UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
001-33790
SoundBite Communications,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other
Jurisdiction
of Incorporation or Organization)
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04-3520763
(I.R.S. Employer
Identification Number)
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22 Crosby Drive
Bedford, Massachusetts
(Address of Principal
Executive Offices)
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01730
(Zip Code)
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Registrants telephone number, including area code:
(781) 897-2500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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The NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files) Yes
o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller Reporting company þ
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of February 15, 2010, the aggregate market value of
common stock (the only outstanding class of common equity of the
registrant) held by non-affiliates of the registrant was
$26.3 million based on a total of 7,607,508 shares of
common stock held by non-affiliates and on a closing price of
$3.46 on June 30, 2009 for the common stock as reported on
The NASDAQ Global Market.
As of February 15, 2010, 16,312,350 shares of common
stock were outstanding.
Documents Incorporated by Reference
The registrant intends to file a definitive proxy statement
pursuant to Regulation 14A within 120 days after
December 31, 2009. Portions of such proxy statement are
incorporated by reference in Items 10, 11, 12, 13 and 14 of
Part III of this annual report on
Form 10-K.
TABLE OF
CONTENTS
SOUNDBITE is our registered service mark in the United States,
and SOUNDBITE AGENT PORTAL, SOUNDBITE DIALOG ENGINE and
SOUNDBITE ENGAGE are our service marks. This annual report on
Form 10-K
also includes trademarks, trade names and service marks of other
entities.
i
Forward-Looking
Information
This annual report on
Form 10-K
contains, in addition to historical information, forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act, including information relating to
revenues generated from our on-demand automated voice messaging
service to businesses, governments and other organizations, our
efforts to expand our presence in large in-house, or
first-party, collection departments, and other functional
departments, of organizations and in, expected increases in cost
of revenues, our expected gross margins for future periods, our
spending on research and development, our ability to remain
competitive and achieve future growth, information with respect
to other plans and strategies for our business and factors that
may influence our revenues for 2010 and thereafter. Words such
as expect, anticipate,
intend, plan, believe,
seek, estimate and variations of these
words and similar expressions are intended to identify our
forward-looking statements. These forward-looking statements are
not guarantees of future performance and involve risks and
uncertainties including those described in Item 1A.
Risk Factors and elsewhere in this annual report and that
are otherwise described from time to time in our reports filed
with the SEC after the filing of this annual report. The
forward-looking statements included in this annual report
represent our estimates as of the date of this annual report. We
specifically disclaim any obligation to update these
forward-looking statements in the future, except as specifically
required by law or the rules of the SEC. These forward-looking
statements should not be relied upon as representing our
estimates or views as of any date subsequent to the date of this
annual report.
This annual report on
Form 10-K
also contains market data related to our business and industry.
These market data include projections that are based on a number
of assumptions. If these assumptions turn out to be incorrect,
actual results may differ from the projections based on these
assumptions. As a result, our markets may not grow at the rates
projected by these data, or at all. The failure of these markets
to grow at these projected rates may have a material adverse
effect on our business, results of operations, financial
condition and the market price of our common stock.
1
PART I
Overview
We provide an on-demand, multi-channel proactive customer
communications service that enables organizations to design,
execute and measure communication campaigns for a variety of
marketing, customer care, payment and collection processes.
Clients use our SoundBite Engage platform to communicate with
their customers through voice, text and email messages that are
relevant, timely, personalized and engaging.
Our service is provided using a multi-tenant architecture that
enables a single platform to serve all of our clients
cost-effectively. To use our service, an organization does not
need to invest in or maintain new hardware or to hire and manage
dedicated information technology staff. In addition, we are able
to implement new features on our platform that become part of
our service automatically and can benefit all clients
immediately. Our secure platform is designed to serve increasing
numbers of clients and growing demand from existing clients,
enabling the platform to scale reliably and cost-effectively.
In 2009 our service was used by more than 200 organizations,
which were comprised principally of large
business-to-consumer
companies in the financial services, telecommunications and
media, retail, and utilities, as well as companies in the
collections industry. In 2009, our service was used by 7 of the
10 largest global issuing banks, 7 of the 10 largest
U.S. telecommunications and media providers, 5 of the 20
largest U.S. retailers, and 12 of the 20 largest
U.S. utility providers. Our clients also include
approximately 90 collections agencies. Our clients are located
principally in the United States, with a limited number located
in Canada and Europe.
We were founded in Delaware in April 2000. Our principal
executive offices are located at 22 Crosby Drive, Bedford,
Massachusetts 01730, and our telephone number is
(781) 897-2500.
Our website address is www.soundbite.com. We are
not, however, including the information contained on our
website, or information that may be accessed through links on
our website, as part of, or incorporating it by reference into,
this annual report on
Form 10-K.
Industry
Background and Trends
Improving customer communications is a key strategy by which
businesses and other organizations can increase revenue, drive
market share and control operational costs. In recent years,
businesses have begun to implement proactive customer
communications, or PCC, solutions in order to help them build
trusted, long-term, profitable relationships with their
customers. With a proactive customer communication, a timely
message can be sent to a customers preferred access device
using one or more communications channels enabling the customer
to respond immediately over the customers preferred
communications channel. In September 2008, Forrester Consulting
estimated that 75% of organizations intend to increase their
investments in PCC solutions during the next two to three years.
Shift
from Reactive to Proactive Customer Communications
Traditionally, businesses have focused their customer
communications on responding quickly and effectively to customer
inquiries and requests. These reactive communications are of
limited effectiveness, however, in helping a business build
strong customer relationships that will lead to further revenue
opportunities.
In recent years, new technologies have made it feasible for
businesses to communicate with their customers proactively,
initiating outbound messages rather than waiting to respond to
inbound customer inquiries. Proactive customer communications
enable businesses to communicate more effectively and
efficiently throughout the customer lifecycle as the customer
considers, purchases and uses a product or service. By
proactively communicating timely and relevant information to
their customers, businesses can increase customer satisfaction
and loyalty to drive revenue and can reduce inbound
communications, resulting in operational cost savings.
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Initially, PCC solutions were adopted for collections and simple
one-way notifications, where large numbers of communications
needed to be delivered quickly and reliably. In collection
applications, PCC solutions often supplant on-premise predictive
dialers, which automatically dial batches of telephone numbers,
detect how the calls are answered, screen busy signals and
answering machines, and then pass live calls to contact center
agents. Because predictive dialers are designed primarily for
call handling by a live agent, they do not deliver the same cost
savings as automated PCC applications. Unlike multi-channel PCC
solutions, predictive dialers communicate only through voice
messaging, which limits the ability of a business to personalize
customer communications and to accommodate customer preferences
for varied communications channels. Moreover, predictive dialers
are typically limited in the flexibility they provide and lack
the capability to scale quickly.
More recently, several consumer communications trends have been
driving the implementation of PCC solutions for marketing,
customer care, and payment applications:
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Consumers now access and exchange information over a variety of
communications channels, including email, text messaging, the
Internet, instant messaging, social media and voice.
Communicating with customers through varying and multiple
channels will generally increase response rates.
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As they have gained experience with multiple communications
channels, consumers have developed stronger preferences for the
types of communications they wish to receive and the channels by
which those communications are received. According to a May 2009
Forrester Consulting publication, organizations that honored
consumer communications preferences reported substantial
business benefits, including higher response rates, stronger
customer relationships and improved customer
experiences all of which resulted in higher revenue
and profitability.
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Consumers increasingly rely on their mobile devices and mobile
device applications and no longer consider the home phone, if it
exists, as their primary communications device. With more than
4.6 billion mobile subscribers around the world, businesses
need to leverage the multiple communications channels accessible
from a mobile device in order to provide relevant and timely
information to customers effectively and efficiently.
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Changing market dynamics including increased
competition, heightened expectations for customer service,
rising costs of customer service, a dynamic regulatory
environment, and a weak economy have further
heightened the need for businesses to shift from reactive to
proactive customer communications. In order to increase customer
loyalty and satisfaction and generate more revenue at a lower
cost, businesses cannot simply wait for customers to contact
them.
Requirements
for PCC Solutions
Businesses increasingly require a comprehensive PCC solution
that will enable them to communicate proactively throughout the
customer life-cycle via marketing, customer care, payments and
collections applications. Based on our review of third-party
reports and other information, we estimate that the market for
PCC solutions will grow from $1.3 billion in 2010 to
$1.6 billion in 2012, representing a compounded annual
growth rate of 12%.
A PCC solution must enable businesses to communicate through key
existing channels such as voice, text and email, and be designed
with the ability to add support for other channels as they
emerge and become widely adopted. It must offer businesses the
flexibility to use the most appropriate channel based on a
customers communications preferences, the channels
efficacy, the message content or other business goals. The PCC
solution should provide a business with a unified view of its
customers communications in order to facilitate consistent
and personalized communications at every stage in the customer
lifecycle. It should have the ability to capture and manage an
increasing variety of both customer and client preferences
related to the communication outreach. In addition, the PCC
solution should increase contact center efficiencies not only by
further increasing the productivity of contact center agents,
but also by facilitating agentless communications
where appropriate.
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In order to support coherent preference-based multi-channel
communications, a PCC solution should be available as an
on-demand, or software-as-a-service (or SaaS), delivery model.
An on-demand model enables a PCC solution to be delivered and
deployed to a business quickly and cost-effectively in order to
meet the fast-changing requirements of the PCC market. Moreover,
an on-demand platform can provide the flexible, robust
architecture needed to respond to and take advantage
of current and future technological advances and
consumer communication trends.
Our
Solution
Clients can design, execute and measure proactive customer
communications across the customer lifecycle using SoundBite
Engage, our on-demand, multi-channel communications platform.
Our on-demand service and related client management services are
designed to help clients communicate with their customers
through interactive dialogs that are relevant, timely,
personalized and engaging.
Organizations use our service to initiate and manage campaigns
for a variety of marketing, customer care, payment and
collection processes. We assist clients in selecting service
features and adopting best practices that will enable them to
use our multi-channel PCC platform effectively. We offer
performance analytical capabilities to assist clients in
improving the design and execution of their campaigns. Our
secure platform is designed to scale reliably and
cost-effectively. Key benefits of our service for clients
include:
Communications via multiple channels. Using
our service, clients can interact with their customers by voice,
text or email, or by blending a combination of those channels.
As a result, a client can select a channel or channels based on
a combination of a customers channel preferences, the
channels efficacy, the message content and other business
goals.
Lower total cost of ownership. Our service,
unlike an on-premise predictive dialer, does not require clients
to invest in or maintain new hardware, or to hire and manage
dedicated information technology, or IT, staff. Because new
features are implemented on our platform, they become part of
our service automatically and benefit clients immediately.
Automation of communications. Clients can
reduce their contact center expense by using our service to
fully automate a variety of customer communications, ranging
from simple one-way notifications to more sophisticated customer
interactions such as surveys or payments.
Improvement of contact center performance. Our
service automates many of the routine tasks otherwise handled by
a contact center agent, thus reducing operating costs and
freeing agents to focus on more significant tasks. By
intelligently routing messages to the appropriate agent, our
service provides those agents with access to customer data and
alternative channels to interact with customers, thereby
increasing agent productivity.
Burstable capacity. Our platform has the
ability to initiate more than one million outbound messages each
hour. This capacity enables clients to burst
extremely large campaigns during short time periods, when
customers are most likely to be responsive.
Rapid initiation and modification of
campaigns. A new client can initiate its first
campaign using our service in a period as short as a week, using
only its existing contact center infrastructure and Internet
connections. New clients avoid the delay associated with
installing the hardware and software required for an on-premise
predictive dialer. Using the performance analytics of our
service, clients can improve the design and execution of
existing campaigns immediately by self service or quickly
through our professional services organization.
Our
Strategy
Our objective is to become the leading global provider of
on-demand, multi-channel PCC solutions. To achieve this goal, we
are pursuing the following:
Target large B2C companies. We increasingly
are focusing on large
business-to-consumer,
or B2C, companies in the financial services, telecommunications
and media, retail, and utility industries, all of
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which are characterized by the need for regular interactions
with large consumer bases throughout phases of the customer
lifecycle. Our service is used by 7 of the 10 largest global
issuing banks, 7 of the 10 largest U.S. telecommunications
and media providers, 5 of the 20 largest U.S. retailers,
and 12 of the 20 largest U.S. utility providers. We will
seek to both broaden and deepen our existing relationships with
large B2C clients while expanding our penetration of new clients
in our targeted industries.
Extend technology leadership. In December 2009
we announced the availability of SoundBite Engage, our
on-demand, multi-channel PCC platform. SoundBite Engage builds
upon our award-winning technology by offering new features that
facilitate interactive communications between clients and their
customers, including automated and agent-assisted customer
dialog over the text messaging channel. We will continue to
invest in our PCC platform by offering key new features,
supporting additional communications channels and expanding our
support for preference management.
Target international companies. Our service
can be used to address opportunities and challenges outside of
the United States, although we currently only have a limited
number of clients that use our service internationally. We have
enhanced our service offering to enable us to deliver
multi-channel proactive customer communications in countries
outside the United States, and we plan to begin marketing our
service internationally, both directly and through our partners,
commencing in Europe.
Increase revenue from the indirect channel. We
partner with resellers, solution providers, original equipment
manufacturers or OEMs, and international distributors in order
to broaden our distribution reach. In January 2009 we launched
our Business Partner Program to enable us to offer our service
more broadly within our target markets, to enter new vertical
markets, to augment our international expansion, and to sell
cost effectively to smaller organizations. We will seek to
increase our revenues from the indirect channel both by
leveraging existing relationships and by selectively recruiting
additional new partners.
Selectively seek strategic acquisitions. To
complement and accelerate our internal growth, we will
selectively pursue acquisitions of businesses, technologies and
products that will expand the feature set of our service,
provide access to new markets or clients, or otherwise
complement our existing operations. For example, in 2008 we
acquired substantially all of the assets of Mobile Collect,
Inc., a provider of text messaging and mobile communications
solutions.
Our
On-Demand Service
Clients use the SoundBite Engage platform to create and manage
campaigns for a variety of marketing, customer care, payments
and collections processes. A campaign is a series of
communications with a targeted group of customers, typically for
a defined period of time. The targeted group is identified by a
contact list containing customer-specific attributes, including
first and last names, telephone numbers,
e-mail
addresses and other information specific to the campaign. A
campaign often encompasses multiple passes through the contact
list. Campaigns can be conducted using contact center agents or
on an agentless basis. Sample campaigns include:
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Marketing
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Customer Care
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Payments
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Collections
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Loyalty programs
Promotions
Service activations
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Delivery notifications
Program enrollment
Surveys
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Payment reminders
Self-service payments
Expedited payments
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Contingent collections
Early-stage collections
Settlement offers
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Our service is provided using a multi-tenant architecture, which
enables a single PCC platform to serve all of our clients
cost-effectively. To use our service, an organization does not
need to invest in or maintain new hardware or to hire and manage
dedicated information technology staff. In addition, we are able
to implement new features on our platform that become part of
our service automatically and can benefit all clients
immediately. As a result, a new client can begin using our
service within a few days and take advantage of new features as
they become available.
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Our secure platform is designed to serve increasing numbers of
clients and growing demand from existing clients, enabling the
platform to scale reliably and cost-effectively. We provide our
service under a usage-based pricing model. We will use our
platform to introduce additional features, which we expect to
offer using either a usage-based or subscription pricing model.
The following diagram illustrates the key elements of our
SoundBite Engage platform, which we use to provide our service:
Client Access Layer. Clients access our
service using one of the following secure interfaces:
Client Web Interface enables a client, using a web
browser, to upload contact lists, initiate and manage campaigns,
and generate near real-time customized reports. All of our
platform features can be accessed through this secure,
easy-to-use interface, which makes our service available to
clients on a self-service basis.
FTP Automation facilitates a clients uploading of
contact lists and other information by providing the ability for
a client to transfer at a pre-determined time a file using a
variety of transfer protocols. Protocols supported include FTP,
FTPS and SFTP.
Web Services API allows a clients systems to
interact directly with our platform. Web Services API is an
application programming interface that provides clients with the
ability to load information directly from any customer
information management system. This approach also enables
additional applications, such as fraud notifications and
enhanced computer telephony integrations that rely on real-time
data exchange.
Agent Portal is a web-based user interface that enables
automated and agent-assisted interactive customer communications
over the voice and text messaging channels. Clients use Agent
Portal to support messages that, because of message content or
business rules, are best handled by a customer support agent.
Agent Portal allows agents to log in and view message history
and to interact with customers in real-time. SoundBite Engage
can seamlessly transition between fully automated and
agent-assisted dialogs, and supervisors can monitor agent
activity as well as an overall campaign status.
Enterprise Management. This component provides
a client with the ability to manage, using a single control
panel, all campaigns in any of the clients accounts.
Accounts and privileges can be created and customized at the
enterprise level for greater security. The Enterprise Management
component allows a client to share interaction scripts and
suppression lists across the clients entire enterprise,
and reports covering all of the clients accounts can be
provided on an enterprise-wide basis.
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Core Components. Our platform includes the
following core components, each of which can be accessed via the
web or by integrating a clients customer management system
with our platform:
Contact and Preference Management manages the importing
and accessing of a clients contact list. This component
also manages contact suppression, which removes one or more
contacts from a campaign either before the campaign begins or
while the campaign is progressing. For example, contacts may be
suppressed due to a customer that previously expressed a
preference not to receive the proposed type of communication or
a recipient that takes the requested action before all of the
passes within a campaign are completed.
Campaign Strategy Manager defines the frequency and
nature of the customer interactions to be employed to achieve
the goals of a campaign. This component includes the following
features:
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Flexible scripting languages to control the client interactions.
This enables a client interaction to be both highly personalized
and dynamic in nature.
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Multi-Pass Campaigns effects multiple overlapping passes through
a contact list in accordance with client-defined parameters, in
order to maximize contact list penetration and response rates.
These passes may span different channels, occur over multiple
days, and define the escalation conditions in which our service
moves to a different phone number or
e-mail
address within a campaign.
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Contact Ordering prioritizes contacts based on client-specified
criteria or on the likelihood that customers will be reached at
a particular time.
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Campaign and Contact Center Management supports the
initiation and management of campaigns. For those campaigns that
require agents, this component manages the routing of qualified
customers to agents and seeks to maximize the use of
agents time while minimizing customers wait time.
This component includes the following features:
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Pacing provides a client with the ability to select a model to
control the rate of outgoing messages. The model selected may be
either fixed-rate, time-based (rate determined by a time window)
or agent- based. For Pacing involving contact center agents,
adjustments are made based on factors such as agent
availability, average talk time and average hold time.
