the Company’s
European operations, partially offset by income tax expense associated with the
Company’s U.S. and Australian operations. In each of the quarters ended March
31, 2008 and 2007, the income tax expense recorded in the U.S. was primarily
attributable to two factors: an increase in deferred tax liabilities associated
with goodwill that is deductible for U.S. tax purposes but not amortized for
financial reporting purposes, and the use of deferred tax assets arising through
prior business acquisitions. With respect to the utilization of
acquired deferred tax assets, the corresponding decrease to the valuation
allowance was recorded as a reduction to goodwill. 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.
For the
nine months ended March 31, 2008, the Company recorded net tax expense of $0.1
million. This expense was largely due to tax expense in the U.S. and
Australia, partially offset by an income tax benefit associated with the
Company’s U.K. operations. Further, the net tax expense includes the
impact of a one-time 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). For the nine months
ended March 31, 2007, the Company recorded a net tax benefit of $0.4
million. 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. In each of the nine months ended
March 31, 2008 and 2007, the income tax expense recorded in the U.S. was
primarily attributable to two factors: an increase in deferred tax liabilities
associated with goodwill that is deductible for U.S. tax purposes but not
amortized for financial reporting purposes, and the use of deferred tax assets
arising through prior business acquisitions. With respect to the utilization of
acquired deferred tax assets, the corresponding decrease to the valuation
allowance was recorded as a reduction to goodwill. 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.
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 March
31, 2008
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
|
|
(in
thousands)
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
Core
technology
|
|
$ |
24,842 |
|
|
$ |
(21,169 |
) |
|
$ |
3,673 |
|
Customer
related
|
|
|
36,814 |
|
|
|
(18,428 |
) |
|
|
18,386 |
|
Patent
|
|
|
953 |
|
|
|
(154 |
) |
|
|
799 |
|
Total
|
|
|
62,609 |
|
|
|
(39,751 |
) |
|
|
22,858 |
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
52,464 |
|
Total
intangible assets, net
|
|
|
|
|
|
|
|
|
|
$ |
75,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
10,597 |
|
2009
|
|
|
8,783 |
|
2010
|
|
|
6,185 |
|
2011
|
|
|
3,782 |
|
2012
|
|
|
895 |
|
2013
and thereafter
|
|
|
574 |
|
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.
Note
9—Subsequent Events
On April 21, 2008, the Company acquired
Optio Software, Inc. (“Optio”). Optio is a US based company with operations in
the United States, the United Kingdom, Germany and France, that provides
software solutions dedicated to automating, managing and controlling the entire
lifecycle of document intensive processes, while extending the value of its
customers’ enterprise resource planning and hospital information
systems. Optio operating results will be included in the Company’s
operating results from the date of acquisition forward, as a component of the
Payments and Transactional Documents operating segment.
The purchase consideration for Optio
was approximately $44.9 million in cash. The Company is still in the
process of preparing a preliminary allocation of the purchase price with respect
to assets acquired and liabilities assumed, but currently expects that a
substantial portion of the Optio purchase price will ultimately be allocated to
intangible assets, and that such assets are likely to include acquired core
technology, customer related assets and goodwill. The Company is also
still in the process of determining whether it acquired any in-process research
and development projects, and expects to complete this assessment prior to June
30, 2008. To the extent that any portion of the purchase
consideration is allocated to acquired in-process research and development
costs, such amounts will be expensed immediately, not capitalized as part of the
purchase price. Such an expense, to the extent occurring, would
likely be material.
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 nine months of fiscal year 2008, our revenues increased to $95.2 million
from $86.0 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 $1.9 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 nine
months 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. As the demand for our banking products grows, we are
developing opportunities to structure our software license terms for certain of
these products in the form of annual subscription based pricing and/or revenue
share and transaction-based pricing. To the extent that these revenue models
become more prevalent, we would likely experience faster revenue growth in our
subscription and transaction based revenue streams with some corresponding
decrease in our software license and maintenance revenue
streams.
