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| SDBT > SEC Filings for SDBT > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
General and Administrative. General and administrative expenses consist of
compensation expenses for executive, finance, accounting, administrative and
management information systems personnel, accounting and legal professional fees
and other corporate expenses. We expect to continue to incur additional costs
associated with being a public company, including the costs of implementing and
maintaining new financial systems to enable us to meet our financial reporting
and regulatory compliance requirements.
Additional Key Measures of Financial Performance
We present information below with respect to cash flow from operating activities
and free cash flow. Free cash flow is a measure of financial performance
calculated as cash flow from operating activities less purchases of property and
equipment.
Management uses these metrics to track business performance. Due to the current
economic environment, management decisions are based in part, on a goal of
maintaining positive cash flow from operating activities and free cash flow. We
believe these metrics are useful measures of the performance of our business
because, in contrast to statement of operations metrics that rely principally on
revenue and profitability, cash flow from operating activities and free cash
flow capture the changes in operating assets and liabilities during the year and
the effect of noncash items such as depreciation and stock-based compensation.
We believe that, for similar reasons, these metrics are often used by security
analysts, investors and other interested parties in the evaluation of on-demand
and other software companies.
The term "free cash flow" is not defined under U.S. generally accepted
accounting principles, or GAAP, and is not a measure of operating income,
operating performance or liquidity presented in accordance with GAAP. All or a
portion of free cash flow may be unavailable for discretionary expenditures.
Free cash flow has limitations as an analytical tool and when assessing our
operating performance, you should not consider free cash flow in isolation from
or as a substitute for data, such as net income (loss), derived from financial
statements prepared in accordance with GAAP.
Nine Months Ended September 30,
2009 2008
(in thousands)
Cash flows from operating activities $ 392 $ 4,583
Purchases of property and equipment (804 ) (1,442 )
Free cash flow (non-GAAP) $ (412 ) $ 3,141
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Our operating activities provided net cash in the amount of $392,000 for the
nine months ended September 30, 2009 reflecting a net loss of $3.3 million,
which was offset by non-cash charges and changes in working capital of
$2.9 million consisting primarily of (a) depreciation expense of $1.9 million,
(b) a decrease in accounts receivable, prepaid expenses and other assets of
$587,000, primarily from the timing of receipts from our clients, and (c) an
increase in accrued expenses and accounts payable of $249,000 due to the timing
of the payments.
Free cash flow in each of the nine-month periods presented reflects, in addition
to the factors driving cash flow from operating activities, our purchases of
property and equipment, which consists primarily of computer equipment and
software.
Results of Operations
The following table sets forth selected statements of operations data for the
three and nine months ended September 30, 2009 and 2008 indicated as percentages
of revenues.
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Statement of Operations Data:
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues 40.2 39.1 39.7 38.6
Gross margin 59.8 60.9 60.3 61.4
Operating expenses:
Research and development 13.6 12.1 14.2 11.8
Sales and marketing 35.4 43.9 36.8 41.5
General and administrative 17.5 19.3 20.4 24.4
Impairment of goodwill 0.0 2.0 0.4 0.6
Total operating expenses 66.5 77.3 71.8 78.3
Operating loss (6.7 ) (16.4 ) (11.5 ) (16.9 )
Total other income 0.1 2.2 0.3 16.6
Net loss (6.6 )% (14.2 )% (11.2 )% (0.3 )%
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Comparison of Three Months Ended September 30, 2009 and 2008
Revenues
Three Months Ended September 30, Quarter-to-
2009 2008 Quarter Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Revenues $ 10,457 100.0 % $ 10,613 100.0 % $ (156 ) (1.5 )%
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The $156,000 decline in revenues for the three months ended September 30, 2009
as compared to the same period in 2008 reflected a decrease of $903,000 in
revenues from clients from which we derived revenue in both periods. This
decreased revenue was mainly due to lower calling volume primarily in the
collections industry, and was partially offset by an increase of $747,000 in
revenues from new clients.
