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| CALD > SEC Filings for CALD > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Our recurring revenues increased in the first quarter of 2009 by 41% to
$11.7 million compared to $8.3 million in the first quarter of 2008. The
increase in recurring revenues reflects the shift in business focus and strategy
to emphasize our on-demand offering. Recurring revenues accounted for 45% of our
total revenues in the first quarter of 2009 compared to 29% in the first quarter
of 2008. Revenues from our on-demand offering are more predictable than license
revenues and allow us to better align our cost structure.
Given our continuing transition toward the on-demand model, we believe that
the cumulative annual contract value (ACV) of our booked on-demand business has
become a meaningful indicator of our future operating performance and financial
condition. Cumulative ACV represents the total ACV of all our on-demand
contracts less canceled on-demand ACV as of a given date. As such, in our first
quarter earnings call on April 30, 2009 we discussed cumulative ACV of our
on-demand business as of the earnings release date. Because on-demand contracts
are subject to cancellation and expiration, there is no guarantee that our
current cumulative ACV will ultimately all be recognized as revenues.
During our first quarter earnings call, we reported that as of that date our
cumulative ACV was $27.4 million, which included $1.9 million of new ACV,
partially offset by $0.5 million of canceled ACV, since January 1, 2009. Of the
new ACV, $0.8 million was booked during the first quarter and $1.1 million was
booked between April 1 and April 30, 2009. Of the canceled ACV, $0.3 million was
canceled during the first quarter and $0.2 million was canceled between April 1
and April 30, 2009. We are providing the foregoing details regarding the timing
of new and canceled ACV because our cumulative ACV as of the earnings release
date reflected changes to our ACV since our last reported results over a period
of four months. Upon further consideration and to avoid confusion, we intend to
disclose our cumulative ACV, as well as additions and cancellations, as of the
balance sheet date for each reporting period, rather than as of the earnings
release date as we had indicated in our first quarter earnings call.
While we continue to focus on driving more recurring revenues from our
on-demand offering, we still have customers who want to deploy our solutions on
their own premises. As such, we will continue to offer and support the
traditional software license model that some of our customers still prefer.
During the quarter we continued to make progress on streamlining our cost
model. These efforts led to a continued improvement in our services margin and
further decreases to our operating costs. Services margin improved to 17% for
the quarter. This compares to our fourth quarter 2008 services margin of 6% and
the 2008 full year services margin of 10%. Operating expenses decreased both on
a year on year and consecutive quarter basis. Operating expenses decreased by
10% in the first quarter of 2009 compared to the first quarter of 2008 and
decreased by 16% in the first quarter of 2009 compared to the fourth quarter of
2008. These decreases reflect the cost saving actions taken during the past year
and a half. We completed reductions in workforce and recorded charges of
approximately $1.5 million in 2007, $1.6 million in 2008 and $0.2 million in the
first quarter of 2009 in connection with severance and termination-related
costs, most of which were severance-related cash expenditures. We realized cost
savings during the first quarter of 2009 from the reductions in force, and we
expect to realize additional savings in the remainder of 2009 related to these
actions. The October 2008 cost savings program was substantially completed in
the fourth quarter of 2008 and will be fully completed in the first half of
2009. As of March 31, 2009, accrued restructuring charges were $0.2 million.
Stock Repurchase Program
On November 27, 2007, our Board of Directors authorized a one-year program
for the repurchase of up to $10 million of our outstanding common stock. On
October 21, 2008, our Board of Directors re-authorized the program for the
repurchase of up to $5 million of our outstanding common stock, which
represented the unused balance of the program initially approved in 2007. During
2008 under these repurchase programs we executed the repurchase of 1,994,000
shares for a total cost of approximately $8.0 million. During the three months
ended March 31, 2009 under these repurchase programs we executed the repurchase
of 248,000 shares for a total cost of approximately $0.7 million. The
repurchased shares have been constructively retired for accounting purposes.
During the three months ended March 31, 2009, our Board of Directors suspended
the repurchase program.