We had a
net loss of $1.8 million in the nine months ended March 31, 2008 compared to net
loss of $5.5 million in the nine months ended March 31, 2007. The decrease in
our net loss was due to the revenue increases outlined above, offset in part by
increases in our cost of revenues and operating expense categories as our
business has continued to grow. Our cost of revenues and operating expenses for
the nine months ended March 31, 2008 reflect an increase of approximately $1.8
million from the same period of the prior year due to an increase in foreign
currency exchange rates associated with the British Pound
Sterling. Increases in subscription and transactions and service and
maintenance 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. The decrease in general and administrative expenses relates
primarily to decreased professional services and personnel related
costs. The increase in intangible asset amortization reflects the
expense impact of our October 2006 Formscape acquisition.
On April 21, 2008, we completed our
acquisition of Optio Software, Inc. (“Optio”) for a purchase price of
approximately $44.9 million in cash. Optio is a provider of technology solutions
that improve the efficiency of document intensive processes, has operations in
the US and Europe, and will become a component of our payments and transactional
documents operating segment. We expect that Optio will ultimately contribute
significant recurring revenue and profit to our operating results, but for
approximately one year following the acquisition we anticipate that the
recurring revenue contribution from Optio will be reduced as a result of the
accounting treatment applied to acquired software maintenance contracts.
Acquired software maintenance revenues will be recorded by us at their estimated
cost of fulfillment, plus a reasonable profit margin. As a result, we initially
expect that the revenue recorded from these acquired contracts will be
substantially below their stated values. Typically these maintenance agreements
renew annually, and we expect to record the full revenue amounts as the
contracts renew in subsequent periods and are no longer considered acquired
contracts for purposes of this accounting treatment. While ultimately
the decision with respect to contract renewal is controlled by each underlying
customer, our experience with similar contracts has been that the substantial
majority are renewed each year.
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 nine months ended March 31,
2008.
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 $0.1 million during the quarter ended
September 30, 2007.
Three
Months Ended March 31, 2008 Compared to the Three Months Ended March 31,
2007
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 March 31,
|
|
|
Increase
(Decrease)
Between Periods 2008
Compared
to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Payments
and Transactional Documents
|
|
$ |
19,670 |
|
|
|
61.4 |
|
|
$ |
19,634 |
|
|
|
63.1 |
|
|
$ |
36 |
|
|
|
0.2 |
|
Banking
Solutions
|
|
|
6,331 |
|
|
|
19.8 |
|
|
|
5,557 |
|
|
|
17.9 |
|
|
|
774 |
|
|
|
13.9 |
|
Outsourced
Solutions
|
|
|
6,031 |
|
|
|
18.8 |
|
|
|
5,924 |
|
|
|
19.0 |
|
|
|
107 |
|
|
|
1.8 |
|
|
|
$ |
32,032 |
|
|
|
100.0 |
|
|
$ |
31,115 |
|
|
|
100.0 |
|
|
$ |
917 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and Transactional
Documents. The increase in revenue for the three months ended March 31,
2008 was primarily attributable to an increase in foreign currency exchange
rates and an increase in maintenance revenues from our Formscape products,
offset by lower software revenues. We expect revenue for the Payments and
Transactional Documents segment to increase during the remainder of the fiscal
year as a result of our acquisition of Optio and 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 March 31, 2008 was a result of
the revenue from the continuation of several large banking projects. We expect
revenues for the Banking Solutions segment to remain relatively constant during
the remainder of the fiscal year, with the majority of revenue generated from
ongoing projects.
Outsourced Solutions. The
revenue increase for the three months ended March 31, 2008 was primarily a
result of an increase in new customers for our Legal eXchange offering, offset
in part by a decrease in revenue from certain of our legacy accounts payable
automation products in Europe. We expect revenue for the Outsourced
Solutions segment to increase during the remainder of the fiscal
year.