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Call Forecasting provides continuously refreshed data concerning
current and anticipated future contact attempts. Contact center
managers use the data for contact center agent resource planning.
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Contact Center Reports, which are available in near real-time,
provide details on customer interactions with contact centers
and furnish performance metrics related to contact center
performance.
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Analytics and Reporting produces reports, in a variety of
formats that can be exported at any time during or after a
campaign. We offer flexible report formatting, scheduling and
delivery options. Reports typically contain details regarding
contact attempts and outcomes. Reports are available for a
specific campaign, or for all of the campaigns of a department,
group or other client account. This component also includes
performance analytics capabilities to assist clients in
improving the design and execution of their campaigns. For
example, a client might determine, based on our analysis of
campaign data, that the clients next campaign should be
executed at a different time of day or should target wireless
customers via text, rather than via voice.
Dialog Engine tests and manages any number of contact
scripts to be used to determine the content presented during
customer interactions. In a telephone call, for example, a
script specifies the sequence of audio prompts that are played
and the step or action to result when a customer takes a
particular action, such as pressing a button on the telephone or
saying yes. An individual customer interaction is
supported by a flexible scripting language and personalized
messaging. Scripts can be modified and repurposed over time. Our
personalized voice messages use professional voice talent
recordings or
text-to-speech
technology to insert customer-specific information into an
interaction. In a typical text interaction, a script may specify
the action
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to be taken based upon a customers response to an initial
outbound text message, such as requiring some form of
authentication. This component supports the following activities:
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Automated Right-Party Verification enables the identity of a
customer to be verified without contact center agent involvement
by, for example, having a recipient enter a billing zip code.
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Direct Connect to Contact Center allows a voice recipient to
connect directly to a contact center in order to speak with an
agent.
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Delivery Channels. Our platform supports
outbound and inbound voice, outbound and inbound text (both
standard and
Free-to-End
User, or FTEU), and outbound email communications. An outbound
channel can be used for either a contact center agent-assisted
or agentless campaign. An inbound channel is typically used in
support of outbound campaigns or as part of an inbound-only
agentless campaign. These delivery channels can be used
individually or combined on our platform.
Security and Compliance. Our platform includes
a number of security features designed to keep customer data
safe and confidential, such as encryption of sensitive data,
secure transmission, audit trails, non-shared accounts,
need-to-know
access policies and formal incident response. Clients can elect
to use supplemental security features such as
e-mail and
FTP address restrictions for report deliveries and encryption of
reports. Compliance management provides a client with the
ability to define a set of rules to control when a customer is
contacted based on the customers location, which is
determined by reference to the phone number being contacted.
In November 2009, we renewed our compliance status as a Payment
Card Industry Data Security Standard, or PCI/DSS, compliant
Service Provider (Level 1), which enables us to work more
closely and exchange more data with banks and credit card
companies. We have registered with the U.S. Department of
Commerce under the European Union Safe Harbor Principles
relating to the protection of personal data. In addition, we
have instituted periodic internal and third-party reviews of our
security structure, including an annual voluntary external
Type II audit of our IT-related control activities for our
platform under Statement on Auditing Standards No. 70,
Reports on the Processing of Transactions by Service
Organizations.
Our
Client Management Services
Our Client Management organization helps clients select service
features and adopt best practices that will enable the clients
to use our multi-channel PCC platform effectively. The
organization provides varying levels of support, such as
managing entire campaigns, providing optimization
recommendations and supporting self-service clients. It offers a
range of services that includes script development, campaign
strategy, professional voice talent recording, custom reporting
and detailed analysis of campaign results. At February 15,
2010, our Client Management organization had 39 employees.
Our Client Management organization consists of three principal
teams:
Enterprise Program Directors help key clients fully
understand their customer communications needs and then assist
those clients in designing solutions to meet defined goals. This
team works with sales personnel to help design successful
program strategies and ensure effective execution. The team also
works directly with prospective and existing clients to
determine the most appropriate use of our platform in their
businesses. Demonstrations of our platform are used to highlight
features and functionality that are available in current or will
be available in future releases.
Professional Services members provide implementation
services and project management, including detailed requirements
gathering, test, design and setup script development, voice
talent recording, and all aspects of file interchange. This team
builds and maintains a library of best practices based upon
experience gained in helping design and optimize campaigns.
Training, Documentation and General Help Desk members
provide clients with training both initially and on a continuing
basis, in order to assist the clients in using our service more
effectively and efficiently. Training modules include self-paced
tutorials, on-line job aids and live instructor led classes. Our
help desk is available
around-the-clock
to provide immediate support to clients.
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Business
Segments and Geographic Information
We manage our operations on a consolidated, single operating
segment basis for purposes of assessing performance and making
operating decisions. Accordingly, we have only one reporting
segment. Organizations in the United States accounted for
substantially all of our revenues in each of 2009, 2008 and 2007.
Clients
In 2009 our service was used by more than 200 organizations. Our
clients are located principally in the United States, with a
limited number located in Canada and Europe.
We target collection agencies as well as large B2C companies in
the financial services, telecommunications and media, retail,
and utility industries. Our service is used by approximately 90
collections agencies. We target B2C companies in industries that
are characterized by the need for regular interactions with
large consumer bases throughout the phases of the customer
lifecycle. Our service is used by a number of the largest B2Cs
(measured by revenue) in our targeted industries, including
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7 of the 10 largest global issuing banks;
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7 of the 10 largest U.S. telecommunications and media
providers;
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5 of the 20 largest U.S. retailers; and
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12 of the 20 largest U.S. utility providers.
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We provide our service under a usage-based pricing model, and
our pricing agreements with the significant majority of our
clients do not require minimum levels of usage or payments.
T-Mobile
USA, Inc., a provider of mobile telephone services, and NCO
Group, a provider of business process outsourcing services, each
accounted for more than ten percent of our revenues in each of
2009, 2008 and 2007. Neither
T-Mobile
USA, Inc. nor NCO Group accounted for twenty percent or more of
our revenues in any of those years.
Sales and
Marketing
We offer our service principally through our industry-aligned
direct sales force. Sales leads are generated through cold
calling, client and other referrals, and a variety of marketing
programs. Once a lead is qualified, the sales process typically
involves a web-based or in-person presentation and
demonstration, together with pre-sales support from our Client
Management organization. These presentations focus on explaining
the benefits of our service offering, including the speed with
which the service can be deployed and demonstrating the
potential return on investment from the use of our service. We
encourage prospective clients to engage in a pilot campaign to
evaluate the efficacy of our service. As of February 15,
2010, our direct sales force consisted of 21 employees
located at our headquarters in Bedford, Massachusetts, and
elsewhere in the United States.
In order to broaden our distribution reach, we also offer our
service through an indirect channel comprised of resellers,
solution providers, OEMs and international distributors. Using
our Web Services API, OEMs can integrate their applications into
the SoundBite Engage platform. In January 2009 we launched our
Business Partner Program to enable us to offer our service more
broadly within our target markets, to enter new vertical
markets, to augment our international expansion and to sell cost
effectively to smaller organizations.
Our marketing communications and programs strategy has been
designed to increase awareness of our service, generate
qualified sales leads and expand relationships with existing
clients. We reinforce our brand identity through our website and
public relations, which are intended to build market awareness
of our company as a leading provider of PCC solutions. We host
webinars, sponsor white papers, build relationships with leading
analysts, and participate in industry events and associations.
We distribute newsletters and other written communications to
prospective and existing clients by
e-mail and
direct mail campaigns. At February 15, 2010, our marketing
group had 14 employees.
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Our sales and marketing expenses totaled $14.8 million in
2009, $18.0 million in 2008 and $14.7 million in 2007.
Technology,
Development and Operations
Technology
We launched our first multi-tenant on-demand service in 2000.
Our service is provided through a secure, scalable platform
written primarily in Java using the Java 2 Enterprise Edition,
or J2EE, development framework. We use a combination of
proprietary and commercially available software, including the
Apache web server, the Oracle WebLogic and JBoss application
servers, Nuance
text-to-speech
and automated speech recognition software, and the Oracle and
MySQL databases. The software runs primarily on Linux servers.
We also use commercially available hardware, including NMS
Communications telephony cards and NextPoint session border
controllers.
Our service manages clients as separate tenants within our
platform. As a result, we amortize the cost of delivering our
service across our entire client base. In addition, because we
do not have to manage thousands of distinct applications with
their own business logic and database schemas, we believe that
we can scale our solution faster than on-premise solutions.
Our service enables clients to import and access data
independent of format and to customize the script interaction
and reporting output of their campaigns. The web user interface
of our platform can be customized for a client that wishes to
have a specific look and feel across its enterprise.
Research
and Development
Our research and development organization is responsible for
developing new features and other new offerings for our
on-demand platform. The organization also is responsible for
performing platform functionality and load testing, as well as
quality assurance activities. The organization currently is
working on a number of enhancements, including work related to
enhanced reporting capabilities, enhanced campaign management,
additional support for customer preferences, advanced channel
support and the Web Services API. In addition the organization
is continuing to enhance the scalability and reliability of our
core platform. At February 15, 2010, our research and
development organization had 33 employees.
Our research and development expenses totaled $5.6 million
in 2009, $5.2 million in 2008 and $3.9 million in 2007.
Operations
We serve our clients from three third-party hosting facilities,
which are located in Ashburn, Virginia; Somerville,
Massachusetts; and Toronto, Ontario. All facilities provide
around-the-clock
security personnel, video surveillance and biometric access
screening, and are serviced by
on-site
electrical generators and fire detection and suppression
systems. We maintain insurance policies covering substantially
all of the assets deployed at our hosting facilities. For
information regarding the facility locations, operators and
agreement terms, see Item 2. Properties.
Both U.S. facilities have multiple Tier 1
interconnects to the Internet and are connected by a SONET ring.
Our Canadian facility is strategically located to allow us
direct access to a number of telecommunication carriers. We have
multiple telecommunication carriers for voice termination,
including Global Crossing, Level 3 and Qwest. We have
selected our mix of telecommunication carriers to limit service
interruptions, even in the event of a localized loss of a major
provider.
We own all the hardware deployed in support of our platform. We
continuously monitor the performance and availability of our
service. We designed our service infrastructure using
load-balanced web server pools, redundant interconnected network
switches and firewalls, clustered application servers and
fault-tolerant storage devices. Production databases are backed
up on a regular basis to ensure transactional integrity and
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restoration capability. During 2008, we completed the migration
of our infrastructure to Voice over Internet Protocol, or VoIP.
We have deployed a security infrastructure that includes
firewalls, intrusion detection, and IPSEC, PGP and TLS data and
network security protection, and we have instituted periodic
internal and third-party reviews of our security infrastructure.
See Our On-Demand Service Security
and Compliance above.
We have service level agreements or arrangements with a small
number of clients under which we warrant certain levels of
system reliability and performance. If we fail to meet those
levels, those clients are entitled to either receive credits or
terminate their agreements with us. We did not provide any
material credits in 2009, 2008 or 2007 pursuant to any service
level provisions.
At February 15, 2010, our operations organization had nine
employees.
Competition
To date, we have derived revenue principally from our voice
service and, to a lesser extent, from text and email services.
The market for customer communications solutions is intensely
competitive, changing rapidly and fragmented. The following
summarizes the principal products and services that compete with
our service.
Predictive
Dialers
Our voice service competes with on-premise predictive dialers
from established vendors such as Aspect and Avaya as well as a
number of smaller vendors. Our voice service competes with
on-premise predictive dialers on the basis of both available
features and delivery model, including:
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breadth of features;
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speed of deployment;
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capital investment required;
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pricing model for customers; and
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capacity, including burstability.
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A number of predictive dialer vendors offer forms of hosted
solutions, which we believe are typically services in which
predictive dialers are hosted by first-generation application
service providers, or ASPs, rather than on a multi-tenant
on-demand basis. We believe these ASP-hosted services are
deployed on individual servers and application infrastructures,
using dedicated predictive dialers. We compete with ASP-hosted
predictive dialer services on the same basis as on-premise
predictive dialers, except that deployment speed and required
capital investment are less significant in differentiating our
service from these ASP-hosted services.
Predictive dialers have been the basic method of automated
customer communications for the last two decades, particularly
for collections activity. The vast majority of telephony
customer contact today is completed using predictive dialer
technology. Many organizations are likely to continue using
on-premise predictive dialers that have been purchased and are
still operative, despite the availability of new features and
functionality in PCC services.
Some vendors of predictive dialers, particularly Aspect and
Avaya, have significantly greater financial, technical,
marketing, service and other resources than we have. Many of
these vendors also have larger installed client bases and longer
operating histories. Competitors with greater financial
resources may be able to offer lower prices, additional products
or services, or other incentives that we cannot match or offer.
These competitors may be in a stronger position to respond
quickly to new technologies and may be able to undertake more
extensive marketing campaigns.
Hosted
Customer Communications Solutions
Our service also competes with a number of hosted customer
communications solutions. Most vendors of hosted customer
communications solutions focus on providing a basic service with
limited features and
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compete principally on the basis of price. These vendors consist
principally of a number of relatively small, privately held
companies and a small number of larger, multi-product line
companies such as Nuance Communications Premiere Global
Services, Inc., and West Interactive. We compete with these
vendors on the basis of the following:
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return on investment;
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breadth of features;
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price;
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brand awareness based on referencable customer base; and
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security and reliability.
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Some of these vendors deliver their customer communications
services on an ASP model, using dedicated hardware. We compete
with these vendors based on the attributes of our multi-tenant
on-demand delivery model, as described above with respect to
ASP-hosted predictive dialer services.
We also compete directly with a small number of vendors, such as
Adeptra and Varolii that deliver services utilizing one or more
channels on an on-demand delivery model similar to ours. These
vendors focus on providing hosted services with a broader array
of features, such as advanced reporting capabilities and
supporting professional services. These vendors generally
compete on the basis of return on investment and features,
rather than price, and focus their principal selling efforts on
differing groups of industries. We compete with these vendors
based on the breadth of our multi-channel functionality,
flexibility of our usage-based pricing model, the analytical
capabilities of our platform and our referencable client base.
In the past few years, there have been a number of new entrants
in the hosted customer communications market. Most of these new
entrants offer basic, price-oriented customer communications
services hosted on an ASP model. We believe that companies
wishing to target this portion of the market may seek to acquire
existing vendors. It is likely any such acquiring companies
would have greater financial, technical, marketing, service and
other resources than we have and may be able to offer lower
prices, additional products or services, or other incentives
that we cannot match or offer.
Intellectual
Property
Our success depends in part on our ability to protect our
intellectual property and to avoid infringement of the
intellectual property of third parties. We rely on a combination
of trade secret laws, trademarks and copyrights in the United
States and other jurisdictions, as well as contractual
provisions and licenses, to protect our proprietary rights and
brands. We cannot, however, be sure that steps we take to
protect our proprietary rights will prevent misappropriation of
our intellectual property.
We have adopted a strategy of seeking patent protection with
respect to certain technologies used in or relating to our
products. We have three issued U.S. patents, which relate
to: (a) a voice message delivery method and system (patent
number US 6,785,363 B3) that was issued in August 2004 and will
expire in January 2021; (b) an address book for a voice
message delivery method and system (patent number US 6,829,331
B2) that was issued in December 2004 and will expire in January
2022; and (c) answering machine detection for voice message
delivery and system (patent number US 7,054,419) that was issued
in May 2006 and will expire in April 2021. We have seven pending
U.S. patent applications, five of which relate to the
optimization of interactive communications campaigns and two of
which relate to the provision of messages to mobile devices in
an enterprise centric architecture. We evaluate ideas and
inventions for patent protection with a team of engineers and
product managers, in consultation with our outside patent
counsel. We expect to file additional patent applications in the
ordinary conduct of our business.
SoundBite is our sole registered service mark in the
United States. We have unregistered service marks identifying
some of our service offerings. None of our unregistered service
marks is material to our business. We seek to protect our source
code for our platform, as well as documentation and other
written materials, under trade secret and copyright laws.
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We may not receive competitive advantages from the rights
granted under our intellectual property rights. Others may
develop technologies that are similar or superior to our
proprietary technologies or duplicate our proprietary
technologies. Our pending and any future patent applications may
not be issued with the scope of claims sought by us, if at all,
or the scope of claims we are seeking may not be sufficiently
broad to protect our proprietary technologies. Our issued
patents and any future patents we are granted may be
circumvented, blocked, licensed to others or challenged as to
inventorship, ownership, scope, validity or enforceability. We
may be advised of, or otherwise become aware of, prior art or
other literature that could negatively affect the scope or
enforceability of any patent. If our issued patents, any future
patent we are granted, our current or any future patent
application, or our service is found to conflict with any
patents held by third parties, we could be prevented from
selling our service, any current or future patent may be
declared invalid, or our current or any future patent
application may not result in an issued patent. In addition, in
foreign countries, we may not receive effective patent and
trademark protection. We may be required to initiate litigation
in order to enforce any patents issued to us, or to determine
the scope or validity of a third partys patent or other
proprietary rights. In addition, in the future we may be subject
to lawsuits by third parties seeking to enforce their own
intellectual property rights, as described in
Item 1A. Risk Factors Our product
development efforts could be constrained by the intellectual
property of others, and we could be subject to claims of
intellectual property infringement, which could be costly and
time-consuming. We seek to avoid disclosure of our
intellectual property by requiring employees and consultants
with access to our proprietary information to execute
nondisclosure and assignment of intellectual property agreements
and by restricting access to our source code. Other parties may
not comply with the terms of their agreements with us, and we
may not be able to enforce our rights adequately against these
parties.
Our service offering incorporates technology licensed from
third-party providers. If these providers were no longer to
allow us to use these technologies for any reason, we would be
required to:
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identify, license and integrate equivalent technology from
another source;
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rewrite the technology ourselves; or
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rewrite portions of our source code to accommodate the change or
no longer use the technology.
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Any one of these outcomes could delay further sales of our
service, impair the functionality of our service, delay the
introduction of new features or offerings, result in our
substituting inferior or more costly technologies, or injure our
reputation. In addition, we may be required to license
additional technology from third parties, and we cannot assure
you that we could license that technology on commercially
reasonable terms or at all. Because of the relative
immateriality of this third-party licensed technology as well as
the availability of alternative equivalent technology, we do not
expect that our inability to license this technology in the
future would have a material effect on our business or operating
results.