Challenges and Risks
In response to market demand, we shifted our primary business focus from the
sale of perpetual licenses for our products to the provision of our software as
a service through our on-demand offering. Our on-demand model provides more
predictable quarterly revenues. During 2008 we were able to sustain positive
margins on this service offering for the first time since launching the offering
in 2006. However, over recent quarters we have experienced slower growth in our
net new annual contract value for on-demand services than we had previously. If
we are unable to significantly grow our on-demand business or continue to
provide our on-demand services on a consistently profitable basis in the future,
our business and operating results may be materially and adversely affected.
From a business perspective, we have a number of sales opportunities in
process and additional opportunities coming from our sales pipeline; however, we
continue to experience wide variances in the timing and size of our on-demand
and license transactions and the timing of revenue recognition resulting from
greater flexibility in contract terms. We believe one of our major remaining
challenges is increasing prospective customers' prioritization of purchasing our
products and services over competing IT projects. To address this challenge, we
have set goals that include expanding our sales efforts, promoting our on-demand
services, and continuing to develop new products and enhancements to our
TrueComp suite of products.
Historically, a substantial portion of our revenues have been derived from
sales of our products and services to customers in the financial and insurance
industries. The recent substantial disruptions in these industries have resulted
and may in the future result in these customers deferring or cancelling future
planned expenditures of our products and services. Further, consolidations and
business failures in these industries could result in substantially reduced
demand for our products and services. In addition, the disruptions in these
industries and the concurrent international financial crisis may cause other
potential customers to defer or cancel future purchases of our products and
services as they seek to conserve resources in the face of economic turmoil and
the drastically reduced availability of capital in the equity and debt markets.
Any of these developments, or the combination of these developments, may
materially and adversely affect our revenues, operating results and financial
condition in future periods.
If we are unable to grow our revenues, we may be unable to achieve and
sustain profitability. In addition to these risks, our future operating
performance is subject to the risks and uncertainties described in Item 1A -
"Risk Factors" of Part II of this quarterly report on Form 10-Q.
Application of Critical Accounting Policies and Use of Estimates
The discussion and analysis of our financial condition and results of
operations that follows is based upon our consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP). The application of GAAP requires our management
to make estimates that affect our reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures regarding these items. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. In many instances, we
could have reasonably used different accounting estimates and, in other
instances, changes in the accounting estimates are reasonably likely to occur
from period to period. Accordingly, actual results could differ significantly
from the estimates made by our management. To the extent that there are material
differences between these estimates and actual results, our future financial
statement presentation of our financial condition or results of operations will
be affected.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application, while in other cases, management's judgment is required in
selecting among available alternative accounting standards that allow different
accounting treatments for similar transactions. We believe that the accounting
policies discussed below and in our 2008 Form 10-K are critical to understanding
our historical and future performance, as these policies relate to the more
significant areas involving management's judgments and estimates. Our management
has reviewed these critical accounting policies, our use of estimates and the
related disclosures with our audit committee.
There have been no significant changes in our critical accounting policies
and estimates during the three months ended March 31, 2009 as compared to the
critical accounting policies and estimates disclosed in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Recent Accounting Pronouncements
See Note 1 of our notes to condensed consolidated financial statements for
information regarding the effect of new accounting pronouncements on our
financial statements.