Revenues
by category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
3,149 |
|
|
|
9.8 |
|
|
$ |
4,071 |
|
|
|
13.1 |
|
|
$ |
(922 |
) |
|
|
(22.6 |
) |
Subscriptions
and transactions
|
|
|
7,223 |
|
|
|
22.6 |
|
|
|
6,750 |
|
|
|
21.7 |
|
|
|
473 |
|
|
|
7.0 |
|
Service
and maintenance
|
|
|
18,359 |
|
|
|
57.3 |
|
|
|
16,856 |
|
|
|
54.2 |
|
|
|
1,503 |
|
|
|
8.9 |
|
Equipment
and supplies
|
|
|
3,301 |
|
|
|
10.3 |
|
|
|
3,438 |
|
|
|
11.0 |
|
|
|
(137 |
) |
|
|
(4.0 |
) |
Total
revenues
|
|
$ |
32,032 |
|
|
|
100.0 |
|
|
$ |
31,115 |
|
|
|
100.0 |
|
|
$ |
917 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Licenses. The
decrease in software license revenues was due principally to a decrease in
perpetual license revenues from certain of our European software products and a
decrease in software revenue within our Banking Solutions segment. We expect
software license revenues to increase during the remainder of the fiscal year,
largely as a result of our acquisition of Optio.
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 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 Optio and from the ongoing projects in
our Banking Solutions segment.
Equipment and Supplies.
Equipment and supplies revenue decreased in the three months ended March 31,
2008 as compared to the three months ended March 31, 2007 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 constant 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 March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
173 |
|
|
|
0.5 |
|
|
$ |
177 |
|
|
|
0.6 |
|
|
$ |
(4 |
) |
|
|
(2.3 |
) |
Subscriptions
and transactions
|
|
|
3,839 |
|
|
|
12.0 |
|
|
|
3,064 |
|
|
|
9.8 |
|
|
|
775 |
|
|
|
25.3 |
|
Service
and maintenance
|
|
|
7,846 |
|
|
|
24.5 |
|
|
|
7,633 |
|
|
|
24.5 |
|
|
|
213 |
|
|
|
2.8 |
|
Stock
compensation expense
|
|
|
271 |
|
|
|
0.9 |
|
|
|
231 |
|
|
|
0.8 |
|
|
|
40 |
|
|
|
17.3 |
|
Equipment
and supplies
|
|
|
2,409 |
|
|
|
7.5 |
|
|
|
2,532 |
|
|
|
8.1 |
|
|
|
(123 |
) |
|
|
(4.9 |
) |
Total
cost of revenues
|
|
$ |
14,538 |
|
|
|
45.4 |
|
|
$ |
13,637 |
|
|
|
43.8 |
|
|
$ |
901 |
|
|
|
6.6 |
|
Gross
profit
|
|
$ |
17,494 |
|
|
|
54.6 |
|
|
$ |
17,478 |
|
|
|
56.2 |
|
|
$ |
16 |
|
|
|
0.1 |
|
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 6% of software license
revenues in the three months ended March 31, 2008 from 4% in the three months
ended March, 31, 2007. The increase in software license costs as a percentage of
software license revenues was primarily due to a decrease in license revenues of
non-royalty bearing products. We expect that software license costs
will remain relatively constant, 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 March 31, 2008 from 45% in the
three months ended March 31, 2007. 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 constant 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 43% in the three months ended March 31, 2008 as compared
to 45% in the three months ended March 31, 2007. 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, offset in
part by an increase in banking customer support costs. During the
remainder of the fiscal year, we expect that service and maintenance costs will
increase slightly as a percentage of service and maintenance revenues, as the
contribution of maintenance revenue from Optio will initially reflect the impact
of purchase accounting fair value adjustments, which will have the effect of
reducing the revenue contribution from the acquired maintenance
contracts. The maintenance contracts will revert to “full-value” upon
subsequent customer renewal.