Government
Regulation
Our business operations are affected, directly or indirectly, by
a wide range of U.S. federal and state laws and regulations
that restrict customer communications activities using our
service, our handling of information and other aspects of our
business. On the U.S. federal level, for example,
regulatory measures include:
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the Fair Debt Collection Practices Act, which regulates the
timing and content of debt collection communications;
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the Telephone Consumer Protection Act, which restricts the
circumstances under which automated telephone dialing systems
and artificial or prerecorded messages may be used in placing
calls to residences and wireless telephone numbers;
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Federal Trade Commission and Federal Communications Commission
telemarketing regulations, which have been promulgated under the
authority of the Telemarketing and Consumer Fraud and Abuse
Prevention Act and the Telephone Consumer Protection Act and
which restrict the timing, content and manner of telemarketing
calls, including the use of automated dialing systems,
predictive dialing techniques and artificial or prerecorded
voice messages;
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the Controlling the Assault of Non-Solicited Pornography and
Marketing (CAN-SPAM) Act, which sets standards for the sending
of commercial
e-mail;
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the Gramm-Leach-Bliley Act, which regulates the disclosure of
consumer nonpublic personal information received from our
financial institution clients and requires those clients to
impose administrative, technical and physical data security
measures in their contracts with us; and
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the Fair Credit Reporting Act, which defines permissible uses of
consumer information furnished to or obtained from consumer
reporting agencies.
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Many states and state agencies have also adopted and promulgated
laws and regulations governing debt collection, contact with
wireless, business and residential telephone numbers,
telemarketing, and data privacy. These laws and regulations may,
in certain cases, impose restrictions that are more stringent
than the federal measures discussed above. To date, our
employees have performed a significant portion of our activities
in complying with U.S. federal and state laws and
regulations and we have not incurred material
out-of-pocket
compliance costs.
Our foreign business operations are, or may be, affected by
foreign laws and regulations. For example, our current
telemarketing activities in the United Kingdom are subject to a
comprehensive telemarketing regulation, which includes a
prohibition on calls to numbers on the UKs national
do-not-call registry, the Telephone Preference Service. Canada
has also established a similar national do-not-call registry,
which was first implemented on September 30, 2008.
Furthermore, we may in the future determine to commence or
expand our operations to other countries, and these countries
may have laws or regulations comparable to or more stringent
than those affecting our domestic business.
Our business, operating results and reputation may be
significantly harmed if we violate, or are alleged to violate,
U.S. federal, state or foreign laws or rules covering
customer communications. In the pricing agreements they enter
into with us, our clients typically agree to comply in all
material respects with all applicable legal and regulatory
requirements relating to their use of our service. We cannot be
certain, however, that our clients comply with these
obligations, and typically we cannot verify whether clients are
complying with their obligations. Violations by our clients may
subject us to costly legal proceedings and if we are found to be
wholly or partially responsible for such violations, may subject
us to damages, fines or other penalties. For a further
description of some of the governmental regulations that may
affect our business operations, see Item 1A. Risk
Factors Risks Related to Regulation of Use of Our
Service.
Employees
As of February 15, 2010, we had a total of
136 employees, consisting of 39 employees in client
management, 33 employees in research and development,
35 employees in sales and marketing, 9 employees in
operations, and 20 employees in general and administrative.
All of the employees were based in the United States. A total of
120 of our employees as of February 15, 2010 were based at
our headquarters in Bedford, Massachusetts.
From time to time we also employ independent contractors and
temporary employees to support our operations. None of our
employees are subject to collective bargaining agreements. We
have never experienced a work stoppage and believe that our
relations with our employees are good.
Our
History
We were founded in Delaware in April 2000. Our principal
executive offices are located at 22 Crosby Drive, Bedford,
Massachusetts 01730, and our telephone number is
(781) 897-2500.
Our website address is www.soundbite.com, and we
make available through the investor relations section of our
website, free of charge, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act as soon as reasonably practicable
after such reports are electronically filed with the SEC. We
also make our code of ethics and certain other governance
documents and policies available through this site. We are not,
however, including
14
the information contained on our website, or information that
may be accessed through links on our website, as part of, or
incorporating it by reference into, this annual report on
Form 10-K.
An investment in our common stock involves a high degree of
risk. You should consider carefully the risks and uncertainties
described below and all of the other information contained in
this report before deciding whether to purchase our common
stock. The market price of our common stock could decline due to
any of these risks and uncertainties, and investors might lose
all or part of their investments in our common stock.
Risks
Related to Our Business and Industry
If the
market for PCC solutions does not develop as we anticipate, our
revenues would decline or fail to grow and we could incur
operating losses.
Our revenues totaled $40.2 million in 2009,
$43.2 million in 2008 and $39.5 million in 2007. We
derive, and expect to continue to derive for the foreseeable
future a substantial majority of our revenues by providing our
on-demand PCC service to businesses and other organizations.
Since mid-2008, we have generated an increasing percentage of
our revenues from use of our service for text messaging. We
expect that, in the future, a growing percentage of our revenues
will result from the use of our on-demand service for text and
e-mail
messaging. Due to advances in technology, the market for PCC
products and services continues to evolve, and it is uncertain
whether our service will achieve and sustain high levels of
demand and market acceptance. In order to succeed, we must
increase the usage of our service by existing clients.
In addition, our success will depend on our ability to market
our full range of PCC applications to additional organizations.
Some organizations may be reluctant or unwilling to use PCC
services for a number of reasons, including the perceived
effectiveness of communications services based on other delivery
channels, such as direct mail and web, or other technologies,
such as interactive voice response systems and predictive
dialers. In addition, organizations may lack knowledge about the
potential benefits that PCC services can provide. An
organization may determine that it can achieve the same, or a
higher, level of performance and results from services based on
other delivery channels or technologies. Even if an organization
determines that our PCC service offers benefits superior to
other customer communications products and services, it might
not use our service because it has previously invested in
alternative products or services or in internally developed
messaging equipment, because it can obtain acceptable
performance and results from alternative products and services
available at a lower cost, or because it is unwilling to deliver
customer information to a third-party vendor. Moreover, an
organization may determine not to use communications products
and services due to the application, or potential application,
of one or more of a variety of laws and regulations, as
described below under Risks Related to Regulation of Use
of Our Service.
If organizations do not perceive the potential and relative
benefits of our PCC service or believe that competing customer
communications products and services offer a better value, the
market for our service may not continue to develop or may
develop more slowly than we expect, either of which would
significantly adversely affect our business, financial condition
and operating results. Because the market for our service is
still developing and the manner of this development is difficult
to predict, we could make errors in predicting and reacting to
relevant business trends, which could harm our operating results.
Defects
in our platform, disruptions in our on-demand service or errors
in execution could diminish demand for our PCC service and
subject us to substantial liability.
Our on-demand platform is complex and incorporates a variety of
hardware and proprietary and licensed software. From time to
time we have found and corrected defects in our platform.
Internet-based services such as ours frequently experience
issues from undetected defects when first introduced or when new
versions or enhancements are released. Defects in our platform
could result in service disruptions for one or more clients. For
example, in October 2008 we experienced a partial outage of the
SoundBite Platform, which precluded some clients from executing
their campaigns in their desired timeframes. Our clients might
use our on-demand service in unanticipated ways that cause a
service disruption for other clients attempting to access their
contact
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list information and other data stored on our platform. In
addition, a client may encounter a service disruption or
slowdown due to high usage levels of our service.
Clients engage our Client Management organization to assist them
in creating and managing a campaign. As part of this process, we
typically construct and test a script, map the clients
input file into our platform and map our output files to a
client-specific format. In order for a campaign to be executed
successfully, our Client Management staff must correctly design,
implement, test and deploy these work products. The performance
of these tasks can require significant skill and effort, and
from time to time has resulted in errors that adversely affected
a clients campaign.
Because clients use our service for critical business processes,
any defect in our platform, any disruption in our service or any
error in execution could cause existing or potential clients not
to use our service, could harm our reputation, and could subject
us to litigation and significant liability for damage to our
clients businesses.
The insurers under our existing liability insurance policy could
deny coverage of a future claim that results from an error or
defect in our platform or a resulting disruption in our service,
or our existing liability insurance might not be adequate to
cover all of the damages and other costs of such a claim.
Moreover, we cannot assure you that our current liability
insurance coverage will continue to be available to us on
acceptable terms or at all. The successful assertion against us
of one or more large claims that exceeds our insurance coverage,
or the occurrence of changes in our liability insurance policy,
including an increase in premiums or imposition of large
deductible or co-insurance requirements, could have a material
adverse effect on our business, financial condition and
operating results. Even if we succeed in litigation with respect
to a claim, we are likely to incur substantial costs and our
managements attention will be diverted from our operations.
Interruptions
or delays in service from our key vendors would impair the
delivery of our service and could substantially harm our
business and operating results.
In delivering our on-demand service, we rely upon a combination
of hosting providers, telecommunication and data carriers, and
text and email aggregators. We serve our clients from three
third-party hosting facilities. One facility is located in
Ashburn, Virginia, and is owned by Equinix and operated by
InterNap under an agreement that expires in March 2012. Another
facility is located in Somerville, Massachusetts, and is owned
by CoreSite and operated by InterNap under an agreement that
expires in May 2011. Our agreements for these two facilities
automatically renew for one year periods unless written
notification is made by either party 90 days prior to
renewal. Our third facility is located in Toronto, Ontario and
is owned and operated by Pier 1 Network Enterprises under an
agreement that automatically renews for one month periods unless
written notification is made by either party 60 days prior
to the expiration date. If we are unable to renew these
agreements on commercially reasonable terms following their
termination, we will need to incur significant expense to
relocate our data center or agree to the terms demanded by the
hosting provider, either of which could harm our business,
financial position and operating results.
Our clients campaigns are handled through a mix of
telecommunication and data carriers as well as text and email
aggregators. We rely on these service providers to handle
millions of customer contacts each day. While we have entered in
contracts with multiple telecommunication carriers, we currently
do not have fully redundant data services or multiple
aggregators for text or email. Our contracts with carriers and
aggregators generally can be terminated by either party at the
end of the contract term upon written notice delivered by the
party a specified number of days before the end of the term. In
addition, we generally can terminate a contract at any time upon
written notice delivered a specified number of days in advance,
subject to the payment of specified termination charges. If a
contract is terminated, we might be unable to obtain pricing on
similar terms from another provider, which would affect our
gross margins and other operating results.
Our hosting facilities and the infrastructures of our service
providers are vulnerable to damage or interruption from floods,
fires and similar natural events, as well as acts of terrorism,
break-ins, sabotage, intentional acts of vandalism and similar
misconduct. The occurrence of such a natural disaster or
misconduct, a loss of power, a decision by a hosting provider to
close a facility without adequate notice or other unanticipated
problems could result in lengthy interruptions in our provision
of our service. Any interruption
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or delay in providing our service, even if for a limited time,
could have an adverse effect on our business, financial
condition and operating results.
Our
quarterly operating results can be difficult to predict and can
fluctuate substantially, which could result in volatility in the
price of our common stock.
Our quarterly revenues and other operating results have varied
in the past and are likely to continue to vary significantly
from quarter to quarter. Our agreements with clients typically
do not require minimum levels of usage or payments, and our
revenues therefore fluctuate based on the actual usage of our
service each quarter by existing and new clients. Quarterly
fluctuations in our operating results also might be due to
numerous other factors, including:
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our ability to attract new clients, including the length of our
sales cycles;
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our ability to sell new applications and increased usage of
existing applications to existing clients;
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technical difficulties or interruptions in our on-demand service;
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changes in privacy protection and other governmental regulations
applicable to the communications industry;
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changes in our pricing policies or the pricing policies of our
competitors;
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changes in the rates we incur for services provided by
telecommunication or data carriers or by text or email
aggregators;
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the financial condition and business success of our clients;
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purchasing and budgeting cycles of our clients;
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acquisitions of businesses and products by us or our competitors;
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competition, including entry into the market by new competitors
or new offerings by existing competitors;
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our ability to hire, train and retain sufficient sales, client
management and other personnel;
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timing of development, introduction and market acceptance of new
communication services or service enhancements by us or our
competitors;
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concentration of marketing expenses for activities such as trade
shows and advertising campaigns;
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expenses related to any new or expanded data centers; and
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general economic and financial market conditions.
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Many of these factors are beyond our control, and the occurrence
of one or more of them could cause our operating results to vary
widely. Because of quarterly fluctuations, we believe that
quarter-to-quarter
comparisons of our operating results are not necessarily
meaningful.
We may fail to forecast accurately the behavior of existing and
potential clients or the demand for our service. Our expense
levels are based, in significant part, on our expectations as to
future revenues and are largely fixed in the short term. As a
result, we could be unable to adjust spending in a timely manner
to compensate for any unexpected shortfall in revenues.
Variability in our periodic operating results could lead to
volatility in our stock price as equity research analysts and
investors respond to quarterly fluctuations. Moreover, as a
result of any of the foregoing or other factors, our operating
results might not meet our announced guidance or expectations of
investors and analysts, in which case the price of our common
stock could decrease significantly.
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The
global recession and related credit crisis may continue to
adversely affect our business.
Recent global market and economic conditions have become
increasingly negative with tighter credit conditions and
recession in most major economies continuing throughout 2009 and
into 2010. Continued concerns about the systemic impact of
potential long-term and wide-spread recession, energy costs,
geopolitical issues, the availability and cost of credit, and
the global housing and mortgage markets have contributed to
increased market volatility declining business and consumer
confidence, increased unemployment, and diminished economic
expectations. These market conditions have led to a decrease in
spending by businesses and consumers. Continued turbulence in
the United States and international markets and economies and
prolonged declines in business and consumer spending could
result in lower sales of our service, longer sales cycles,
difficulties in collecting accounts receivable, gross margin
deterioration, slower adoption of new technologies, and
increased price competition, any of which may have a negative
effect on our financial condition and results of operations.
Our
clients are not typically obligated to pay any minimum amount
for our service on an on-going basis, and if they discontinue
use of our service or do not use our service on a regular basis,
our revenues would decline.
The agreements we enter into with clients do not typically
require minimum levels of usage or payments and are terminable
at will by our clients. The periodic usage of our service by an
existing client could decline or fluctuate as a result of a
number of factors, including the clients level of
satisfaction with our service, the clients ability to
satisfy its customer contact processes internally, and the
availability and pricing of competing products and services. If
our service fails to generate consistent business from existing
clients, our business, financial condition and operating results
will be adversely affected.
We
derive a significant portion of our revenues from the sale of
our service for use in the collections process, and any event
that adversely affects the collection agencies industry or
in-house collection departments would cause our revenues to
decline.
In recent years, we have focused our sales and marketing
activities on the collection process and have targeted large
in-house collection departments, as well as collection agencies.
Revenues from these collection businesses represented
approximately 77% of our revenues in 2009, 80% of our revenues
in 2008 and 83% of our revenues in 2007. We expect that revenues
from the collection businesses will continue to account for a
substantial part of our revenues for the foreseeable future.
Collection businesses are particularly subject to changes in the
overall economy. In a sustained economic downturn such as the
recession experienced globally since 2009, collection agencies
can be affected adversely by declines in liquidation rates as a
result of higher debt and lower disposable income. A prolonged
economic downturn will impact collections agencies as fewer
loans are granted due to the imposition by lenders of conditions
on the extension of credit that are not acceptable to potential
borrowers. Collection businesses also can be affected adversely
by a sustained economic upturn, which may result in lower levels
of consumer debt default rates. In addition, collection
businesses may be affected adversely by tightening of credit
granting practices as well as technological advances and
regulatory changes that affect the collection of outstanding
indebtedness. Any such changes, conditions or events that
adversely affect collection businesses could cause us to lose
some or all of the recurring business of our clients in the
collections business, which in turn could have a material
adverse effect on our business, financial condition and
operating results.
Moreover, two clients accounted for a total of 29% of our
revenues in 2009, 31% of our revenues in 2008 and 29% of our
revenues in 2007. These clients are in the collection agencies
industry and a large in-house collection department of a
telecommunications business. In addition to the risks associated
with collections businesses in general, our business, financial
condition and operating results would be negatively affected if
these clients were to significantly decrease the extent to which
they use our service.
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Actual
or perceived breaches of our security measures could diminish
demand for our service and subject us to substantial
liability.
Our on-demand service involves the storage and transmission of
clients proprietary information. Internet-based services
such as ours are particularly subject to security breaches by
third parties. Breaches of our security measures also might
result from employee error or malfeasance or other causes,
including as a result of adding new communications services and
capabilities to our platform. In the event of a security breach,
a third party could obtain unauthorized access to our
clients contact list information and other data.
Techniques used to obtain unauthorized access or to sabotage
systems change frequently, and they typically are not recognized
until after they have been launched against a target. As a
result, we could be unable to anticipate, and implement adequate
preventative measures against, these techniques. Because of the
critical nature of data security, any actual or perceived breach
of our security measures could cause existing or potential
clients not to use our service, could harm our reputation, and
could subject us to litigation and significant liability for
damage to our clients businesses.
Our
business will be harmed if we fail to develop new features that
keep pace with technological developments and emerging consumer
trends.
Organizations can use a variety of communication channels to
reach their customers. Emerging consumer trends have forced a
greater focus on alternative channels, customer preferences and
communications via mobile devices and a failure to address these
trends would be a threat to the adoption of our service. Our
business, financial condition and operating results will be
adversely affected if we are unable to complete and introduce,
in a timely manner, new features for our existing service that
keep pace with technological developments. For example, because
most of our clients access our on-demand service using a web
browser, we must modify and enhance our service from time to
time to keep pace with new browser technology.
We
face intense competition, and our failure to compete
successfully would make it difficult for us to add and retain
clients and would impede the growth of our
business.
The market for on-demand, multi-channel proactive customer
communication solutions is intensely competitive, changing
rapidly and highly fragmented. It is subject to rapidly
developing technology, shifting client requirements, frequent
introductions of new products and services, and increased
marketing activities of industry participants. Increased
competition could result in pricing pressure, reduced sales or
lower margins, and could prevent our current service or future
PCC solutions from achieving or maintaining broad market
acceptance. If we are unable to compete effectively, it will be
difficult for us to add and retain clients and our business,
financial condition and operating results will be seriously
harmed.
Predictive dialers have been the basic method of automated
customer communications for the last two decades, particularly
for collections activity. The vast majority of telephony
customer contact today is completed using predictive dialer
technology. Our service competes with on-premise predictive
dialers from a limited number of established vendors and a
number of smaller vendors, as well as predictive dialers hosted
by some of those smaller vendors on an application service
provider basis. Many organizations have invested in on-premise
predictive dialers and are likely to continue using those
dialers until the dialers are no longer operational, despite the
availability of additional functionality in our service.