Cost of Revenues and Gross Profit
Three Months Ended September 30, Quarter-to-
2009 2008 Quarter Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Cost of revenues $ 4,202 40.2 % $ 4,155 39.1 % $ 47 1.1 %
Gross profit 6,255 59.8 6,458 60.9 (203 ) (3.1 )
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The $47,000 increase in cost of revenues for the three months ended September 30, 2009 as compared to the same period in 2008 reflected a $518,000 increase in telephony expense, as well as increased personnel and other administrative related costs of $79,000 and support and maintenance fees of $39,000. These increases were partially offset by a $426,000 decrease in telephony expense related to lower delivery and circuit costs and a $214,000 decrease in depreciation expense due to a lower depreciable base of our property and equipment infrastructure. The decrease in gross margin for the three months ended September 30, 2009 as compared to the same period in 2008 reflected lower price structure agreements entered into with some of our clients. Operating Expenses
Three Months Ended September 30, Quarter-to-
2009 2008 Quarter Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Research and development $ 1,420 13.6 % $ 1,283 12.1 % $ 137 10.7 %
Sales and marketing 3,704 35.4 4,659 43.9 (955 ) (20.5 )
General and administrative 1,831 17.5 2,050 19.3 (219 ) (10.7 )
Impairment of goodwill - 0.0 208 2.0 (208 ) (100.0 )
Total operating expenses $ 6,955 66.5 % $ 8,200 77.3 % $ (1,245 ) (15.2 )%
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Research and Development. The $137,000 increase in research and development
expenses for the three months ended September 30, 2009 as compared to the same
period in 2008 was primarily attributable to a $68,000 increase in personnel
related costs, as well as a $67,000 increase in outside consulting service fees
and temporary help.
Sales and Marketing. The $955,000 decrease in sales and marketing expenses for
the three months ended September 30, 2009 as compared to the same period in 2008
resulted primarily from a $567,000 decrease in employee compensation costs, a
$226,000 decrease in travel and entertainment costs, and a $104,000 decrease in
recruiting fees primarily as a result of fewer sales and marketing personnel.
General and Administrative. The $219,000 decrease in general and administrative
expenses for the three months ended September 30, 2009 as compared to the same
period in 2008 consisted principally of a $108,000 decrease in recruiting costs,
a $54,000 decrease in outside consulting fees, as well as a $37,000 decrease in
personnel related costs.
Impairment of Goodwill. The $208,000 decrease in the impairment of goodwill for
the three months ended September 30, 2009 as compared to the same period in 2008
was due to a $208,000 charge that resulted from our determination that an
impairment of the carrying value of our goodwill had occurred during the third
quarter of 2008.
Operating Loss and Other Income
Three Months Ended September 30, Quarter-to-
2009 2008 Quarter Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Operating loss $ (700 ) (6.7 )% $ (1,742 ) (16.4 )% $ 1,042 59.8 %
Other income:
Interest income 11 0.1 233 2.2 (222 ) (95.3 )
Total other income 11 0.1 233 2.2 (222 ) (95.3 )
Net loss $ (689 ) (6.6 )% $ (1,509 ) (14.2 )% $ 820 54.3 %
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The $222,000 decrease in total other income for the three months ended
September 30, 2009 as compared to the same period in 2008 resulted from a
decrease in interest income due to a decline in the interest rates on the funds
in which we invested our cash balance.
Comparison of Nine Months Ended September 30, 2009 and 2008
Revenues
Nine Months Ended September 30, Nine Month
2009 2008 Period Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Revenues $ 29,574 100.0 % $ 32,556 100.0 % $ (2,982 ) (9.2 )%
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The $3.0 million decline in revenues for the nine months ended September 30,
2009 as compared to the same period in 2008 reflected a decrease of $4.6 million
in revenues from clients from which we derived revenue in both periods. This
decreased revenue was due to lower calling volume in the collections industry,
and was partially offset by an increase of $1.6 million in revenues from new
clients.
Cost of Revenues and Gross Profit
Nine Months Ended September 30, Nine Month
2009 2008 Period Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Cost of revenues $ 11,740 39.7 % $ 12,555 38.6 % $ (815 ) (6.5 )%
Gross profit 17,834 60.3 20,001 61.4 (2,167 ) (10.8 )
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The $815,000 decrease in cost of revenues for the nine months ended September 30, 2009 as compared to the same period in 2008 consisted primarily of a $759,000 decrease in telephony expense related to lower client usage, a $615,000 decrease in depreciation expense due to a lower depreciable base of our property and equipment infrastructure, and a $949,000 decrease in delivery and circuit costs. These decreases were partially offset by an increase in text messaging and other channel delivery costs of $1.1 million, an increase in payroll expense of $208,000 due to a larger number of billable client management projects worked on during the current quarter, and a $125,000 increase in support and maintenance fees. The decrease in gross margin for the nine months ended September 30, 2009 as compared to the same period in 2008 reflected lower price structure agreements entered into with some of our clients.