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
remained relatively consistent at 73% of equipment and supplies revenues in the
three months ended March 31, 2008 compared to 74% of equipment and supplies
revenues in the three months ended March 31, 2007. The slight 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
constant as a percentage of equipment and supplies revenues for the remainder of
the fiscal year.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2007
Compared to
2006
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
$ |
6,611 |
|
|
|
20.6 |
|
|
$ |
7,410 |
|
|
|
23.8 |
|
|
$ |
(799 |
) |
|
|
(10.8 |
) |
Stock
compensation expense
|
|
|
800 |
|
|
|
2.5 |
|
|
|
663 |
|
|
|
2.1 |
|
|
|
137 |
|
|
|
20.7 |
|
Product
development and engineering
|
|
|
3,807 |
|
|
|
11.9 |
|
|
|
4,062 |
|
|
|
13.1 |
|
|
|
(255 |
) |
|
|
(6.3 |
) |
Stock
compensation expense
|
|
|
209 |
|
|
|
0.7 |
|
|
|
186 |
|
|
|
0.6 |
|
|
|
23 |
|
|
|
12.4 |
|
General
and administrative
|
|
|
3,421 |
|
|
|
10.7 |
|
|
|
4,239 |
|
|
|
13.6 |
|
|
|
(818 |
) |
|
|
(19.3 |
) |
Stock
compensation expense
|
|
|
1,095 |
|
|
|
3.4 |
|
|
|
871 |
|
|
|
2.8 |
|
|
|
224 |
|
|
|
25.7 |
|
Amortization
of intangible assets
|
|
|
2,629 |
|
|
|
8.2 |
|
|
|
2,701 |
|
|
|
8.7 |
|
|
|
(72 |
) |
|
|
(2.7 |
) |
Total
operating expenses
|
|
$ |
18,572 |
|
|
|
58.0 |
|
|
$ |
20,132 |
|
|
|
64.7 |
|
|
$ |
(1,560 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 in the three months ended March 31, 2008 as compared to the three
months ended March 31, 2007. The decrease was primarily attributable to a
decrease in personnel related costs, including commissions, in both the U.S. and
the U.K., as well as lower trade show related costs. We expect that
sales and marketing expenses will increase over the remainder of the fiscal year
as a result of the Optio acquisition, and 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 decreased
in the three months ended March 31, 2008 as compared to the three months ended
March 31, 2007 due to an increase in the use of development resources in revenue
generating roles during the period, the cost of which is recorded as a cost of
revenue, and a decrease in outside contractor costs. We expect that
product development and engineering expenses will increase over the remainder of
the fiscal year as a result of the Optio acquisition.
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 lower personnel related expenses, decreases in third
party professional services fees and a decrease in bad debt
expense. We expect that general and administrative expenses will
increase over the remainder of the fiscal year as a result of the Optio
acquisition.
Stock Compensation
Expense. Stock compensation expense increased during the three
months ended March 31, 2008 as compared to the three months ended March 31, 2007
due largely to an increase in stock-based compensation programs as we have
continued to grow. 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
March 31, 2008 and 2007, stock compensation expense was allocated as
follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Cost
of revenues: service and maintenance
|
|
$ |
271 |
|
|
$ |
231 |
|
Sales
and marketing
|
|
|
800 |
|
|
|
663 |
|
Product
development and engineering
|
|
|
209 |
|
|
|
186 |
|
General
and administrative
|
|
|
1,095 |
|
|
|
871 |
|
|
|
$ |
2,375 |
|
|
$ |
1,951 |
|
|
|
|
|
|
|
|
|
|
We expect
to incur slightly higher stock compensation expense in our fourth fiscal
quarter, as compared to the expense recorded in our third quarter, as a result
of share-based compensation issued in conjunction with the Optio
acquisition.
Amortization of Intangible Assets.
Amortization expense decreased slightly as a result of the expiration of
certain finite lived intangible assets, offset by an increase in foreign
currency exchange rates. We expect that amortization expense will increase over
the remainder of the fiscal year as a result of the amortization impact of
intangible assets arising from the Optio acquisition.
Provision for Income Taxes.
During the quarter ended March 31, 2008, we recorded income tax expense
of $0.3 million. 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 March 31, 2007, we recorded an
income tax benefit of $0.1 million. This benefit was attributable to
our European operations, offset in part by income tax expense in the U.S. and
Australia. In each of the quarters ended March 31, 2008 and 2007, the
income tax expense recorded in the U.S. was due primarily to two factors: 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, and
the use of pre-acquisition deferred tax assets arising through prior business
acquisitions. With respect to the utilization of acquired deferred
tax assets, the corresponding decrease to the valuation allowance was recorded
as a reduction to goodwill. 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.