Our service also competes with a number of hosted customer
contact services. A limited number of established vendors and a
number of smaller, privately held companies offer these hosted
services, which compete principally on the basis of price rather
than features. In addition, a small number of vendors focus on
providing hosted customer contact services with features more
comparable to ours. These vendors generally compete on the basis
of return on investment and features, rather than price. Other
companies may enter the market by offering competing products or
services based on emerging technologies, such as open-source
frameworks, and may compete on the basis of either features or
price.
We increasingly compete with companies providing PCC solutions
focused on specific vertical markets, such as healthcare, or on
a single communications channel, such as text messaging. Because
these solutions are targeted to more narrowly defined markets
and enable their providers to develop targeted domain expertise,
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those providers may be able to develop and offer targeted
customer contact solutions than a company, such as ours, that
seeks to offer a broad range of PCC applications to
organizations across a variety of vertical markets.
Some of our competitors have significantly greater financial,
technical, marketing, service and other resources than we have.
These vendors also have larger installed client bases and longer
operating histories. Competitors with greater financial
resources might be able to offer lower prices, additional
products or services, or other incentives that we cannot match
or offer. These competitors could be in a stronger position to
respond quickly to new technologies and could be able to
undertake more extensive marketing campaigns.
Mergers
or other strategic transactions involving our competitors could
weaken our competitive position, which could harm our operating
results.
Our industry is highly fragmented, and we believe it is likely
that some of our existing competitors will consolidate or will
be acquired. For example, Blackboard, a provider of enterprise
software and services to the education community, acquired The
NTI Group, Inc., a provider of mass messaging and notifications
solutions for educational and government organizations, in
January 2008. In addition, some of our competitors may enter
into new alliances with each other or may establish or
strengthen cooperative relationships with systems integrators,
third-party consulting firms or other parties. Any such
consolidation, acquisition, alliance or cooperative relationship
could lead to pricing pressure and our loss of market share and
could result in a competitor with greater financial, technical,
marketing, service and other resources, all of which could have
a material adverse effect on our business, operating results and
financial condition.
Our
planned expansion of our business into international markets
will expose us to additional business risks, and failure to
manage those risks could adversely affect our business and
operating results.
Historically, we have focused our sales and marketing efforts
principally on organizations located in the United States.
Organizations in the United States accounted for substantially
all of our revenues in each of 2009, 2008 and 2007. We
anticipate that a greater proportion of our revenue will be from
outside the United States in 2010. The expansion of our
international operations will require substantial financial
investment and significant management efforts. Our
non-U.S. business
will be subject to a number of risks and potential costs,
including:
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difficulty in establishing, staffing and managing sales and
other operations in countries outside of the United States;
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compliance with multiple, conflicting and changing laws and
regulations, including employment and tax laws and regulations;
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longer payment cycles in some countries;
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currency exchange rate fluctuations;
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limited protection of intellectual property in some countries
outside of the United States;
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challenges encountered under local business practices, which
vary by country and often favor local competitors;
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challenges caused by distance, language and cultural
differences; and
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difficulty in establishing and maintaining reseller
relationships.
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Our failure to manage the risks associated with our
international operations could limit the growth of our business
and adversely affect our operating results.
Failure
to maintain our direct sales force will impede our
growth.
We are highly dependent on our direct sales force to obtain new
clients and to generate repeat business from our existing client
base. It is therefore critical that our direct sales force
maintain regular contact with
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our clients, both to gauge client satisfaction with our service
as well as to highlight the value that use of our service adds
to their enterprises. There is significant competition for
direct sales personnel. Our ability to achieve significant
growth in revenues in the future will depend in large part on
our success in recruiting, training and retaining sufficient
numbers of direct sales personnel. New hires require significant
training and typically take more than a year before they achieve
full productivity. Our recent and planned hires might not
achieve full productivity as quickly as intended, or at all. If
we fail to keep, hire and successfully train sufficient numbers
of direct sales personnel, we will be unable to increase our
revenues and the growth of our business will be impeded.
Because
competition for employees in our industry is intense, we might
not be able to attract and retain the highly skilled employees
we need to execute our business plan.
To continue to execute our business plan, we must attract and
retain highly qualified personnel. Competition for these
personnel is intense, especially for senior engineers and senior
sales executives. We might not be successful in attracting and
retaining qualified personnel. We have experienced from time to
time in the past, and expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Many of the companies
with which we compete for experienced personnel have greater
resources than we have. In addition, in making employment
decisions, particularly in technology-based industries, job
candidates often consider the value of the stock options they
are to receive in connection with their employment. Volatility
in the price of our common stock could therefore, adversely
affect our ability to attract or retain key employees.
Furthermore, the requirement to expense stock options could
discourage us from granting the size or type of stock options
awards that job candidates require to join our company. If we
fail to attract new personnel or fail to retain and motivate our
current personnel, our business plan and future growth prospects
could be severely harmed.
If we
are unable to protect our intellectual property rights, we would
be unable to protect our technology and our brand.
If we fail to protect our intellectual property rights
adequately, our competitors could gain access to our technology
and our business could be harmed. We rely on trade secret,
copyright and trademark laws, and confidentiality and assignment
of invention agreements with employees and third parties, all of
which offer only limited protection. The steps we have taken to
protect our intellectual property might not prevent
misappropriation of our proprietary rights. We have only three
issued patents and seven patent applications pending in the
United States. Our issued patents and any patents issued in the
future may not provide us with any competitive advantages or may
be successfully challenged by third parties. Furthermore, legal
standards relating to the validity, enforceability and scope of
protection of intellectual property rights in other countries
are uncertain and might afford little or no effective protection
of our proprietary technology. Consequently, we could be unable
to prevent our intellectual property rights from being exploited
abroad, which could diminish international sales or require
costly efforts to protect our technology. Policing the
unauthorized use of intellectual property rights is expensive,
difficult and, in some cases, impossible. Litigation could be
necessary to enforce or defend our intellectual property rights,
to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Any such litigation
could result in substantial costs and diversion of management
resources, either of which could harm our business. Accordingly,
despite our efforts, we might not be able to prevent third
parties from infringing upon or misappropriating our
intellectual property.
Our
product development efforts could be constrained by the
intellectual property of others, and we could be subject to
claims of intellectual property infringement, which could be
costly and time-consuming.
The customer communications industry and the telecommunications
industry are characterized by the existence of a large number of
patents, trademarks and copyrights, and by frequent litigation
based upon allegations of infringement or other violations of
intellectual property rights. We have in the past been subject
to litigation, now concluded, with a third party that alleged
that our service violated the third partys intellectual
property rights. As we seek to extend and expand our service, we
could be constrained by the intellectual property rights of
others.
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We might not prevail in any future intellectual property
infringement litigation given the complex technical issues and
inherent uncertainties in litigation. Any claims, regardless of
their merit, could be time-consuming and distracting to
management, result in costly litigation or settlement, cause
product development delays, or require us to enter into royalty
or licensing agreements. If our service violates any third-party
proprietary rights, we could be required to re-engineer our
platform or seek to obtain licenses from third parties, which
might not be available on reasonable terms or at all. Any
efforts to re-engineer our service, obtain licenses from third
parties on favorable terms or license a substitute technology
might not be successful and, in any case, might substantially
increase our costs and harm our business, financial condition
and operating results. Further, our platform incorporates open
source software components that are licensed to us under various
public domain licenses. While we believe we have complied with
our obligations under the various applicable licenses for open
source software that we use, there is little or no legal
precedent governing the interpretation of many of the terms of
certain of these licenses and therefore the potential impact of
such terms on our business is somewhat unknown.
Our
platform relies on technology licensed from third parties, and
our inability to maintain licenses of this technology on similar
terms or errors in the licensed technology could result in
increased costs or impair the implementation or functionality of
our on-demand service, which would adversely affect our business
and operating results.
Our multi-tenant customer communication platform relies on
technology licensed from third-party providers. For example, we
use the Apache web server, the Oracle WebLogic application
server, the JBoss Application server, Nuance Communications
text-to-speech
and automated speech recognition software, the Oracle database,
and the MySQL database. We anticipate that we will need to
continue to license technology from third parties in the future.
There might not always be commercially reasonable software
alternatives to the third-party software that we currently
license. Any such software alternatives could be more difficult
or costly to replace than the third-party software we currently
license, and integration of that software into our platform
could require significant work and substantial time and
resources. Any undetected errors in the software we license
could prevent the implementation of our on-demand service,
impair the functionality of our service, delay or prevent the
release of new features or offerings, and injure our reputation.
Our use of additional or alternative third-party software would
require us to enter into license agreements with third parties,
which might not be available on commercially reasonable terms or
at all.
We
have in the past and may in the future enter into acquisitions;
these acquisitions may be difficult to integrate, disrupt our
business, dilute stockholder value or divert management
attention.
We intend to pursue acquisitions of businesses, technologies,
and products that will complement our existing operations. For
example, in 2008 we acquired substantially all of the assets of
Mobile Collect, Inc., a privately held company that provides
text messaging and mobile communications solutions. We cannot
assure you that any acquisition we make in the future will
provide us with the benefits we anticipated in entering into the
transaction. Acquisitions are typically accompanied by a number
of risks, including:
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difficulties in integrating the operations and personnel of the
acquired companies;
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maintenance of acceptable standards, controls, procedures and
policies;
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potential disruption of ongoing business and distraction of
management;
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impairment of relationships with employees and clients as a
result of any integration of new management and other personnel;
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inability to maintain relationships with suppliers and clients
of the acquired business;
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difficulties in incorporating acquired technology and rights
into our service and platform;
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unexpected expenses resulting from the acquisition;
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potential unknown liabilities associated with acquired
businesses; and
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unanticipated expenses related to acquired technology and its
integration into our existing technology.
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Acquisitions could result in the incurrence of debt,
restructuring charges and large one-time write-offs, such as
write-offs for acquired in-process research and development
costs. Acquisitions could also result in goodwill and other
intangible assets that are subject to impairment tests, which
might result in future impairment charges. Furthermore, if we
finance acquisitions by issuing convertible debt or equity
securities, our existing stockholders would be diluted and
earnings per share could decrease.
From time to time, we might enter into negotiations for
acquisitions that are not ultimately consummated. Those
negotiations could result in diversion of management time and
significant
out-of-pocket
costs. If we are unable to evaluate and execute acquisitions
properly, we could fail to achieve our anticipated level of
growth and our business and operating results could be adversely
affected.
Industry
consolidation could reduce the number of our clients and
adversely affect our business.
Some of our significant clients from time to time may merge,
consolidate or enter into alliances with each other. The
surviving entity or resulting alliance may subsequently decide
to use a different service provider or to manage customer
contact campaigns internally. Alternatively, the surviving
entity or resulting alliance may elect to continue using our
service, but its strengthened financial position or enhanced
leverage may lead to pricing pressure. Either of these results
could have a material adverse effect on our business, operating
results and financial condition. We may not be able to offset
the effects of any such price reductions, and may not be able to
expand our client base to offset any revenue declines resulting
from such a merger, consolidation or alliance.
Our
ability to use net operating loss carryforwards in the United
States may be limited.
As of December 31, 2009, we had net operating loss
carryforwards of $20.8 million for U.S. federal tax
purposes and an additional $4.1 million for state tax
purposes. These carryforwards expire between 2010 and 2029. To
the extent available, we intend to use these net operating loss
carryforwards to reduce the corporate income tax liability
associated with our operations. Section 382 of the Internal
Revenue Code generally imposes an annual limitation on the
amount of net operating loss carryforwards that may be used to
offset taxable income when a corporation has undergone
significant changes in stock ownership. We experienced an
ownership change for these purposes in 2007, which resulted in
an annual limitation amount of $3.6 million on the use of
net operating loss carryforwards generated from
November 29, 2001 through November 8, 2007. To the
extent our use of net operating loss carryforwards is limited;
our income could be subject to corporate income tax earlier than
it would if we were able to use net operating loss
carryforwards, which could result in lower profits.
If we
are unable to raise capital when needed in the future, we may be
unable to execute our growth strategy, and if we succeed in
raising capital, we may dilute investors percentage
ownership of our common stock or may subject our company to
interest payment obligations and restrictive
covenants.
We may need to raise additional funds through public or private
debt or equity financings in order to:
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fund ongoing operations;
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take advantage of opportunities, including more rapid expansion
of our business or the acquisition of complementary products,
technologies or businesses;
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develop new services and products; and
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respond to competitive pressures.
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Any additional capital raised through the sale of equity may
dilute investors percentage ownership of our common stock.
Capital raised through debt financing would require us to make
periodic interest payments and may impose potentially
restrictive covenants on the conduct of our business.
Furthermore, additional financings
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may not be available on terms favorable to us, or at all. A
failure to obtain additional funding could prevent us from
making expenditures that may be required to grow or maintain our
operations.
Risks
Related to Regulation of Use of Our Service
We
derive a significant portion of our revenues from the sale of
our service for use in the collections process, and our business
and operating results could be substantially harmed if new U.S.
federal and state laws or regulatory interpretations in one or
more jurisdictions either make our service unavailable or less
attractive for use in the collections process or expose us to
regulation as a debt collector.
Revenues from clients in the collections industry and large
in-house, or first-party, collection departments represented
approximately 77% of our revenues in 2009, 80% of our revenues
in 2008, 83% of our revenues in 2007 and 80% of our revenues in
2006. These clients use of our service is affected by an
array of complex federal and state laws and regulations. The
U.S. Fair Debt Collection Practices Act, or FDCPA, limits
debt collection communications by clients in the collection
agencies industry, including third parties retained by
creditors. For example, the FDCPA prohibits abusive, deceptive
and other improper debt collection practices, restricts the
timing and content of communications regarding a debt or a
debtors location, and allows consumers to opt out of
receiving debt collection communications. In general, the FDCPA
also prohibits the use of debt collection calls to cause debtors
to incur more debt. Many states impose additional requirements
on debt collection communications, including limits on the
frequency of debt collection calls, and some of those
requirements may be more stringent than the comparable federal
requirements. Moreover, debt collection calls are subject to new
regulations, as well as changing regulatory interpretations that
may be inconsistent among different jurisdictions. For example,
the Federal Communications Commission, or FCC, is considering
modifying its rules to require opt-in for all prerecorded calls
made to mobile phones, which could limit our clients
ability to use our service to call a mobile phone for the
purposes of collections without having prior written consent
from a customer. Our business, financial position and operating
results could be substantially harmed by the adoption or
interpretation of U.S. federal or state laws or regulations
that make our service either unavailable or less attractive for
debt collection communications by existing and potential clients.
We provide our service for use by creditors and debt collectors,
but we do not believe that we are a debt collector for purposes
of these U.S. federal or state regulations. An allegation
by one or more jurisdictions that we are a debt collector for
purposes of their regulations could cause existing or potential
clients not to use our service, harm our reputation, subject us
to administrative proceedings, or result in our incurring
significant legal fees and other costs. If it were to be
determined that we are a debt collector for purposes of the
regulations of one or more jurisdictions, we could be exposed to
government enforcement actions and regulatory penalties and
would be subject to additional rules, including licensing and
bonding requirements. The costs of complying with these rules
could be substantial, and we might be unable to continue to
offer our service for debt collection communications in those
jurisdictions, which would have a material adverse effect on our
business, financial condition and operating results. In
addition, if clients use our service in violation of limits on
the content, timing and frequency of their debt collection
communications, we could be subject to claims by consumers that
result in costly legal proceedings and that lead to civil
damages, fines or other penalties.
We
could be subject to significant penalties or damages if our
clients violate U.S. federal or state restrictions on the use of
artificial or prerecorded messages to contact wireless telephone
numbers, and our business and operating results could be
substantially harmed if those restrictions make our service
unavailable or less attractive.
Under the U.S. Telephone Consumer Protection Act, it is
unlawful to use an automatic telephone dialing system or an
artificial or prerecorded message to contact any cellular or
other wireless telephone number, unless the recipient previously
has consented to receiving this type of message. Our service
involves the use of artificial and prerecorded messages.
Although our service are designed to enable a client to screen a
contact list to remove wireless telephone numbers, a client may
determine that voice or text messages to certain wireless
telephone numbers are permitted because the recipients
previously have consented to receiving artificial or prerecorded
messages. We cannot ensure that, in using our service for a
campaign, a client removes from its contact list the names of
all persons who are associated with wireless telephone numbers
and
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who have not consented to receiving artificial or prerecorded
messages or, in particular, that the client properly interprets
and applies the exemption for recipients who have consented to
receiving such messages. Many states have enacted restrictions
on using automatic dialing systems and artificial and
prerecorded messages to contact wireless telephone numbers, and
some of those state requirements may be more stringent than the
comparable federal requirements.
In May 2008, a federal district court in California held that
the Telemarketing and Consumer Fraud and Abuse Prevention Act
prohibits any autodialed or prerecorded telephone call to a
consumers cell phone unless the consumer had specifically
consented to such calls. The same provision of such Act also
applies to the sending of commercial text messages to cell
phones. The ruling overturned an earlier FCC interpretation that
permitted autodialed and prerecorded calls to the cell phone of
any consumer who had provided the cell phone number in
connection with requesting a product or service. The ruling
applied only in California and was subsequently overturned but,
as a result of the initial decision, some existing or potential
clients may decide to limit their use of our service to reach
consumers on wireless numbers, which could materially adversely
affect our revenues and other operating results.
If clients use our service in a manner that violates any of
these governmental regulations, federal or state authorities may
seek to subject us to regulatory fines or other penalties, even
if the violation did not result from a failure of our service.
If clients use our service to screen for wireless telephone
numbers and our screening mechanisms fail, we may be subject to
regulatory fines or other penalties as well as contractual
claims by clients for damages, and our reputation may be harmed.
Regulatory restrictions on artificial and prerecorded messages
present particular problems for businesses in the collection
agencies industry. These third-party collection agencies and
debt buyers do not have direct relationships with the consumer
debtors and therefore typically do not have the ability to
obtain from a debtor the consent required to permit the use of
artificial or prerecorded messages in contacting a debtor at a
wireless telephone number. These businesses lack of a
direct relationship with debtors also makes it more difficult
for them to evaluate whether a debtor has provided such consent.