Results of Operations
Comparison of the Three Months Ended March 31, 2009 and 2008
Revenues, cost of revenues and gross profit
The table below sets forth the changes in revenues, cost of revenues and
gross profit for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008 (in thousands, except for percentage data):
Three Three
Months Months Percentage
Ended Percentage Ended Percentage Year to Year Change
March 31, of Total March 31, of Total Increase Year over
2009 Revenues 2008 Revenues (Decrease) Year
Revenues:
Recurring $ 11,697 45 % $ 8,284 29 % $ 3,413 41 %
Services 11,202 43 % 15,855 56 % (4,653 ) (29 )%
License 3,001 12 % 3,984 14 % (983 ) (25 )%
Total revenues $ 25,900 100 % $ 28,123 100 % $ (2,223 ) (8) %
Three Three
Months Months Percentage
Ended Percentage Ended Percentage Year to Year Change
March 31, of Related March 31, of Related Increase Year over
2009 Revenues 2008 Revenues (Decrease) Year
Cost of revenues:
Recurring $ 5,785 49 % $ 3,279 40 % $ 2,506 76 %
Services 9,309 83 % 12,688 80 % (3,379 ) (27) %
License 191 6 % 242 6 % (51 ) (21) %
Total cost of revenues $ 15,285 $ 16,209 $ (924 )
Gross profit:
Recurring $ 5,912 51 % $ 5,005 60 % $ 907 18 %
Services 1,893 17 % 3,167 20 % (1,274 ) (40) %
License 2,810 94 % 3,742 94 % (932 ) (25) %
Total gross profit $ 10,615 41 % $ 11,914 42 % $ (1,299 ) (11) %
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Revenues
Recurring Revenues. Recurring revenues increased by $3.4 million, or 41%, in
the three months ended March 31, 2009 compared to the three months ended
March 31, 2008. The increase is primarily the result of an increase of
$3.7 million in on-demand subscription revenues in the first quarter of 2009.
This increase
is attributable to the increase in the number of existing on-demand customers
for which we recognized revenue as all elements of the related customer
contracts were delivered during the three months ended March 31, 2009 compared
to the three months ended March 31, 2008. Support revenues for maintenance
services decreased by $0.3 million in the first quarter of 2009 compared to the
first quarter of 2008, which was a result of existing customers converting to
our on-demand service and decreased license sales to new customers.
Services Revenues. Services revenues decreased by $4.7 million, or 29%, in
the three months ended March 31, 2009 as compared to the three months ended
March 31, 2008. The decrease was due to shorter on-demand implementation cycles,
an increase in implementations led by our third-party partner consulting firms
and decreased license sales to new customers. The decrease also reflects a
$0.5 million adverse effect due to currency exchange rate fluctuations. Services
revenue for the three months ended March 31, 2008 benefitted from a one-time fee
of approximately $0.8 million paid to us by one of our customers that was
acquired and terminated our services. In the near term we continue to see
downward pressure on our services revenue as we completed several on-demand and
on-premise customer implementations during the first quarter of 2009 that will
not be immediately replaced with new projects.
License Revenues. License revenues decreased $1.0 million, or 25%, in the
three months ended March 31, 2009 compared to the three months ended March 31,
2008. The decrease was attributable to the shift of our primary business focus
from the sale of perpetual licenses for our products to the provision of our
software as a service through our on-demand offering. The decrease also reflects
a $0.4 million adverse effect due to currency exchange rate fluctuations. Our
average license revenue per transaction for the first quarter of 2009 was
$0.6 million compared to $0.7 million in the first quarter of 2008. We had one
transaction in the first quarter of 2009 with a license value over $1.0 million,
which was the same as the first quarter of 2008. We expect our license revenues
to continue to fluctuate from quarter to quarter in the near term since we
generally complete a relatively small number of transactions in a quarter and
the revenue on those software license sales can vary widely. Over time we expect
license revenues to comprise a smaller percentage of total revenues as we
continue to shift our emphasis towards our on-demand business model.
Cost of Revenues and Gross Margin
Cost of Recurring Revenues. Cost of recurring revenues increased by
$2.5 million or 76% in the three months ended March 31, 2009 compared to the
three months ended March 31, 2008. The increase was due to the incremental cost
associated with the large number of customers who went live with our on-demand
services during the first quarter of 2009. As these customers transitioned from
implementation to fully operational, additional resources were utilized to
ensure a smooth transition process. In addition, we are continuing to invest in
new service offerings and the mid-market, which also contributed to the increase
in cost of recurring revenues.
Cost of Services Revenues. Cost of services revenues decreased by
$3.4 million or 27% in the three months ended March 31, 2009 compared to the
three months ended March 31, 2008. The decrease was attributable to the decrease
in related services revenues as discussed above and decreases in personnel and
subcontractor costs.