Nine
Months Ended March 31, 2008 Compared to the Nine Months Ended March 31,
2007
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Payments
and Transactional Documents
|
|
$ |
60,890 |
|
|
|
63.9 |
|
|
$ |
54,395 |
|
|
|
63.3 |
|
|
$ |
6,495 |
|
|
|
11.9 |
|
Banking
Solutions
|
|
|
16,739 |
|
|
|
17.6 |
|
|
|
14,009 |
|
|
|
16.3 |
|
|
|
2,730 |
|
|
|
19.5 |
|
Outsourced
Solutions
|
|
|
17,597 |
|
|
|
18.5 |
|
|
|
17,583 |
|
|
|
20.4 |
|
|
|
14 |
|
|
|
0.1 |
|
|
|
$ |
95,226 |
|
|
|
100.0 |
|
|
$ |
85,987 |
|
|
|
100.0 |
|
|
$ |
9,239 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and Transactional
Documents. The revenue increase for the nine months ended March 31, 2008
was primarily attributable to a full nine 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 nine months ended March 31, 2008 was attributable to an
increase in the revenue contribution from several large, ongoing, banking
projects.
Outsourced Solutions. Revenue
remained consistent for the nine months ended March 31, 2008 compared to the
same period in the prior year. An increase in the revenues from our
Legal eXchange offering as a result of new customers and an increase in foreign
currency exchange rates, offset by a decrease in revenues from certain of our
legacy accounts payable automation products in Europe, accounted for the slight
increase period over period.
Revenues
by category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
9,906 |
|
|
|
10.4 |
|
|
$ |
10,005 |
|
|
|
11.7 |
|
|
$ |
(99 |
) |
|
|
(1.0 |
) |
Subscriptions
and transactions
|
|
|
21,407 |
|
|
|
22.5 |
|
|
|
19,976 |
|
|
|
23.2 |
|
|
|
1,431 |
|
|
|
7.2 |
|
Service
and maintenance
|
|
|
54,127 |
|
|
|
56.8 |
|
|
|
45,854 |
|
|
|
53.3 |
|
|
|
8,273 |
|
|
|
18.0 |
|
Equipment
and supplies
|
|
|
9,786 |
|
|
|
10.3 |
|
|
|
10,152 |
|
|
|
11.8 |
|
|
|
(366 |
) |
|
|
(3.6 |
) |
Total
revenues
|
|
$ |
95,226 |
|
|
|
100.0 |
|
|
$ |
85,987 |
|
|
|
100.0 |
|
|
$ |
9,239 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Licenses. The
decrease in software license revenues was principally due to a decrease in
license revenue in Europe from certain of our legacy product offerings, offset
by an increase of software license revenues from our Banking Solutions segment,
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 and an increase in
foreign currency exchange rates.
Service and Maintenance. The
increase in service and maintenance revenues occurred primarily as a result of a
full nine 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
As % of
total
Revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$ |
598 |
|
|
|
0.6 |
|
|
$ |
560 |
|
|
|
0.7 |
|
|
$ |
38 |
|
|
|
6.8 |
|
Subscriptions
and transactions
|
|
|
11,723 |
|
|
|
12.3 |
|
|
|
8,457 |
|
|
|
9.8 |
|
|
|
3,266 |
|
|
|
38.6 |
|
Service
and maintenance
|
|
|
22,764 |
|
|
|
23.9 |
|
|
|
21,106 |
|
|
|
24.5 |
|
|
|
1,658 |
|
|
|
7.9 |
|
Stock
compensation expense
|
|
|
740 |
|
|
|
0.8 |
|
|
|
520 |
|
|
|
0.6 |
|
|
|
220 |
|
|
|
42.3 |
|
Equipment
and supplies
|
|
|
7,024 |
|
|
|
7.4 |
|
|
|
7,529 |
|
|
|
8.8 |
|
|
|
(505 |
) |
|
|
(6.7 |
) |
Total
cost of revenues
|
|
$ |
42,849 |
|
|
|
45.0 |
|
|
$ |
38,172 |
|
|
|
44.4 |
|
|
$ |
4,677 |
|
|
|
12.3 |
|
Gross
profit
|
|
$ |
52,377 |
|
|
|
55.0 |
|
|
$ |
47,815 |
|
|
|
55.6 |
|
|
$ |
4,562 |
|
|
|
9.5 |
|
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 consistent at 6% of software
license revenues in the nine months ended March 31, 2008 and
2007.