For example, a collection agency frequently must evaluate
whether past actions taken by a debtor, such as providing a
cellular telephone number in a loan application, constitute
consent sufficient to permit the agency to contact the debtor
using artificial or prerecorded messages. Moreover, a
significant period of time elapses between the time at which a
loan is made and the time at which a collection agency or debt
buyer seeks to contact the debtor for repayment, which further
complicates the determination of whether the collection agency
or debt buyer has the required consent to use artificial or
prerecorded messages. The difficulties encountered by these
third-party collection businesses are becoming increasingly
problematic as the percentage of U.S. consumers using
cellular telephones continues to increase. If these third-party
collection businesses are unable to use artificial or
prerecorded messages to contact a substantial portion of their
debtors, our service will be less useful to them. If our clients
in the collection agencies industry significantly decrease their
use of our service, our business, financial position and
operating results would be substantially harmed.
We
could be subject to penalties if we or our clients violate
federal or state telemarketing restrictions due to a failure of
our service or otherwise, which could harm our financial
position and operating results.
The use of our service for marketing communications is affected
by extensive federal and state telemarketing regulation. The
Telemarketing and Consumer Fraud and Abuse Prevention Act and
Telephone Consumer Protection Act, among other U.S. federal
laws, empower both the Federal Trade Commission, or FTC, and the
FCC to regulate interstate telephone sales calling activities.
The FTCs Telemarketing Sales Rule and analogous FCC rules
require us to, for example, transmit Caller ID information,
disclose certain information to call recipients, and retain
certain business records. FTC and FCC rules proscribe
misrepresentations, prohibit the abandonment of telemarketing
calls and limit the timing of calls to consumers. Both the FTC
and FCC also prohibit telemarketing calls to persons who have
placed their numbers on the national
Do-Not-Call
Registry, except for calls made with an existing business
relationship, or EBR, or subject to other limited exceptions. If
we fail to comply with applicable FTC and FCC telemarketing
regulations, we may be subject to substantial regulatory fines
or other penalties as well as contractual claims by clients for
damages, and our reputation may be harmed. The FTCs
Telemarketing Sales Rule, for example, imposes fines of up to
25
$16,000 per violation. The FCC may also impose forfeitures of up
to $16,000 per violation of its telemarketing rules. If clients
use our service in a manner that violates any of these
telemarketing regulations, the FTC or FCC may seek to subject us
to regulatory fines or other penalties, even if the violation
did not result from a failure of our service.
In addition, in 2008 the FTC adopted an amendment to the
Telemarketing Sales Rule requiring that express written
consent be obtained for all pre-recorded sales calls that
are delivered as of September 1, 2009. Thus, organizations
that attempt to sell goods or services through the use of
pre-recorded messages will need to take the extra step to obtain
opt-in from their consumers before pre-recorded
sales calls can be delivered, even with respect to consumers
with whom the organization has an EBR. We cannot ensure that, in
using our service for a campaign, a client will obtain
appropriate opt-in authorization before placing
prerecorded telemarketing calls or that the client properly
interprets and applies the opt-in requirement. If
clients use our service to place unauthorized calls or in a
manner that otherwise violates FTC or FCC restrictions on
prerecorded telemarketing calls, U.S. federal or state
authorities may seek to subject us to substantial regulatory
fines or other penalties, even if the violation did not result
from a failure of our screening mechanisms.
Many states have enacted prohibitions or restrictions on
telemarketing calls into their states, specifically covering the
use of automatic dialing systems and predictive dialing
techniques. Some of those state requirements are more stringent
than the comparable federal requirements. If clients use our
service in a manner that violates any of these telemarketing
regulations, state authorities may seek to subject us to
regulatory fines or other penalties, even if the violation did
not result from a failure of our service.
To the extent that our service is used to send text or email
messages, our clients will be, and we may be, affected by
regulatory requirements in the United States. Organizations may
determine not to use these channels because of prior consent, or
opt-in, requirements or other regulatory restrictions, which
could harm our future business growth.
Our
failure to comply with numerous and overlapping information
security and privacy requirements could subject us to fines and
other penalties as well as claims by our clients for damages,
any of which could harm our reputation and
business.
Our collection, use and disclosure of personal information are
affected by numerous privacy, security and data protection
regulations. We are subject to the FTCs Gramm-Leach-Bliley
Privacy Act when we receive nonpublic personal information from
clients that are treated as financial institutions under those
rules. These rules restrict disclosures of consumer information
and limit uses of such information to certain purposes that are
disclosed to consumers. The related Gramm-Leach-Bliley
Safeguards Rule requires our financial institution clients to
impose administrative, technical and physical data security
measures in their contracts with us. Compliance with these
contractual requirements can be costly, and our failure to
satisfy these requirements could lead to regulatory penalties or
contractual claims by clients for damages.
In some instances our service requires us to receive consumer
information that is protected by the Fair Credit Reporting Act,
which defines permissible uses of consumer information furnished
to or obtained from consumer reporting agencies. We generally
rely on our clients assurances that any such information
is requested and used for permissible purposes, but we cannot be
certain that our clients comply with these restrictions. We
could incur costs or could be subject to fines or other
penalties if the FTC determines that we have mishandled
protected information.
Many jurisdictions, including the majority of states, have data
security laws including data security breach notification laws.
When our clients operate in industries that have specialized
data privacy and security requirements, they may be subject to
additional data protection restrictions. For example, the
federal Health Insurance Portability and Accountability Act, or
HIPAA, regulates the maintenance, use and disclosure of
personally identifiable health information by certain health
care-related entities. States may adopt privacy and security
regulations that are more stringent than federal rules, and we
may be required by such regulations to establish comprehensive
data security programs that could be costly. If we experience a
breach of data security, we could be subject to costly legal
proceedings that could lead to civil damages, fines or other
26
penalties. We or our clients could be required to report such
breaches to affected consumers or regulatory authorities,
leading to disclosures that could damage our reputation or harm
our business, financial position and operating results.
We may record certain of our calls for quality assurance,
training or other purposes. Many states require both parties to
consent to such recording, and may adopt inconsistent standards
defining what type of consent is required. Violations of these
rules could subject us to fines or other penalties, criminal
liability, or claims by clients for damages, any of which could
hurt our reputation or harm our business, financial position and
operating results.
It may be impossible for us to comply with the different data
protection regulations that affect us in different
jurisdictions. For example, the USA PATRIOT Act provides
U.S. law enforcement authorities certain rights to obtain
personal information in the control of U.S. persons and
entities without notifying the affected individuals. Some
foreign laws, including some in Canada and the European Union,
prohibit such disclosures. Such conflicts could subject us and
clients to costs, liabilities or negative publicity that could
impair our ability to expand our operations into some countries
and therefore limit our future growth.
Our
expansion of our business into international markets will
require us to comply with additional debt collection,
telemarketing, data privacy or similar regulations, which could
make it costly or difficult to operate in these
markets.
Our clients are located principally in the United States. We
intend to expand our operations in other countries, particularly
in Europe. Any such country may have laws and regulations
governing debt collection, telemarketing, data privacy or other
communications activities comparable in purpose to the
U.S. and state laws and regulations described above.
Compliance with these requirements may be costly and time
consuming, and may limit our ability to operate successfully in
one or more foreign jurisdictions.
For example, our current telemarketing activities in the United
Kingdom are affected by a comprehensive telemarketing
regulation, including a prohibition on calls to numbers on the
UKs national do-not-call registry, the Telephone
Preference Service. Canada has also established a similar
national do-not-call registry and prohibits the use of automatic
dialog and announcing devices for solicitations except in
limited circumstances.
Outside of the United States, our business is likely to be
subject to more stringent data protection regulations. For
example, the Canadian Personal Information Protection and
Electronics Documents Act and similar Canadian provincial laws
restrict the use, collection, and disclosure of personal
information, require security safeguards, and could require
contractual commitments in our client contracts. The European
Union Directive on Data Protection and national implementing
laws restrict collection, use and disclosure of personal data in
European Union member countries and prohibits transfers of this
information to the United States unless specified precautions
are implemented. Moreover, individual members of the European
Union may have additional data protection regulations, such as
the United Kingdoms Data Protection Act 1998.
Risks
Related to Ownership of Our Common Stock
If
equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock depends in part on the
research and reports that equity research analysts publish about
our company and business. The price of our common stock could
decline if one or more equity research analysts downgrade our
common stock or if those analysts issue other unfavorable
commentary or cease publishing reports about our company and
business.
Future
sales of our common stock by existing stockholders could cause
our stock price to decline.
If our existing stockholders sell substantial amounts of our
common stock in the public market, the market price of our
common stock could decrease significantly. The perception in the
public market that our stockholders might sell shares of common
stock could also depress the market price of our common stock.
27
The market price of shares of our common stock could drop
significantly if our officers, directors or other stockholders
decide to sell shares of our common stock into the market.
Our
directors, executive officers and their affiliated entities will
continue to have substantial control over us and could limit the
ability of other stockholders to influence the outcome of key
transactions, including changes of control.
As of February 15, 2010, our executive officers and
directors and their affiliated entities, in the aggregate,
beneficially owned 58% of our common stock. In particular,
affiliates of North Bridge Ventures Partners, including James A.
Goldstein, one of our directors, in the aggregate, beneficially
owned 29% of our common stock. Our executive officers, directors
and their affiliated entities, if acting together, are able to
control or significantly influence all matters requiring
approval by our stockholders, including the election of
directors and the approval of mergers or other significant
corporate transactions. These stockholders may have interests
that differ from those of other investors, and they might vote
in a way with which other investors disagree. The concentration
of ownership of our common stock could have the effect of
delaying, preventing, or deterring a change of control of our
company, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of
our company, and could negatively affect the market price of our
common stock.
Our
corporate documents and Delaware law make a takeover of our
company more difficult, which could prevent certain changes in
control and limit the market price of our common
stock.
Our charter and by-laws and Section 203 of the Delaware
General Corporation Law contain provisions that could enable our
management to resist a takeover of our company. These provisions
could discourage, delay, or prevent a change in the control of
our company or a change in our management. They could also
discourage proxy contests and make it more difficult for
stockholders to elect directors and take other corporate
actions. The existence of these provisions could limit the price
that investors are willing to pay in the future for shares of
our common stock. Some provisions in our charter and by-laws
could deter third parties from acquiring us, which could limit
the market price of our common stock.
We do
not intend to pay dividends on our common stock in the
foreseeable future.
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings and do
not expect to pay any dividends in the foreseeable future.
Accordingly, investors are not likely to receive any dividends
on their common stock in the foreseeable future, and their
ability to achieve a return on their investment will therefore
depend on appreciation in the price of our common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
In May 2007 we entered into a lease for 37,000 square feet
of office space for our headquarters in Bedford, Massachusetts.
The term of the lease commenced as of September 17, 2007
and will expire in September 2013. We have the option to extend
the lease term through September 2018 by providing written
notice. In addition, in May 2008 we entered into a lease for a
single sales office in Grapevine, Texas. This lease is for a
seven month term and automatically renews for an additional
seven months unless written notification is made at least
60 days prior to the expiration of the renewal.
We also serve our clients from three third-party hosting
facilities. One facility is located in Ashburn, Virginia under
an agreement that expires in March 2012. Another facility is
located in Somerville, Massachusetts, and is leased under an
agreement that expires in May 2011. Our agreements for these two
facilities automatically renew for one month periods under
current terms unless written notification is made by either
party 90 days prior to renewal. Our third hosting facility
is located in Toronto, Ontario and leased under an agreement
that automatically renews for one month periods unless written
notification is made by either party 60 days prior to the
expiration date.
28
|
|
Item 3.
|
Legal
Proceedings
|
We are not currently a party to any material litigation. The
customer communications industry is characterized by frequent
claims and litigation, including claims regarding patent and
other intellectual property rights as well as improper hiring
practices. As a result, we may be involved in various legal
proceedings from time to time.
Item 4.
[Reserved.]
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Price of Common Stock
Our common stock has been traded on The NASDAQ Global Market
under the symbol SDBT since November 6, 2007.
Prior to that time, there was no established public trading
market for our common stock. The following table presents the
high and low sale prices of our common stock as reported by The
NASDAQ Global Market, for the periods indicated.
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2009
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
1.90
|
|
|
$
|
1.21
|
|
Second quarter
|
|
$
|
2.52
|
|
|
$
|
1.37
|
|
Third quarter
|
|
$
|
3.45
|
|
|
$
|
2.25
|
|
Fourth quarter
|
|
$
|
3.25
|
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2008
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
8.00
|
|
|
$
|
4.50
|
|
Second quarter
|
|
$
|
5.07
|
|
|
$
|
2.44
|
|
Third quarter
|
|
$
|
3.60
|
|
|
$
|
2.26
|
|
Fourth quarter
|
|
$
|
2.56
|
|
|
$
|
0.96
|
|
The last sale price of the common stock on March 1, 2010,
as reported by The NASDAQ Global Market, was $2.73 per share. As
of February 15, 2010, there were 31 holders of record
of the common stock.
We have never declared or paid any cash dividends on our common
stock and currently expect to retain future earnings for use in
our business for the foreseeable future.
Issuer
Purchases of Equity Securities
There were no repurchases made by us or on our behalf, or by any
affiliated purchasers, of shares of our common stock
in 2009.
29
|
|
Item 6.
|
Selected
Financial Data
|
The following table summarizes the financial data for our
business and is derived from our historical consolidated
financial statements. You should read the selected financial
data in conjunction with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations below and our consolidated financial statements
and related notes included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
40,183
|
|
|
$
|
43,211
|
|
|
$
|
39,492
|
|
|
$
|
29,069
|
|
|
$
|
16,448
|
|
Cost of revenues
|
|
|
15,899
|
|
|
|
16,695
|
|
|
|
14,258
|
|
|
|
9,505
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24,284
|
|
|
|
26,516
|
|
|
|
25,234
|
|
|
|
19,564
|
|
|
|
11,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,628
|
|
|
|
5,151
|
|
|
|
3,913
|
|
|
|
3,453
|
|
|
|
2,097
|
|
Sales and marketing
|
|
|
14,784
|
|
|
|
17,974
|
|
|
|
14,702
|
|
|
|
12,172
|
|
|
|
5,888
|
|
General and administrative
|
|
|
7,836
|
|
|
|
9,977
|
|
|
|
5,999
|
|
|
|
3,820
|
|
|
|
2,221
|
|
Impairment of goodwill
|
|
|
121
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,369
|
|
|
|
33,350
|
|
|
|
24,614
|
|
|
|
19,445
|
|
|
|
10,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(4,085
|
)
|
|
|
(6,834
|
)
|
|
|
620
|
|
|
|
119
|
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
70
|
|
|
|
936
|
|
|
|
476
|
|
|
|
299
|
|
|
|
149
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
( 222
|
)
|
|
|
(398
|
)
|
|
|
(264
|
)
|
Warrant charge for change in fair value
|
|
|
|
|
|
|
|
|
|
|
( 352
|
)
|
|
|
(177
|
)
|
|
|
|
|
Gain on litigation settlement
|
|
|
|
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
70
|
|
|
|
5,536
|
|
|
|
(98
|
)
|
|
|
(270
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes and cumulative
change in accounting
|
|
|
(4,015
|
)
|
|
|
(1,298
|
)
|
|
|
522
|
|
|
|
(151
|
)
|
|
|
1,160
|
|
Provision for income taxes
|
|
|
16
|
|
|
|
21
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before cumulative change in accounting
|
|
|
(4,031
|
)
|
|
|
(1,319
|
)
|
|
|
466
|
|
|
|
(151
|
)
|
|
|
1,160
|
|
Cumulative change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(4,031
|
)
|
|
|
(1,319
|
)
|
|
|
466
|
|
|
|
(123
|
)
|
|
|
1,160
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
(44
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(4,031
|
)
|
|
$
|
(1,319
|
)
|
|
$
|
429
|
|
|
$
|
(167
|
)
|
|
$
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative change in accounting
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.35
|
)
|
|
$
|
2.41
|
|
Cumulative change in accounting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.30
|
)
|
|
$
|
2.41
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative change in accounting
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.13
|
|
Cumulative change in accounting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.13
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,961
|
|
|
|
15,369
|
|
|
|
2,860
|
|
|
|
557
|
|
|
|
471
|
|
Diluted
|
|
|
15,961
|
|
|
|
15,369
|
|
|
|
12,778
|
|
|
|
557
|
|
|
|
9,045
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,322
|
|
|
$
|
37,425
|
|
|
$
|
35,674
|
|
|
$
|
7,251
|
|
|
$
|
9,529
|
|
Working capital
|
|
|
40,359
|
|
|
|
41,665
|
|
|
|
39,920
|
|
|
|
7,566
|
|
|
|
8,981
|
|
Total assets
|
|
|
47,754
|
|
|
|
49,830
|
|
|
|
50,489
|
|
|
|
18,229
|
|
|
|
17,385
|
|
Total indebtedness, including current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,544
|
|
|
|
3,478
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,788
|
|
|
|
31,076
|
|
Total stockholders equity (deficit)
|
|
|
43,032
|
|
|
|
45,754
|
|
|
|
46,165
|
|
|
|
(19,765
|
)
|
|
|
(19,716
|
)
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion in conjunction with
our financial statements and related notes appearing elsewhere
in this
Form 10-K.
In addition to historical information, this discussion contains
forward-looking statements that involve risks, uncertainties and
assumptions that could cause our actual results to differ
materially from our expectations. Factors that could cause such
differences include those described in Item 1A. Risk
Factors and elsewhere in this report.
Overview
SoundBite Communications provides an on-demand, multi-channel
proactive customer communications , or PCC, service that enables
organizations to design, execute and measure communication
campaigns for a variety of marketing, customer care, payment and
collection processes. Clients use our SoundBite Engage platform
to communicate with their customers through voice, text and
email messages that are relevant, timely, personalized and
engaging.
We derive, and expect to continue to derive for the foreseeable
future, substantially all of our revenues by providing our PCC
service to businesses and other organizations. Our strategy to
achieve long-term, sustained growth in our revenues and net
income is focused on building upon our leadership in the PCC
market and using our on-demand platform to extend our service
by, for example, offering key new features, supporting
additional communications channels and expanding our support for
preference management.
We market our service to large
business-to-consumer,
or B2C, companies in the financial services, telecommunications
and media, retail and utility industries, as well as to
companies in the collection industries. Our clients are located
principally in the United States, but we have enhanced our
service offering to enable us to deliver multi-channel proactive
customer communications in countries outside the United States
and we plan to begin marketing our service internationally, both
directly and through our partners, commencing in Europe.
We sell our service primarily through our direct sales force. We
are seeking to increase our revenues from resellers, solution
providers, original equipment manufacturers and international
distributors both by leveraging existing relationships and by
selectively recruiting additional new partners.