Operating Expenses
Nine Months Ended September 30, Nine Month-
2009 2008 Period Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Research and development $ 4,186 14.2 % $ 3,834 11.8 % $ 352 9.2 %
Sales and marketing 10,875 36.8 13,500 41.5 (2,625 ) (19.4 )
General and administrative 6,045 20.4 7,969 24.4 (1,924 ) (24.1 )
Impairment of goodwill 121 0.4 208 0.6 (87 ) (41.8 )
Total operating expenses $ 21,227 71.8 % $ 25,511 78.3 % $ (4,284 ) (16.8 )%
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Research and Development. The $352,000 increase in research and development
expenses for the nine months ended September 30, 2009 as compared to the same
period in 2008 was primarily attributable to a $210,000 increase in personnel
related costs, as well as a $112,000 increase in outside consulting service fees
and temporary help.
Sales and Marketing. The $2.6 million decrease in sales and marketing expenses
for the nine months ended September 30, 2009 as compared to the same period in
2008 resulted primarily from a $1.6 million decrease in employee compensation
costs, a $750,000 decrease in travel and entertainments costs, and a $141,000
decrease in recruiting fees primarily as a result of fewer sales and marketing
personnel.
General and Administrative. The $1.9 million decrease in general and
administrative expenses for the nine months ended September 30, 2009 as compared
to the same period in 2008 consisted principally of $1.9 million decrease in
legal fees incurred in conjunction with our lawsuit against URS during the
second quarter of 2008. Additionally, outside consulting services fees decreased
$201,000, recruiting costs decreased $110,000, and outside professional services
fees decreased $90,000. This was partially offset by an increase in employee
compensation costs of $393,000 primarily as a result of executive separation pay
due to the resignation of our president and chief executive officer during the
second quarter of 2009.
Impairment of Goodwill. The $87,000 decrease in the impairment of goodwill for
the nine months ended September 30, 2009 as compared to the same period in 2008
resulting from fewer quarterly impairment related charges on our goodwill
balance during the first nine months of 2009 than during that same period in
2008.
Operating Loss and Other Income
Nine Months Ended September 30, Nine Month
2009 2008 Period Change
Percentage of Percentage of Percentage
Amount Revenues Amount Revenues Amount Change
(dollars in thousands)
Operating loss $ (3,393 ) (11.5 )% $ (5,510 ) (16.9 )% $ 2,117 38.4 %
Other income:
Interest income 66 0.3 798 2.5 (732 ) (91.7 )
Gain on litigation
settlement - - 4,600 14.1 (4,600 ) (100.0 )
Total other income 66 0.3 5,398 16.6 (5,332 ) (98.8 )
Net loss $ (3,327 ) (11.2 )% $ (112 ) (0.3 )% $ (3,215 ) *
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* Not Meaningful
The $5.3 million decrease in other income for the nine months ended
September 30, 2009 as compared to the same period in 2008 resulted from
$4.6 million received in connection with the settlement of our lawsuit with URS
during the second quarter of 2008, as well as a decrease in interest income of
$732,000 due to a decline in the interest rates on the funds in which we
invested our cash balance.
Liquidity and Capital Resources
Resources
Since our inception, we have funded our operations with proceeds from issuances
of preferred stock, borrowings under credit facilities, proceeds from our
initial public offering in November 2007 and, more recently, cash flow from
operations.
We believe our existing cash and cash equivalents and our cash flow from
operating activities will be sufficient to meet our anticipated cash needs for
at least the next twelve months. Our future working capital requirements will
depend on many factors, including the rates of our revenue growth, our
introduction of new features and complementary services for our on-demand
services, and our expansion of research and development and sales and marketing
activities. To the extent our cash and cash equivalents are insufficient to fund
our future activities; we may need to raise additional funds through bank credit
arrangements or public or private equity or debt financings. We also may need to
raise additional funds in the event we determine in the future to effect one or
more
acquisitions of businesses, technologies and products. If additional funding is
required, we may not be able to obtain bank credit arrangements or to effect an
equity or debt financing on terms acceptable to us or at all.
Credit Facility Borrowings
On November 2, 2009, we entered into a credit facility with Silicon Valley Bank
that provides a working capital line of credit for up to the lesser of (a)
$1.5 million or (b) 80% of eligible accounts receivable, subject to specified
adjustments. This credit facility will expire by its terms on November 1, 2010.
As of September 30, 2009, we had utilized $426,000 in connection with our
predecessor credit facility and were in compliance with all covenants set forth
in the predecessor credit facility.
Operating Cash Flow
For a discussion of our cash flow from operating activities, see "- Additional
Key Measures of Financial Performance."
Working Capital
The following table sets forth selected working capital information:
. . .
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