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 55% of subscriptions and
transaction revenues in the nine months ended March 31, 2008 as compared to 42%
in the nine months ended March 31, 2007. 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 nine months ended March 31, 2008 as compared
to 46% in the nine months ended March 31, 2007. 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 72% of equipment and supplies revenues in the nine months ended
March 31, 2008 compared to 74% of equipment and supplies revenues in the nine
months ended March 31, 2007. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
Increase
(Decrease)
Between
Periods 2008
Compared to
2007
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
As % of
total
revenues
|
|
|
(in thousands)
|
|
|
%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
$ |
20,680 |
|
|
|
21.7 |
|
|
$ |
20,767 |
|
|
|
24.2 |
|
|
$ |
(87 |
) |
|
|
(0.4 |
) |
Stock
compensation expense
|
|
|
2,097 |
|
|
|
2.2 |
|
|
|
2,120 |
|
|
|
2.5 |
|
|
|
(23 |
) |
|
|
(1.1 |
) |
Product
development and engineering
|
|
|
11,876 |
|
|
|
12.5 |
|
|
|
11,522 |
|
|
|
13.4 |
|
|
|
354 |
|
|
|
3.1 |
|
Stock
compensation expense
|
|
|
592 |
|
|
|
0.6 |
|
|
|
578 |
|
|
|
0.7 |
|
|
|
14 |
|
|
|
2.4 |
|
General
and administrative
|
|
|
10,727 |
|
|
|
11.3 |
|
|
|
11,885 |
|
|
|
13.8 |
|
|
|
(1,158 |
) |
|
|
(9.7 |
) |
Stock
compensation expense
|
|
|
2,975 |
|
|
|
3.1 |
|
|
|
2,673 |
|
|
|
3.1 |
|
|
|
302 |
|
|
|
11.3 |
|
Amortization
of intangible assets
|
|
|
7,958 |
|
|
|
8.4 |
|
|
|
6,575 |
|
|
|
7.6 |
|
|
|
1,383 |
|
|
|
21.0 |
|
Total
operating expenses
|
|
$ |
56,905 |
|
|
|
59.8 |
|
|
$ |
56,120 |
|
|
|
65.3 |
|
|
$ |
785 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 decrease in
sales and marketing expenses was primarily attributable to a reduction in
personnel related costs, including commissions, and a reduction in advertising
and travel costs, offset by a full nine 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 nine 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. These increases were partially offset by an increased use of
development resources in revenue generating roles during the period, the cost of
which is recorded as a cost of revenue.
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 reduction in general and administrative expenses was
primarily attributable to a decrease in third party professional services fees
and personnel related costs, offset in part by a full nine months of costs
associated with the Formscape acquisition and an increase in foreign currency
exchange rates.
Stock Compensation Expense.
Stock compensation expense increased during the nine months ended March 31, 2008
as compared to the nine months ended March 31, 2007, largely due to an increase
in stock-based compensation programs as we have continued to grow. 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 nine months ended March 31, 2008 and 2007, stock
compensation expense was allocated as follows:
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Cost
of revenues: service and maintenance
|
|
$ |
740 |
|
|
$ |
520 |
|
Sales
and marketing
|
|
|
2,097 |
|
|
|
2,120 |
|
Product
development and engineering
|
|
|
592 |
|
|
|
578 |
|
General
and administrative
|
|
|
2,975 |
|
|
|
2,673 |
|
|
|
$ |
6,404 |
|
|
$ |
5,891 |
|
|
|
|
|
|
|
|
|
|
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 net tax expense of $0.1 million during the nine months ended
March 31, 2008. This expense was largely due to income tax expense in
the U.S. and Australia, partially offset by an income tax benefit associated
with our U.K. operations. Further, this net tax expense includes the
one-time impact of a tax benefit arising from the enactment of legislation,
during the quarter ended September 30, 2007, that decreased our tax rates in the
U.K. and Germany. We recorded a net tax benefit of $0.4 million
during the nine months ended March 31, 2007. This net benefit
position was due to an income tax benefit associated with our European
operations, partially offset by tax expense in the U.S. and
Australia. In each of the nine months ended March 31, 2008 and 2007,
the income tax expense recorded in the U.S. was due primarily to two factors: 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, and
the use of deferred tax assets arising through prior business
acquisitions. With respect to the utilization of acquired deferred
tax assets, the corresponding decrease to the valuation allowance was recorded
as a reduction to goodwill. 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.