Key
Components of Results of Operations
Revenues
We currently derive substantially all of our revenues by
providing our PCC service for use by clients in communicating
with their customers through voice, text and email messages. We
provide our service under a usage-based pricing model, with
prices calculated on a per-message or per-minute basis in
accordance with the terms of our pricing agreements with
clients. We invoice clients on a monthly basis.
Our pricing agreements with clients typically do not require
minimum levels of usage or payments. Each executed message
represents a transaction from which we derive revenues, and we
therefore recognize revenue based on actual usage within a
calendar month. We do not recognize revenue until we can
determine that
31
persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and we deem
collection to be probable.
Cost
of Revenues
Cost of revenues consists primarily of telephony charges, as
well as depreciation expenses for our telephony infrastructure
and expenses related to hosting and providing support for our
platform. Cost of revenues also includes compensation expense
for our operations personnel. As we continue to grow our
business and add features to our platform, we expect cost of
revenues will continue to increase on an absolute dollar basis.
Our gross margin was 60.4% in 2009, 61.4% in 2008 and 63.9% in
2007. We currently are targeting a quarterly gross margin of 60%
to 62% for the foreseeable future. Our actual gross margin for a
quarter may vary significantly from our target range for a
number of reasons, including the mix of types of messaging
campaigns executed during the quarter, as well as the extent to
which we build our infrastructure through, for example,
significant acquisitions of hardware or material increases in
leased data center facilities.
Operating
Expenses
Research and Development. Research and
development expenses consist primarily of compensation expenses
and depreciation expense of certain equipment related to the
development of our service. We have historically focused our
research and development efforts on improving and enhancing our
platform, as well as developing new features and offerings.
Sales and Marketing. Sales and marketing
expenses consist primarily of compensation for our sales and
marketing personnel, including sales commissions, as well as the
costs of our marketing programs. We expect to further invest in
developing our marketing strategy and activities to extend brand
awareness and generate additional leads for our sales staff.
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 income statement 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
32
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows (used in) provided by operating activities
|
|
$
|
(294
|
)
|
|
$
|
3,776
|
|
|
$
|
3,277
|
|
Purchases of property and equipment
|
|
|
(885
|
)
|
|
|
(1,528
|
)
|
|
|
(4,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow (non-GAAP)
|
|
$
|
(1,179
|
)
|
|
$
|
2,248
|
|
|
$
|
(1,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating activities used net cash in the amount of $294,000
for the year ended December 31, 2009 reflecting a net loss
of $4.0 million and an increase in accounts receivable,
prepaid expenses and other assets of $460,000, mainly due to the
timing of receipts from our clients. These changes were
partially offset by non-cash charges of $3.8 million, which
consisted primarily of depreciation expense of
$2.5 million, as well as an increase in accrued expenses
and accounts payable of $429,000 due to the timing of payments
to our vendors.
Our operating activities generated net cash in the amount of
$3.8 million for the year ended December 31, 2008
reflecting (a) a net loss of $1.3 million,
(b) non-cash charges of $4.5 million, which consisted
primarily of depreciation expense of $3.2 million, and
(c) a decrease in accounts receivable, prepaid expenses and
other assets of $799,000. These changes were partially offset by
a decrease in accrued expenses and accounts payable of $182,000
due to the timing of payments to our vendors. The net loss of
$1.3 million includes $4.6 million received in
connection with the settlement of the lawsuit with Universal
Recovery Systems, offset in part by $1.9 million of related
expenses.
Our operating activities generated net cash in the amount of
$3.3 million for the year ended December 31, 2007
reflecting (a) net income of $466,000, (b) non-cash
charges of $3.7 million, which consisted primarily of
depreciation expense of $2.9 million and a preferred stock
warrant charge of $352,000, and (c) an increase in accrued
expenses and accounts payable of $1.3 million. These
changes reflected the growth in our business, the timing of
payments to our vendors and the addition of non-cash charges
related to carrying certain warrants at fair value prior to our
initial public offering. These changes were partially offset by
an increase in accounts receivables of $1.4 million due to
revenue growth in our business and an increase of $699,000 in
prepaid expenses and other current assets.
Free cash flow in each of the years 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.
Critical
Accounting Policies
Our financial statements are prepared in accordance with GAAP.
The preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, costs and expenses and related
disclosures. On an ongoing basis, we evaluate our estimates and
assumptions. Our actual results may differ from these estimates
under different assumptions or conditions.
We believe that of our significant accounting policies, which
are described in the notes to our financial statements, the
following accounting policies involve a greater degree of
judgment and complexity. A critical accounting policy is one
that both is material to the presentation of our financial
statements and requires us to make difficult, subjective or
complex judgments for uncertain matters that could have a
material effect on our financial condition and results of
operations. Accordingly, these are the policies we believe are
the most critical to aid in fully understanding and evaluating
our financial condition and results of operations.
Allowance
for Doubtful Accounts
We regularly assess our ability to collect outstanding client
invoices and in so doing must make estimates of the
collectability of accounts receivable. We provide an allowance
for doubtful accounts when we determine
33
that the collection of an outstanding client receivable is not
probable. We specifically analyze accounts receivable and
historical bad debt experience, client creditworthiness, and
changes in our client payment history when evaluating the
adequacy of the allowance for doubtful accounts. If any of these
factors change, our estimates may also change, which could
affect the levels of our future provision for doubtful accounts.
Valuation
of Goodwill
We have recognized goodwill from a 2008 asset acquisition in
which a significant portion of the consideration is contingent
on the future revenues of the acquired assets. Because of the
uncertainties with respect to future revenues, the contingent
consideration is recognized as additional purchase price as the
consideration is determined and becomes payable. We have
remaining contingent consideration totaling $1.6 million at
December 31, 2009, which will increase the recorded
carrying value of our goodwill if the contingencies result in
additional payments. Recorded goodwill at December 31, 2009
totaled $213,000. Goodwill is not amortized, but instead is
reviewed for impairment annually or more frequently if
impairment indicators arise. We evaluate goodwill on an annual
basis for impairment and have selected November 1 as the annual
impairment testing date. The Company operates as a single
operating segment and has concluded that the Company is
comprised of one reporting unit. During the third and fourth
quarters of 2008, as well as each of the quarters of 2009, as a
result of the economic environment impacting the Companys
business and operating results coupled with a material decline
of the Companys stock price, the Company determined that
impairment triggering events had occurred that would require
interim impairment evaluations. Therefore, in addition to the
annual November 1 review date, the Company initiated a review of
the carrying value of the goodwill for possible impairment
during each of these quarters. The Company determined the fair
value of its reporting unit using the market approach, which was
based upon the Companys current market capitalization.
This review indicated that the carrying value of its goodwill
may be impaired as September 30, 2008, December 31,
2008, March 31, 2009 and June 30, 2009. At each of
these date, the Company then compared the implied fair value of
the goodwill with the carrying amount of that goodwill. The
implied fair value of the goodwill balance at each of these
dates was deemed to be zero. This resulted in impairment charges
of $121,000 for the year ended December 31, 2009 and
$248,000 for the year ended December 31, 2008. No
impairment was indicated at September 30, 2009 and
December 31, 2009; however, our stock price is volatile and
future changes in the quoted price of our stock and other
judgments that underlay the fair value estimates may indicate
that the fair value of the reporting unit is less than the
carrying value, which may result in future impairment charges.
Income
Taxes
We are subject to federal and various state income taxes in the
United States, and we use estimates in determining our provision
for these income taxes. In addition, we are subject to Canadian
taxes for profits generated from our wholly owned subsidiary.
Deferred tax assets, related valuation allowances, current tax
liabilities and deferred tax liabilities are determined
separately by tax jurisdiction. At December 31, 2009, our
deferred tax assets consisted primarily of federal net operating
loss carryforwards and state research and development credit
carryforwards. We assess the likelihood that deferred tax assets
will be realized, and we recognize a valuation allowance if it
is more likely than not that some portion of the deferred tax
assets will not be realized. This assessment requires judgment
as to the likelihood and amounts of future taxable income by tax
jurisdiction. At December 31, 2009, we had a full valuation
allowance against our deferred tax assets, which totaled
approximately $9.0 million, due to the current uncertainty
related to when, if ever, these assets will be realized. In the
event that we determine in the future that we will be able to
realize all or a portion of our net deferred tax asset, an
adjustment to the deferred tax valuation allowance would
increase earnings in the period in which such a determination is
made.
34
Results
of Operations
The following table sets forth selected statements of operations
data for 2009, 2008 and 2007 indicated as percentages of
revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues
|
|
|
39.6
|
|
|
|
38.6
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
60.4
|
|
|
|
61.4
|
|
|
|
63.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14.0
|
|
|
|
11.9
|
|
|
|
9.9
|
|
Sales and marketing
|
|
|
36.8
|
|
|
|
41.6
|
|
|
|
37.2
|
|
General and administrative
|
|
|
19.5
|
|
|
|
23.1
|
|
|
|
15.2
|
|
Impairment of goodwill
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70.6
|
|
|
|
77.2
|
|
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(10.2
|
)
|
|
|
(15.8
|
)
|
|
|
1.6
|
|
Total other income (expense), net
|
|
|
0.2
|
|
|
|
12.8
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes
|
|
|
(10.0
|
)
|
|
|
(3.0
|
)
|
|
|
1.3
|
|
Provision for income taxes
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(10.0
|
)%
|
|
|
(3.1
|
)%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended December 31, 2009 and 2008
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Year-to-Year Change
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Percentage
|
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Change
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Revenues
|
|
$
|
40,183
|
|
|
|
100.0
|
%
|
|
$
|
43,211
|
|
|
|
100.0
|
%
|
|
$
|
(3,028
|
)
|
|
|
(7.0
|
)%
|
The $3.0 million decline in revenues in 2009 reflected a
decrease of $4.8 million in revenues from clients in which
we derived revenue in both periods. This decreased revenue was
primarily due to lower calling volume in the collections
industry, and was partially offset by an increase of
$1.8 million in revenues from new clients.
Cost of
Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Year-to-Year Change
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Percentage
|
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Change
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Cost of revenues
|
|
$
|
15,899
|
|
|
|
39.6
|
%
|
|
$
|
16,695
|
|
|
|
38.6
|
%
|
|
$
|
(796
|
)
|
|
|
(4.8
|
)%
|
Gross profit
|
|
|
24,284
|
|
|
|
60.4
|
|
|
|
26,516
|
|
|
|
61.4
|
|
|
|
(2,232
|
)
|
|
|
(8.4
|
)
|
The $796,000 decrease in cost of revenues in 2009 as compared to
2008 reflected a $1.4 million decrease in delivery and
circuit costs, a $780,000 decrease in depreciation expense due
to a lower depreciable base of our property and equipment
infrastructure, and a $728,000 decrease in telephony expense due
to lower client usage. These decreases were partially offset by
an increase in text messaging and other channel delivery costs
of $1.7 million due to higher volumes of messages sent, an
increase in payroll expense of $232,000 due to a larger number
of billable client management projects worked on during the
current year, and a $166,000
35
increase in support and maintenance fees. The decrease in gross
margin in 2009 as compared to 2008 reflected an overall revenue
decline from 2008 to 2009, as well as lower price structure
agreements entered into with some of our clients.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Year-to-Year Change
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
5,628
|
|
|
|
14.0
|
%
|
|
$
|
5,151
|
|
|
|
11.9
|
%
|
|
$
|
477
|
|
|
|
9.3
|
%
|
Sales and marketing
|
|
|
14,784
|
|
|
|
36.8
|
|
|
|
17,974
|
|
|
|
41.6
|
|
|
|
(3,190
|
)
|
|
|
(17.7
|
)
|
General and administrative
|
|
|
7,836
|
|
|
|
19.5
|
|
|
|
9,977
|
|
|
|
23.1
|
|
|
|
(2,141
|
)
|
|
|
(21.5
|
)
|
Impairment of goodwill
|
|
|
121
|
|
|
|
0.3
|
|
|
|
248
|
|
|
|
0.6
|
|
|
|
(127
|
)
|
|
|
(51.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
28,369
|
|
|
|
70.6
|
%
|
|
$
|
33,350
|
|
|
|
77.2
|
%
|
|
$
|
(4,981
|
)
|
|
|
(14.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development. The $477,000
increase in research and development expenses in 2009 as
compared to 2008 was primarily attributable to a $218,000
increase in personnel related costs, as well as a $247,000
increase in outside consulting service fees and temporary help.
Sales and Marketing. The $3.2 million
decrease in sales and marketing expenses in 2009 as compared to
2008 resulted from a $2.0 million decrease in personnel
related costs, an $826,000 decrease in travel and entertainment
costs, and a $141,000 decrease in recruiting fees primarily as a
result of fewer sales and marketing personnel.
General and Administrative. The
$2.1 million decrease in general and administrative
expenses in 2009 as compared to 2008 consisted principally of a
$1.9 million decrease in legal fees incurred in conjunction
with our lawsuit with URS during the second quarter of 2008.
Additionally, recruiting costs decreased $196,000, outside
consulting services fees decreased $157,000, and outside
professional services decreased $91,000. This was partially
offset by an increase in employee compensation costs of $376,000
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 $127,000 decrease
in impairment of goodwill in 2009 as compared to 2008 resulted
from fewer impairment related charges in 2009 versus 2008.
Please see Critical Accounting
Policies Valuation of Goodwill above and
Note 9 to the financial statements appearing elsewhere
herein.
36
Operating
Loss and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Year-to-Year Change
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(4,085
|
)
|
|
|
(10.2
|
)%
|
|
$
|
(6,834
|
)
|
|
|
(15.8
|
)%
|
|
$
|
2,749
|
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
70
|
|
|
|
0.2
|
|
|
|
936
|
|
|
|
2.2
|
|
|
|
(866
|
)
|
|
|
(92.5
|
)
|
Gain on litigation settlement
|
|
|
|
|
|
|
|
|
|
|
4,600
|
|
|
|
10.6
|
|
|
|
(4,600
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
70
|
|
|
|
0.2
|
|
|
|
5,536
|
|
|
|
12.8
|
|
|
|
(5,466
|
)
|
|
|
(98.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
$
|
(4,015
|
)
|
|
|
(10.0
|
)%
|
|
$
|
(1,298
|
)
|
|
|
(3.0
|
)%
|
|
$
|
(2,717
|
)
|
|
|
(209.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $5.5 million decrease in other income in 2009 as
compared to 2008 primarily resulted from $4.6 million
received in connection with the settlement of our lawsuit with
Universal Recovery Systems (URS) during 2008. The remaining
decrease is a result of a decline in the interest rates on the
funds in which we invest our cash balance.
Net
Loss
We recognized a net loss of $4.0 million in 2009 and
$1.3 million in 2008. This difference principally reflected
the settlement of our lawsuit with URS during 2008, as discussed
above. An income tax provision of $16,000 was recorded in 2009
as compared to $21,000 in 2008. Our tax provision consists
primarily of state income taxes in states where we did not have
net operating loss carryforwards to offset taxable income.
Because of our history of losses, we have provided a full
valuation allowance against all deferred tax assets.
Comparison
of Years Ended December 31, 2008 and 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Year-to-Year Change
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Percentage
|
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Change
|
|
|
(Dollars in thousands)
|
|
Revenues
|
|
$
|
43,211
|
|
|
|
100.0
|
%
|
|
$
|
39,492
|
|
|
|
100.0
|
%
|
|
$
|
3,719
|
|
|
|
9.4
|
%
|
The $3.7 million growth in revenues in 2008 reflected an
increase of $2.1 million in revenues from existing clients
and an increase of $1.6 million in revenues from new
clients. Our increased revenues were partly due to higher
calling volume driven by the continued focus of our sales
personnel on acquiring new customers. The increase in revenues
resulting from higher calling volume was partially offset by
lower price structure agreements entered into with some of our
customers.
Cost of
Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Year-to-Year Change
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Percentage
|
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Revenues
|
|
Amount
|
|
Change
|
|
|
(Dollars in thousands)
|
|
Cost of revenues
|
|
$
|
16,695
|
|
|
|
38.6
|
%
|
|
$
|
14,258
|
|
|
|
36.1
|
%
|
|
$
|
2,437
|
|
|
|
17.1
|
%
|
Gross profit
|
|
|
26,516
|
|
|
|
61.4
|
|
|
|
25,234
|
|
|
|
63.9
|
|
|
|
1,282
|
|
|
|
5.1
|
|
The $2.4 million increase in cost of revenues in 2008 as
compared to 2007 primarily consisted of a $1.9 million
increase in telephony expense due to higher customer usage and
the addition of costs related to the text messaging revenue.
Additional increases included depreciation of $142,000 due to
additions to our infrastructure, support and maintenance costs
of $101,000, and employee compensation costs of $73,000. The
37
decrease in gross profit percentage in 2008 as compared to 2007
reflected lower price structure agreements entered into with
some of our customers
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Year-to-Year Change
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
5,151
|
|
|
|
11.9
|
%
|
|
$
|
3,913
|
|
|
|
9.9
|
%
|
|
$
|
1,238
|
|
|
|
31.6
|
%
|
Sales and marketing
|
|
|
17,974
|
|
|
|
41.6
|
|
|
|
14,702
|
|
|
|
37.2
|
|
|
|
3,272
|
|
|
|
22.3
|
|
General and administrative
|
|
|
9,977
|
|
|
|
23.1
|
|
|
|
5,999
|
|
|
|
15.2
|
|
|
|
3,978
|
|
|
|
66.3
|
|
Impairment of goodwill
|
|
|
248
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
33,350
|
|
|
|
77.2
|
%
|
|
$
|
24,614
|
|
|
|
62.3
|
%
|
|
$
|
8,736
|
|
|
|
35.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development. The
$1.2 million increase in research and development expenses
in 2008 as compared to 2007 was primarily attributable to a
$966,000 increase in employee compensation costs resulting from
the addition of personnel. In addition, during 2007 we
capitalized $185,000 of research and development compensation
costs to property and equipment for the development of internal
use software; we did not capitalize any such costs in 2008.
Sales and Marketing. The $3.3 million
increase in sales and marketing expenses in 2008 as compared to
2007 resulted from a $2.8 million increase in employee
compensation costs primarily attributable to the addition of
personnel. Of the $2.8 million increase in compensation
costs, $153,000 was attributable to a severance payout for the
workforce reduction that occurred in October 2008. Additional
increases in 2008 consisted of (a) $254,000 in occupancy
costs allocated to sales and marketing expenses due to the
addition of personnel, (b) $155,000 in travel and
entertainment costs, and (c) $135,000 in amortization
expense resulting from certain intangible assets related to our
acquisition of Mobile Collect in February 2008. For information
regarding the acquisition of Mobile Collect, please see
Note 9 to the financial statements appearing elsewhere
herein.