Cost of License Revenues. Cost of license revenues decreased by $51,000 or
21% in the three months ended March 31, 2009 compared to the three months ended
March 31, 2008. The decrease was primarily the result of the allocation of
amortization expense for intangible assets comprised of third-party software
licenses used in our products to cost of recurring revenues.
Gross Margin. Our overall gross margin decreased to 41% in the three months
ended March 31, 2009 from 42% in the three months ended March 31, 2008.
Recurring gross margin declined from 60% in the first quarter of 2008 to 51% in
the first quarter of 2009 primarily due to the incremental cost associated with
the large number of customers who went live with our on-demand services during
the first quarter of 2009 and our investment in new services offerings as
discussed above. We expect our margins on recurring revenues will continue to
fluctuate in future periods to the extent we continue to invest in
on-demand and experience variations in the rate of go-live transitions in a
quarter. Services gross margin declined from 20% in the first quarter of 2008 to
17% in the first quarter of 2009. While services gross margin decreased on a
quarter-to-quarter basis, when compared with the 10% services gross margin in
2008 our 17% services gross margin for the three months ended March 31, 2009
reflects the progress we have made over the last several months to improve the
profitability of our services business. License gross margin remained
essentially flat at 94% in the first quarter of 2008 and 2009. In the future, we
expect our gross margins to fluctuate depending primarily on the mix of
recurring and services revenues versus license revenues.
Operating Expenses
The table below sets forth the changes in operating expenses for the three
months ended March 31, 2009 compared to the three months ended March 31, 2008
(in thousands, except percentage data):
Three Three
Months Months Percentage
Ended Percentage Ended Percentage Year to Year Change
March 31, of Total March 31, of Total Increase Year over
2009 Revenues 2008 Revenues (Decrease) Year
Operating expenses:
Sales and marketing $ 5,862 23 % $ 7,376 26 % $ (1,514 ) (21 )%
Research and development 3,801 15 % 3,685 13 % 116 3 %
General and administrative 3,567 14 % 3,394 12 % 173 5 %
Restructuring 166 1 % 397 1 % (231 ) (58 )%
Total operating expenses $ 13,396 52 % $ 14,852 53 % $ (1,456 ) (10 )%
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Sales and Marketing. Sales and marketing expenses decreased $1.5 million, or
21%, for the three months ended March 31, 2009 compared to the three months
ended March 31, 2008. The decrease was primarily attributable to decreases in
personnel costs of $0.8 million due to reductions in headcount and a decrease in
commission payments resulting from decreased license sales. The decrease was
also driven by a decrease in professional fees of $0.2 million, a decrease in
travel costs of $0.1 million, a decrease in facilities and other expenses of
$0.1 million and a decrease in stock-based compensation as discussed below. The
reduction in commission expense is, in part, reflective of the shift our
business focus to our on-demand offering and away from the license model.
Commission expenses associated with on-demand arrangements are deferred and then
amortized over the non-cancelable term of the contract as the related revenue is
recognized; whereas commission expenses related to license sales are incurred in
the period the transaction occurs.
Research and Development. Research and development expenses increased
$0.1 million, or 3%, for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008. The increase was primarily due to an increase
in professional fees of $0.2 million for costs related to our new offshore
resource center. The offshore resource center has helped us reduce overall
engineering costs, and the cost to headcount ratio for an onshore engineer
versus an offshore engineer is 3 to 1. As such, we have been able to maintain
the same level of engineering support and development while controlling our
costs. The increase was also partially offset by a decrease in stock-based
compensation as discussed below. We expect our research and development expense
to increase in each of the remaining quarters of 2009 as compared to the same
periods in 2008 as we continue to invest in product development.
General and Administrative. General and administrative expenses increased
$0.2 million, or 5%, for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008. The increase was primarily due to an increase
in bad debt expense of $0.1 million and an increase in business and
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