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:
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Cash
provided by operating activities
|
|
$ |
17,115 |
|
|
$ |
9,067 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Cash,
cash equivalents and marketable securities
|
|
$ |
76,932 |
|
|
$ |
65,873 |
|
Working
capital
|
|
|
62,741 |
|
|
|
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
nine months ended March 31, 2008 and in each of our last six completed fiscal
years. We believe that the cash generated from our operations and the cash and
cash equivalents we have 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.
In April
2008, we paid approximately $44.9 million from our cash balances to acquire
Optio Software, Inc. We continue to believe that our existing cash
balances, as well as the cash we expect to generate from our ongoing operations,
will be sufficient to meet our operating requirements for the foreseeable
future.
Operating
Activities
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Net
loss
|
|
$ |
(1,822 |
) |
|
$ |
(5,470 |
) |
Non-cash
adjustments
|
|
|
15,840 |
|
|
|
13,888 |
|
Changes
in working capital
|
|
|
3,097 |
|
|
|
649 |
|
Net
cash provided by operating activities
|
|
$ |
17,115 |
|
|
$ |
9,067 |
|
|
|
|
|
|
|
|
|
|
The
increase in net cash provided by operating activities for the nine months ended
March 31, 2008 was due to a decrease in our net loss, affected by favorable
non-cash adjustments and collections on accounts receivable, offset in part by
decreases in accounts payable, accrued expenses and deferred revenue. Net cash
provided by operating activities for the nine months ended March 31, 2007 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
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Acquisition
of business and assets, net of cash acquired
|
|
$ |
— |
|
|
$ |
(16,975 |
) |
Proceeds
from short-term investments, net
|
|
|
26,825 |
|
|
|
13,450 |
|
Purchases
of property and equipment, net
|
|
|
(3,159 |
) |
|
|
(2,380 |
) |
Net
cash provided by (used in) investing activities
|
|
$ |
23,666 |
|
|
$ |
(5,905 |
) |
|
|
|
|
|
|
|
|
|
In the
nine months ended March 31, 2008, cash was primarily provided through the sale
of marketable securities and, to a lesser extent, was used to acquire property
and equipment. For the nine months ended March 31, 2007, 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 capital
expenditures during the fourth quarter of fiscal 2008 that are above the average
level of capital expenditures incurred during the first nine months of our
fiscal year, as we continue to enhance our IT and hosted
infrastructure.