General and Administrative. The
$4.0 million increase in general and administrative
expenses in 2008 consisted principally of (a) a $830,000
increase in employee compensation costs attributable to the
addition of personnel, (b) a $391,000 increase in
depreciation expense for new financial systems and other fixed
assets, (c) a $285,000 increase in insurance costs,
(d) a $435,000 decrease for a one-time charge in 2007 to
write-off leasehold improvements and future rent and related
maintenance expense due to the vacating of leased space at our
former corporate headquarters, and (e) a $2.8 million
increase in professional service costs. Of the $2.8 million
increase in professional service costs, $1.9 million was
attributable to legal fees incurred in conjunction with our
lawsuit with Universal Recovery Systems and the settlement of
the lawsuit, and the remaining amount was attributable to
various professional service costs related to our being a public
company and increased business activity. For information
regarding the litigation with Universal Recovery Systems, please
see Note 6 to the financial statements appearing elsewhere
herein.
Impairment of Goodwill. The $248,000 charge
for impairment of goodwill in 2008 resulted from our
determination that an impairment of the carrying value of our
goodwill had occurred due to the impact of the current economic
environment on our operating results coupled with a material
decline in our stock price. See Critical
Accounting Policies Valuation of Goodwill
above and Note 9 to the financial statements appearing
elsewhere herein.
38
Operating
and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Year-to-Year Change
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Operating income (loss)
|
|
$
|
(6,834
|
)
|
|
|
(15.8
|
)%
|
|
$
|
620
|
|
|
|
1.6
|
%
|
|
$
|
(7,454
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
936
|
|
|
|
2.2
|
|
|
|
476
|
|
|
|
1.2
|
|
|
|
460
|
|
|
|
96.6
|
%
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
(0.6
|
)
|
|
|
222
|
|
|
|
*
|
|
Warrant charge for change in fair value
|
|
|
|
|
|
|
|
|
|
|
(352
|
)
|
|
|
(0.9
|
)
|
|
|
352
|
|
|
|
*
|
|
Gain on litigation settlement
|
|
|
4,600
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
4,600
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
5,536
|
|
|
|
12.8
|
|
|
|
(98
|
)
|
|
|
(0.3
|
)
|
|
|
5,634
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) before provision for income taxes and cumulative
change in accounting
|
|
$
|
(1,298
|
)
|
|
|
(3.0
|
)%
|
|
$
|
522
|
|
|
|
1.3
|
%
|
|
$
|
(1,820
|
)
|
|
|
(348.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $5.6 million increase in other income (expense), net
for 2008 as compared to 2007 primarily resulted from
(a) $4.6 million received in connection with the
settlement of our lawsuit with Universal Recovery Systems and
(b) an increase in interest income of $460,000 due to
higher cash and cash equivalents as a result of the proceeds we
received in connection with our initial public offering in
November 2007. Additionally, in 2008 there was no charge to
adjust the fair value of freestanding preferred stock warrants
due to the fact that the warrants became exercisable for common
stock upon the closing of our initial public offering on
November 6, 2007.
Net
(Loss) Income
We recognized a net loss of $1.3 million in 2008 and net
income of $466,000 in 2007. This difference principally
reflected the decrease in our gross margin and the increase in
our operating expenses as a percentage of revenues, as discussed
above. An income tax provision of $21,000 was recorded in 2008
compared to $56,000 in 2007. In the years 2007 and 2008, our tax
provision, which was reduced by the utilization of net operating
loss carryforwards, consists of federal alternative minimum tax
and state income tax in states where we did not have net
operating loss carryforwards to offset taxable income.
Liquidity
and Capital Resources
Resources
Since our inception, we have funded our operations primarily
with proceeds from private placements of preferred stock,
borrowings under credit facilities and, more recently, cash flow
from operations and the proceeds from our initial public
offering in November 2007.
We believe our existing cash and cash equivalents, our cash flow
from operating activities, and our borrowings available under
our existing credit facility 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 for our on-demand service, and our expansion of
research and development and sales and marketing activities. To
the extent our cash and cash equivalents and cash flow from
operating activities 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.
39
On November 6, 2007, we completed an initial public
offering of 4,947,022 shares of our common stock, including
230,000 shares sold pursuant to the underwriters
exercise of their over-allotment option on December 5,
2007, at a price of $8.00 per share. We raised
$33.5 million after deducting the underwriting discount of
$2.8 million and other direct expenses attributable to the
initial public offering of $3.3 million.
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 at an interest rate of 4.5% per annum for up to the
lesser of (a) $1.5 million or (b) 80% of eligible
accounts receivable, subject to specified adjustments. Our
assets serve as collateral for any borrowings under the credit
facility. There are certain financial covenant requirements as
part of the facility, including an adjusted quick ratio and
certain minimum quarterly revenue requirements, none of which
are restrictive to our overall operations. The credit facility
will expire by its terms on November 1, 2010 and any
amounts outstanding must be repaid on that date.
As of December 31, 2009, no amounts were outstanding under
the existing credit agreement. As of December 31, 2009,
letters of credit totaling $426,000 had been issued in
connection with our facility leases.
Operating
Cash Flow
For a discussion of our cash flow from operating activities,
please see Additional Key Elements of
Financial Performance.
Working
Capital
The following table sets forth selected working capital
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
36,322
|
|
|
$
|
37,425
|
|
|
$
|
35,674
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
6,878
|
|
|
|
6,641
|
|
|
|
7,261
|
|
Working capital
|
|
$
|
40,359
|
|
|
$
|
41,665
|
|
|
$
|
39,920
|
|
Our cash and cash equivalents at December 31, 2009 were
unrestricted and held for working capital purposes. They were
invested primarily in money market funds. We do not enter into
investments for trading or speculative purposes.
Our accounts receivable balance fluctuates from period to
period, which affects our cash flow from operating activities.
Fluctuations vary depending on cash collections, client mix and
the volume of monthly usage of our service. We use days
sales outstanding, or DSO, calculated on an annual basis, as a
measurement of the quality and status of our receivables. We
define DSO as (a) accounts receivable, net of allowance for
doubtful accounts, divided by revenues for the most recent year,
multiplied by (b) the number of days in the year. Our DSO
was 63 days at December 31, 2009, 58 days at
December 31, 2008 and 67 days at December 31,
2007.
Requirements
Capital
Expenditures
In recent years, we have made capital expenditures primarily to
acquire computer hardware and software and, to a lesser extent,
furniture and leasehold improvements, to support the growth of
our business. Our capital expenditures totaled $900,000 in 2009,
$1.5 million in 2008 and $4.8 million in 2007. We
intend to continue to invest in our infrastructure to ensure our
continued ability to enhance our platform, introduce new
features and maintain the reliability of our network. We also
intend to make investments in computer equipment and systems, as
well as fixed assets as we continue to grow our business and add
additional
40
personnel. We expect our capital expenditures for these purposes
will approximate $2.0 million in 2010. We are not currently
party to any purchase contracts related to future capital
expenditures.
Contractual
Obligations and Requirements
The following table sets forth our commitments to settle
contractual obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Operating leases office space
|
|
$
|
819
|
|
|
$
|
2,438
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,257
|
|
Operating leases hosting facilities
|
|
|
812
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,631
|
|
|
$
|
2,777
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating leases include a lease for our headquarters in
Bedford, Massachusetts and two short-term leases for a sales
office in Texas and a co-location facility in Canada. A majority
of our leases related to hosting facilities are cancelable with
a sixty day notice.
Effects
of Inflation
Inflation and changing prices have not had a material effect on
our business since January 1, 2007, and we do not expect
that inflation or changing prices will materially affect our
business in the foreseeable future. However, the impact of
inflation on replacement costs of equipment, cost of revenues
and operating expenses, primarily employee compensation costs,
may not be readily recoverable in the pricing of our service.
Off-Balance-Sheet
Arrangements
As of December 31, 2009, we did not have any significant
off-balance-sheet arrangements, as defined in
Item 303(a)(4)(ii) of
Regulation S-K
of the SEC.
Recent
Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued
guidance to amend the accounting and disclosure requirements for
revenue recognition. These amendments are effective for fiscal
years beginning on or after June 15, 2010 and early
adoption is permitted. We expect to adopt the amendments
beginning January 1, 2011. The new guidance modifies the
criteria for the separation of deliverables into units of
accounting for multiple element arrangements. We have not yet
determined the effect that adoption of this new guidance will
have on our financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily the
result of fluctuations in interest rates. We do not hold or
issue financial instruments for trading purposes.
At December 31, 2009, we had unrestricted cash and cash
equivalents totaling $36.3 million. These amounts were
invested primarily in money market funds. The unrestricted cash
and cash equivalents were held for working capital purposes. We
do not enter into investments for trading or speculative
purposes. Due to the short-term nature of these investments, we
believe that we do not have any material exposure to changes in
the fair value of our investment portfolio as a result of
changes in interest rates. A hypothetical ten percent change in
interest rates would not have a material effect on our financial
statements.
41
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item is presented beginning at
page F-1
appearing immediately after Signatures below.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A(T).
|
Controls
and Procedures
|
Managements
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2009. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities 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 Securities Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the SECs 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 companys management, including its principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure. Our
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.
Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives as described
above. Based on this evaluation, our management, including our
chief executive officer and chief financial officer, concluded
that as of December 31, 2009, our disclosure controls and
procedures were effective at the reasonable assurance level.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
or 15d-15(f)
under the Securities Exchange Act as a process designed by, or
under the supervision of, a companys principal executive
and principal financial officers and effected by a
companys board of directors, management and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements in accordance with U.S. generally
accepted accounting principles and includes those policies and
procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of a company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles and that receipts and expenditures of a company are
being made only in accordance with authorizations of management
and directors of a company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of a
companys assets that could have a material effect on the
financial statements.
|
Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the
preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations which may not prevent or
detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness
42
to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated
Framework.
Based on this assessment, management concluded that, as of
December 31, 2009, our internal control over financial
reporting was effective based on those criteria.
The Companys internal control over financial reporting as
of December 31, 2009 has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report which is
included herein.
Changes
in Internal Control over Financial Reporting
No change in the Companys internal control over financial
reporting occurred during the fiscal quarter ended
December 31, 2009, that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
43
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SoundBite
Communications, Inc.
Bedford, Massachusetts
We have audited the internal control over financial reporting of
SoundBite Communications, Inc. and subsidiaries (the
Company) as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2009 of the Company and our report dated
March 2, 2010 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
March 2, 2010
44
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required under this Item will be incorporated by
reference to our definitive proxy statement for our 2010 annual
meeting of stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The information required under this Item will be incorporated by
reference to our definitive proxy statement for our 2010 annual
meeting of stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required under this Item will be incorporated by
reference to our definitive proxy statement for our 2010 annual
meeting of stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required under this Item will be incorporated by
reference to our definitive proxy statement for our 2010 annual
meeting of stockholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required under this Item will be incorporated by
reference to our definitive proxy statement for our 2010 annual
meeting of stockholders.
45
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
All schedules are omitted because they are not required or the
required information is shown in the consolidated financial
statements or notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Filing Date
|
|
|
Number
|
|
Description of Exhibit
|
|
Herewith
|
|
Form
|
|
with SEC
|
|
Exhibit Number
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Registrant
|
|
|
|
10-Q
|
|
November 14, 2007
|
|
|
3
|
.1
|
|
3
|
.2
|
|
Amended and Restated By-Laws of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
3
|
.4
|
|
4
|
.1
|
|
Specimen certificate for shares of common stock of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
4
|
.1
|
|
10
|
.1
|
|
Lease dated May 18, 2007 between RAR2-Crosby Corporate
Center QRS, Inc. and the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.19
|
|
10
|
.2
|
|
Agreement dated as of August 29, 2003, as amended, between
the Registrant and Internap Network Services Corporation
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.3
|
|
10
|
.3
|
|
Agreement dated as of October 9, 2004, between the
Registrant and ColoSpace, Inc.
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.4
|
|
10
|
.4
|
|
Loan and Security Agreement dated as of November 2, 2009
between Silicon Valley Bank and the Registrant
|
|
|
|
10-Q
|
|
November 6, 2009
|
|
|
10
|
.1
|
|
10
|
.5
|
|
Investors Rights Agreement dated as of June 17, 2005,
among the Registrant, the Investors named therein, John
McDonough and David Parker, as amended
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
4
|
.2
|
|
10
|
.6
|
|
2007 Stock Incentive Plan of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.12
|
|
10
|
.7
|
|
Form of Incentive Stock Option Agreement under 2007 Stock
Incentive Plan of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.13
|
|
10
|
.8
|
|
Form of Nonstatutory Stock Option Agreement under 2007 Stock
Incentive Plan of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.14
|
|
10
|
.9
|
|
Form of Restricted Stock Agreement under 2007 Stock Incentive
Plan of the Registrant
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.15
|
|
10
|
.10
|
|
Employment Offer Letter entered into as of April 21, 2009
between the Registrant and James A. Milton
|
|
|
|
8-K
|
|
April 21, 2009
|
|
|
10
|
.1
|
|
10
|
.11
|
|
Form of Executive Retention Agreement entered into as of
May 1, 2009 between the Registrant and James A. Milton
|
|
|
|
8-K
|
|
April 21, 2009
|
|
|
10
|
.2
|
|
10
|
.12
|
|
Form of Executive Retention Agreement entered into as of
November 28, 2008 between the Registrant and each of Mark
D. Friedman, Robert C. Leahy, and Timothy R. Segall
|
|
|
|
8-K
|
|
November 28, 2008
|
|
|
99
|
.1
|
|
10
|
.13
|
|
Form of Change in Control Agreement entered into as of
May 1, 2009 between the Registrant and James A. Milton
|
|
|
|
8-K
|
|
April 21, 2009
|
|
|
10
|
.3
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Filing Date
|
|
|
Number
|
|
Description of Exhibit
|
|
Herewith
|
|
Form
|
|
with SEC
|
|
Exhibit Number
|
|
|
10
|
.14
|
|
Form of Change in Control Agreement entered into as of
November 28, 2008 between the Registrant and each of Mark
D. Friedman, Robert C. Leahy and Timothy R. Segall
|
|
|
|
8-K
|
|
November 28, 2008
|
|
|
99
|
.2
|
|
10
|
.15
|
|
Form of Indemnification Agreement entered into (or to be entered
into) between the Registrant and each of its executive officers
and directors from time to time
|
|
|
|
S-1
|
|
October 15, 2007
|
|
|
10
|
.17
|
|
10
|
.16
|
|
Summary of 2009 Management Cash Compensation Plan
|
|
|
|
8-K
|
|
May 26, 2009
|
|
|
10
|
.1
|
|
10
|
.17
|
|
Compensation Arrangements with Outside Directors (Amended and
Restated as of May 20, 2009)
|
|
|
|
8-K
|
|
May 26, 2009
|
|
|
10
|
.2
|
|
10
|
.18
|
|
Summary of 2010 Management Cash Compensation Plan
|
|
|
|
8-K
|
|
December 11. 2009
|
|
|
10
|
.1
|
|
10
|
.19
|
|
Compensation Arrangements with Outside Directors (Amended and
Restated as of December 9, 2009)
|
|
|
|
8-K
|
|
December 11, 2009
|
|
|
10
|
.2
|
|
21
|
.1
|
|
List of subsidiaries of Registrant
|
|
|
|
10-K
|
|
March 18, 2009
|
|
|
21
|
.1
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP
|
|
X
|
|
|
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of principal executive officer and principal
financial officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management contracts or compensatory plans or arrangements
required to be filed as an exhibit hereto pursuant to
Item 15(a) of the
Form 10-K. |
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SOUNDBITE COMMUNICATIONS, INC.
James A. Milton
President and Chief Executive Officer
Date: March 2, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this annual report on
Form 10-K
has been signed below by the following persons as of
March 2, 2010 on behalf of the registrant in the capacities
indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ James
A. Milton
James
A. Milton
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ Robert
C. Leahy
Robert
C. Leahy
|
|
Chief Operating Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Eric
R. Giler
Eric
R. Giler
|
|
Director
|
|
|
|
/s/ James
A. Goldstein
James
A. Goldstein
|
|
Director
|
|
|
|
/s/ Vernon
F. Lobo
Vernon
F. Lobo
|
|
Director
|
|
|
|
/s/ Justin
J. Perreault
Justin
J. Perreault
|
|
Director
|
|
|
|
/s/ James
J. Roszkowski
James
J. Roszkowski
|
|
Director
|
|
|
|
/s/ Eileen
Rudden
Eileen
Rudden
|
|
Director
|
|
|
|
/s/ Regina
O. Sommer
Regina
O. Sommer
|
|
Director
|
48
SOUNDBITE
COMMUNICATIONS, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SoundBite
Communications, Inc.