Financing
Activities
|
|
|
|
|
|
|
|
|
Nine
Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Repurchase
of common stock
|
|
$ |
(8,611 |
) |
|
$ |
(8,736 |
) |
Proceeds
from employee stock purchase plan, and exercise of stock
options
|
|
|
5,674 |
|
|
|
2,864 |
|
Excess
tax benefits associated with stock compensation
|
|
|
118 |
|
|
|
30 |
|
Payment
of bank financing fees
|
|
|
(20 |
) |
|
|
(25 |
) |
Payment
under capital lease obligations
|
|
|
(22 |
) |
|
|
(43 |
) |
Net
cash used in financing activities
|
|
$ |
(2,861 |
) |
|
$ |
(5,910 |
) |
|
|
|
|
|
|
|
|
|
Net cash
used in financing activities for the nine months ended March 31, 2008 and March
31, 2007 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 March 31, 2008, 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 March 31, 2008:
|
|
|
|
|
Payments Due
by Period *
|
|
Total
|
|
|
Less Than 1
Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
|
|
|
(in
thousands)
|
Operating
lease obligations
|
|
$ |
10,207 |
|
|
$ |
709 |
|
|
$ |
6,836 |
|
|
$ |
1,686 |
|
|
$ |
976 |
|
Capital
lease obligations
|
|
|
49 |
|
|
|
9 |
|
|
|
40 |
|
|
|
— |
|
|
|
— |
|
Other
contractual obligations
|
|
|
179 |
|
|
|
— |
|
|
|
179 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
10,435 |
|
|
$ |
718 |
|
|
$ |
7,055 |
|
|
$ |
1,686 |
|
|
$ |
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*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 March 31, 2008 in the amount of $0.5 million. These amounts
have been excluded because, as of March 31, 2008, 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 March 31, 2008. 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 March 31, 2008, 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
March 31, 2008 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 acquired Optio Software in April, 2008 and 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, or expenses related to acquired
in-process research and development costs, which may adversely affect our future
operating results
We review
our intangible assets, including goodwill, periodically for impairment. At March
31, 2008, the carrying value of our goodwill and our other intangible assets was
approximately $52 million and $23 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. Further, to the extent we acquire
projects related to in-process research and development activities, such amounts
require immediate, rather than ratable, expense recognition. Any 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. In
April 2008, we acquired Optio Software, Inc., which is also a party in a
“laddering” securities class action suit. 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 March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
(2)
|
|
January
1, 2008 — January 31, 2008
|
|
|
60,000 |
|
|
$ |
12.53 |
|
|
|
60,000 |
|
|
$ |
1,407,000 |
|
February 1,
2008 — February 29, 2008
|
|
|
10,000 |
|
|
|
12.72 |
|
|
|
10,000 |
|
|
|
1,280,000 |
|
March 1,
2008 — March 31, 2008
|
|
|
90,000 |
|
|
|
11.38 |
|
|
|
90,000 |
|
|
|
256,000 |
|
Total
|
|
|
160,000 |
|
|
|
11.90 |
|
|
|
160,000 |
|
|
|
256,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In
May 2007, our board of directors authorized a repurchase program for the
repurchase of up to $10.0 million of our common
stock.
|
(2)
|
In
April 2008, our board of directors authorized a new repurchase program for
the repurchase of up to $10.0 million of our common
stock. This new repurchase program is in addition to the
program authorized by our board of directors in May 2007, which has now
been completed.
|
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.
|
Company Name |
|
|
|
|
|
Date:
May 9, 2008
|
By:
|
/s/ KEVIN M. DONOVAN |
|
|
|
Kevin M.
Donovan |
|
|
|
Chief
Financial Officer and Treasurer (Principal
Financial and Accounting Officer)
|
|
|
|
|
|
EXHIBIT
INDEX
|
|
Exhibit
Number
|
Description
|
|
|
|
|
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
|
Exhibit
31.1
CERTIFICATIONS
I, Robert
A. Eberle, certify that:
1. I have
reviewed this Quarterly Report on Form 10-Q of Bottomline Technologies (de),
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date: May
9, 2008
|
|
By:
|
|
|
Robert
A. Eberle
President
and Chief Executive Officer
(Principal
Executive Officer)
|
Exhibit
31.2
CERTIFICATIONS
I, Kevin
M. Donovan, certify that:
1. I have
reviewed this Quarterly Report on Form 10-Q of Bottomline Technologies (de),
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date: May
9, 2008
|
|
By:
|
|
|
Kevin
M. Donovan
Chief
Financial Officer and Treasurer
(Principal
Financial and Accounting
Officer)
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the quarterly report on Form 10-Q of Bottomline Technologies
(de), Inc. (the “Company”) for the period ended March 31, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Robert A. Eberle, President and Chief Executive Officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,
that:
(1) the
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: May
9, 2008
|
|
By:
|
|
|
Robert
A. Eberle
|
|
President
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the quarterly report on Form 10-Q of Bottomline Technologies
(de), Inc. (the “Company”) for the period ended March 31, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Kevin M. Donovan, Chief Financial Officer and Treasurer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,
that:
(1) the
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: May
9, 2008
|
|
By:
|
|
|
Kevin
M. Donovan
|
|
Chief
Financial Officer and Treasurer
|
|
(Principal
Financial and Accounting Officer)
|