Bedford, Massachusetts
We have audited the accompanying consolidated balance sheets of
SoundBite Communications, Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
SoundBite Communications, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 2, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
March 2, 2010
F-2
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except
|
|
|
|
share and per share
|
|
|
|
amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,322
|
|
|
$
|
37,425
|
|
Accounts receivable, net of allowance for doubtful accounts of
$152 and $218 at December 31, 2009 and 2008
|
|
|
6,878
|
|
|
|
6,641
|
|
Prepaid expenses and other current assets
|
|
|
1,344
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
44,544
|
|
|
|
45,287
|
|
Property and equipment, net
|
|
|
2,789
|
|
|
|
4,276
|
|
Intangible assets, net
|
|
|
79
|
|
|
|
205
|
|
Goodwill
|
|
|
213
|
|
|
|
|
|
Other assets
|
|
|
129
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
47,754
|
|
|
$
|
49,830
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
973
|
|
|
$
|
464
|
|
Accrued expenses
|
|
|
3,212
|
|
|
|
3,158
|
|
Total current liabilities
|
|
|
4,185
|
|
|
|
3,622
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
537
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,722
|
|
|
|
4,076
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value
75,000,000 shares authorized; 16,506,730 and
15,701,644 shares issued at December 31, 2009 and
2008; 16,311,345 and 15,506,259 shares outstanding at
December 31, 2009 and 2008
|
|
|
17
|
|
|
|
16
|
|
Additional paid-in capital
|
|
|
68,011
|
|
|
|
66,703
|
|
Treasury stock, at cost 195,385 shares at
December 31, 2009 and 2008
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Accumulated other comprehensive loss
|
|
|
(72
|
)
|
|
|
(72
|
)
|
Accumulated deficit
|
|
|
(24,792
|
)
|
|
|
(20,761
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
43,032
|
|
|
|
45,754
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
47,754
|
|
|
$
|
49,830
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share
|
|
|
|
and per share amounts)
|
|
|
Revenues
|
|
$
|
40,183
|
|
|
$
|
43,211
|
|
|
$
|
39,492
|
|
Cost of revenues
|
|
|
15,899
|
|
|
|
16,695
|
|
|
|
14,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24,284
|
|
|
|
26,516
|
|
|
|
25,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,628
|
|
|
|
5,151
|
|
|
|
3,913
|
|
Sales and marketing
|
|
|
14,784
|
|
|
|
17,974
|
|
|
|
14,702
|
|
General and administrative
|
|
|
7,836
|
|
|
|
9,977
|
|
|
|
5,999
|
|
Impairment of goodwill
|
|
|
121
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,369
|
|
|
|
33,350
|
|
|
|
24,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(4,085
|
)
|
|
|
(6,834
|
)
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
70
|
|
|
|
936
|
|
|
|
476
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
Gain on litigation settlement
|
|
|
|
|
|
|
4,600
|
|
|
|
|
|
Warrant charge for change in fair value
|
|
|
|
|
|
|
|
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
70
|
|
|
|
5,536
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes
|
|
|
(4,015
|
)
|
|
|
(1,298
|
)
|
|
|
522
|
|
Provision for income taxes
|
|
|
16
|
|
|
|
21
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(4,031
|
)
|
|
|
(1,319
|
)
|
|
|
466
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(4,031
|
)
|
|
$
|
(1,319
|
)
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
(0.25
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.03
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,961,491
|
|
|
|
15,369,089
|
|
|
|
2,859,797
|
|
Diluted
|
|
|
15,961,491
|
|
|
|
15,369,089
|
|
|
|
12,778,255
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Income
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
Income (Loss)
|
|
|
|
(in thousands, except share and per share amounts)
|
|
|
Balance, January 1, 2007
|
|
|
821,471
|
|
|
$
|
1
|
|
|
$
|
274
|
|
|
$
|
(132
|
)
|
|
|
|
|
|
$
|
(19,908
|
)
|
|
$
|
(19,765
|
)
|
|
|
|
|
Initial public offering, net of offering costs
|
|
|
4,947,022
|
|
|
|
4
|
|
|
|
33,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,504
|
|
|
|
|
|
Conversion of preferred stock into common stock
|
|
|
9,613,942
|
|
|
|
10
|
|
|
|
30,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,825
|
|
|
|
|
|
Issuance of common stock for option exercises
|
|
|
38,453
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Accretion of transaction costs for preferred stock
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
Reclassification of preferred stock warrant liability
|
|
|
|
|
|
|
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
834
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466
|
|
|
|
|
|
|
$
|
466
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
15,420,888
|
|
|
|
15
|
|
|
|
65,720
|
|
|
|
(132
|
)
|
|
|
4
|
|
|
|
(19,442
|
)
|
|
|
46,165
|
|
|
|
|
|
Issuance of common stock for option exercises
|
|
|
234,680
|
|
|
|
1
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
Issuance of common stock for cashless warrant exercises
|
|
|
46,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,319
|
)
|
|
|
|
|
|
$
|
(1,319
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
15,701,644
|
|
|
|
16
|
|
|
|
66,703
|
|
|
|
(132
|
)
|
|
|
(72
|
)
|
|
|
(20,761
|
)
|
|
|
45,754
|
|
|
|
|
|
Issuance of common stock for option exercises
|
|
|
805,086
|
|
|
|
1
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,031
|
)
|
|
|
|
|
|
$
|
(4,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
16,506,730
|
|
|
$
|
17
|
|
|
$
|
68,011
|
|
|
$
|
(132
|
)
|
|
$
|
(72
|
)
|
|
$
|
(24,792
|
)
|
|
$
|
43,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,031
|
)
|
|
$
|
(1,319
|
)
|
|
$
|
466
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
2,486
|
|
|
|
3,205
|
|
|
|
2,869
|
|
Amortization of intangible assets
|
|
|
126
|
|
|
|
145
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
33
|
|
|
|
42
|
|
|
|
56
|
|
Change in carrying value of preferred stock warrant liability
|
|
|
|
|
|
|
|
|
|
|
352
|
|
Stock-based compensation
|
|
|
977
|
|
|
|
858
|
|
|
|
318
|
|
Impairment of goodwill
|
|
|
121
|
|
|
|
248
|
|
|
|
|
|
Loss (gain) on disposal of property and equipment
|
|
|
25
|
|
|
|
(20
|
)
|
|
|
132
|
|
Change in operating assets and liabilities, net of effect of
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(270
|
)
|
|
|
626
|
|
|
|
(1,396
|
)
|
Prepaid expenses and other current assets
|
|
|
(123
|
)
|
|
|
86
|
|
|
|
(699
|
)
|
Other assets
|
|
|
(67
|
)
|
|
|
87
|
|
|
|
(149
|
)
|
Accounts payable
|
|
|
370
|
|
|
|
85
|
|
|
|
7
|
|
Accrued expenses and other liabilities
|
|
|
59
|
|
|
|
(267
|
)
|
|
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(294
|
)
|
|
|
3,776
|
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from sale of equipment
|
|
|
|
|
|
|
28
|
|
|
|
|
|
Cash paid related to acquisition of business
|
|
|
(256
|
)
|
|
|
(651
|
)
|
|
|
|
|
Purchases of property and equipment
|
|
|
(885
|
)
|
|
|
(1,528
|
)
|
|
|
(4,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,141
|
)
|
|
|
(2,151
|
)
|
|
|
(4,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from equipment and bank line of credit
|
|
|
|
|
|
|
|
|
|
|
2,345
|
|
Repayments of equipment and bank line of credit
|
|
|
|
|
|
|
|
|
|
|
(5,890
|
)
|
Proceeds from issuance of common stock upon initial public
offering, net of offering costs
|
|
|
|
|
|
|
|
|
|
|
33,504
|
|
Proceeds from exercise of stock options
|
|
|
332
|
|
|
|
126
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
332
|
|
|
|
126
|
|
|
|
29,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,103
|
)
|
|
|
1,751
|
|
|
|
28,423
|
|
Cash and cash equivalents, beginning of year
|
|
|
37,425
|
|
|
|
35,674
|
|
|
|
7,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
36,322
|
|
|
$
|
37,425
|
|
|
$
|
35,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$
|
20
|
|
|
$
|
46
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, included in accounts payable
|
|
$
|
139
|
|
|
$
|
4
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent cash payment to Mobile Collect included in accrued
expenses
|
|
$
|
118
|
|
|
$
|
40
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to equity of fair value of preferred stock
warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable preferred stock to common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
SoundBite Communications, Inc. (the Company) provides an
on-demand, multi-channel proactive customer communications
service that enables organizations to design, execute and
measure communication campaigns for a variety of marketing,
customer care, payment and collection processes. Clients use the
Companys Engage platform to communicate with their
customers through voice, text and email messages that are
relevant, timely, personalized and engaging. The Company was
incorporated in Delaware in 2000 and its principal operations
are located in Bedford, Massachusetts. The Company conducts its
business primarily in the United States.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Subsequent
Events
In preparing the accompanying financial statements and related
disclosures, the Company has evaluated subsequent events through
the date of issuance of these financial statements.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Principles
of Consolidation
The consolidated financial statements include the accounts of
SoundBite Communications, Inc. and its wholly owned
subsidiaries, SoundBite Communications Canada, Inc., which was
incorporated in August 2007, and SoundBite Communications
Security Corporation, which was incorporated in December 2007.
All intercompany accounts and transactions have been eliminated
in consolidation.
Foreign
Currency
Prior to 2009, the functional currency of the Companys
foreign operations was the local currency of the country in
which the operation is located. The assets and liabilities of
these foreign operations were translated into U.S. dollars
using the exchange rate at the balance sheet date, and revenues
and expenses were translated using average rates for the period.
Adjustments arising due to the application of the translation
method were recorded to accumulated other comprehensive income,
a component of stockholders equity. Beginning
January 1, 2009, due to significant changes in economic
facts and circumstances, the functional currency changed from
the local currency of the foreign operations to the reporting
currency the Company. A change in the functional currency is
accounted for prospectively and therefore, the translation
adjustments from previous years accounted for in accumulated
other comprehensive loss are retained in this account.
Transaction gains and losses are recognized in the statement of
operations and have not been material for the periods presented.
Segment
Data
The Company manages its operations on a consolidated, single
segment basis for purposes of assessing performance and making
operating decisions. Accordingly, the Company has only one
operating and reporting segment.
F-7
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Cash
and Cash Equivalents
The Company invests its cash in money market accounts, debt
securities of U.S. government agencies and repurchase agreements
with maturities of less than 90 days. All highly liquid
instruments with a remaining maturity of 90 days or less
when purchased are considered cash equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount management expects
to collect from outstanding balances. Management reviews
accounts receivable on a periodic basis to determine if any
receivables will potentially be uncollectible. Estimates are
used to determine the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable to its
estimated net realizable value. These estimates are made by
analyzing the status of significant past due receivables and by
establishing general provisions for estimated losses by
analyzing current and historical bad debt trends. Actual
collection experience has not varied significantly from
estimates. Receivables that are ultimately deemed uncollectible
are charged off as a reduction of receivables and the allowance
for doubtful accounts.
Activity in the allowance for doubtful accounts was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning
|
|
$
|
218
|
|
|
$
|
176
|
|
|
$
|
88
|
|
Provision for bad debts
|
|
|
33
|
|
|
|
42
|
|
|
|
56
|
|
Net uncollectible accounts (written off) recovered
|
|
|
(99
|
)
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end
|
|
$
|
152
|
|
|
$
|
218
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of
cash, cash equivalents and accounts receivable. At
December 31, 2009 and 2008, the Company had cash balances
at certain financial institutions in excess of federally insured
limits. However, the Company does not believe that it is subject
to unusual credit risk beyond the normal credit risk associated
with commercial banking relationships.
Accounts receivable are typically uncollateralized and are
derived from revenues earned from clients primarily located in
the United States. As of December 31, 2009 and 2008, three
clients in the aggregate accounted for 35% and 42% of the
outstanding accounts receivable balance, respectively. In each
of 2009, 2008 and 2007, the Company had two customers that
accounted for more than 10% of revenues. Revenues from one
customer represented approximately 16% of revenue in 2009 and
17% of revenue in both 2008 and 2007. Revenues from a second
customer, as a percentage of total revenue, were 13% in 2009,
14% in 2008 and 12% in 2007.
Development
of Software for Internal Use
The Company capitalizes the cost of materials, consultants,
payroll and payroll related costs for employees incurred in
developing internal-use software after certain capitalization
criteria are met. Amounts capitalized related to internal use
software totaled $0 for each of the years ended
December 31, 2009 and 2008 and $229,000 for the year ended
December 31, 2007.
F-8
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Property
and Equipment
Property and equipment are carried at cost and are depreciated
over the assets estimated useful life, generally three years,
using the straight-line method. Depreciation of leasehold
improvements is recorded over the shorter of the estimated
useful life of the leasehold improvement or the remaining lease
term. Expenditures for maintenance and repairs are charged to
operations when incurred, while additions and betterments are
capitalized. When assets are retired or disposed, the
assets original cost and related accumulated depreciation
are eliminated from the accounts and any gain or loss is
reflected in the statement of operations.
Goodwill
Goodwill is not amortized, but instead is reviewed for
impairment annually or more frequently if impairment indicators
arise. The Company evaluates goodwill on an annual basis for
impairment and has selected November 1 as the annual impairment
testing date. The Company operates as a single operating segment
and has concluded that the Company is comprised of one reporting
unit.
Long-lived
Assets
The Company evaluates the possible impairment of long-lived
assets, including intangible assets, whenever events and
circumstances indicate the carrying value of the assets may not
be recoverable. Intangible assets consist of customer
relationships, non-compete agreements, and developed acquired
technology (see note 9). These assets are carried at cost
less accumulated amortization and are amortized over their
estimated useful lives of two to five years using methods that
most closely relate to the depletion of these assets.
Revenues
The Company derives substantially all of its revenues by
providing its services for use by clients in communicating with
their customers through voice, text and email messages. The
Company provides its services under a usage-based pricing model,
with prices calculated on a per-message or per-minute basis in
accordance with the terms of its pricing agreements with
clients. The Company invoices clients on a monthly basis.
Typically, its pricing agreements with clients do not require
minimum levels of usage or payments.
The Company recognizes revenue when all of the following
conditions are satisfied: (1) there is persuasive evidence
of an arrangement; (2) the service has been provided to the
client; (3) the amount of fees to be paid by the client is
fixed or determinable; and (4) the collection of fees from
the client is reasonably assured. Generally, this is when the
services are performed.
The Companys client management organization provides
ancillary services to assist clients in selecting service
features and adopting best practices that help clients make the
best use of the Companys on-demand service. The
organization provides varying levels of support through these
ancillary services, from managing an entire campaign to
supporting self-service clients. In some cases, ancillary
services may be billed to clients based upon a fixed fee or,
more typically, a fixed hourly rate. These billed services
typically are of short duration, typically less than one month.
The billed services do not involve future obligations and do not
provide material value beyond supporting use of the
Companys on-demand services. The Company recognizes
revenue from these billed services within the calendar month in
which the ancillary services are completed if the four criteria
set forth above are satisfied. Revenues attributable to
ancillary services are not material and accordingly were not
presented as a separate line item in the statements of
operations.
Research
and Development Costs
Research and development costs are expensed as incurred. The
Company has not capitalized any such costs in any of the years
presented. Nonrefundable advance payments, if any, for goods or
services used in
F-9
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
research and development are recognized as an expense as the
related goods are delivered or services are performed. Research
and development expenses include labor, materials and supplies
and overhead.
Accounting
for Stock-Based Compensation
Stock-based compensation expense is recognized based on the
grant-date fair value using the Black-Scholes valuation model.
The Company is recognizing compensation costs only for those
stock-based awards expected to vest after considering expected
forfeitures. Cumulative compensation expense is at least equal
to the compensation expense for vested awards. Stock-based
compensation is recognized on a straight-line basis over the
service period of each award.
Income
Taxes
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
upon the temporary differences between the financial reporting
and tax bases of liabilities and assets and for loss and credit
carryforwards, using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are provided to the extent that realization of net
deferred tax assets is not considered to be more likely than
not. Realization of the Companys net deferred tax assets
is contingent upon generation of future taxable income. Due to
the uncertainty of realization of the tax benefits, the Company
has provided a valuation allowance for the full amount of its
net deferred tax assets.
The Company provides reserves for potential payments of tax to
various tax authorities related to uncertain tax positions and
other issues. Tax benefits are based on a determination of
whether and how much of a tax benefit taken by the Company in
its tax filings or positions is more likely than not to be
realized following resolution of any potential contingencies
present related to the tax benefit. Potential interest and
penalties associated with such uncertain tax positions would be
recorded as a component of income tax expense. At
December 31, 2009 and 2008, the Company had not identified
any significant uncertain tax positions.
Basic
and Diluted (Loss) Income Per Share
(Loss) income per share has been computed using the weighted
average number of shares of common stock outstanding during each
period. Diluted amounts per share include the impact of the
Companys outstanding potential common shares, such as
options and warrants (using the treasury stock method) and
convertible preferred stock (using the if converted method).
Potential common shares that are antidilutive are excluded from
the calculation of diluted (loss) income per common share. The
following table sets forth the
F-10
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
components of the computation of basic and diluted net (loss)
income per common share for the years indicated (dollars in
thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(4,031
|
)
|
|
$
|
(1,319
|
)
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net (loss) income per
common share basic
|
|
|
15,961,491
|
|
|
|
15,369,089
|
|
|
|
2,859,797
|
|
Add dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
1,674,284
|
|
Unvested stock
|
|
|
|
|
|
|
|
|
|
|
5,078
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
100,170
|
|
Conversion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
8,138,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net (loss) income per
common share diluted
|
|
|
15,961,491
|
|
|
|
15,369,089
|
|
|
|
12,778,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares excluded from the computation of net
(loss) income per common share due to being anti-dilutive
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
2,764,267
|
|
|
|
2,571,995
|
|
|
|
85,749
|
|
Unvested stock
|
|
|
|
|
|
|
2,744
|
|
|
|
|
|
Warrants
|
|
|
33,686
|
|
|
|
62,772
|
|
|
|
|
|
Comprehensive
(Loss) Income
Comprehensive (loss) income consists of net income or loss and
foreign currency translation adjustments.
Recent
Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued
guidance to amend the accounting and disclosure requirements for
revenue recognition. These amendments are effective for fiscal
years beginning on or after June 15, 2010 and early
adoption is permitted. The Company expects to adopt the
amendments beginning January 1, 2011. The new guidance
modifies the criteria for the separation of deliverables into
units of accounting for multiple element arrangements. The
Company has not yet determined the effect that adoption of this
new guidance will have on its financial statements.
F-11
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
3.
|
Property
and Equipment
|
Property and equipment as of December 31, 2009 and 2008
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Computer equipment
|
|
$
|
9,352
|
|
|
$
|
8,510
|
|
Computer software
|
|
|
3,505
|
|
|
|
3,390
|
|
Furniture and fixtures
|
|
|
556
|
|
|
|
556
|
|
Office equipment & machinery
|
|
|
402
|
|
|
|
402
|
|
Leasehold improvements
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,358
|
|
|
|
13,401
|
|
Less accumulated depreciation and amortization
|
|
|
(11,569
|
)
|
|
|
(9,125
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
2,789
|
|
|
$
|
4,276
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009,
2008, and 2007 was $2.5 million, $3.2 million and
$2.9 million, respectively.
On November 2, 2009, the Company entered into a credit
facility with Silicon Valley Bank that provides a working
capital line of credit at an interest rate of 4.5% per annum for
up to the lesser of (a) $1.5 million or (b) 80%
of eligible accounts receivable, subject to specified
adjustments. The Companys assets serve as collateral for
any borrowings under the credit facility. There are certain
financial covenant requirements as part of the facility,
including an adjusted quick ratio and certain minimum quarterly
revenue requirements, none of which are restrictive to the
Companys operations. The credit facility will expire by
its terms on November 1, 2010 and any amounts outstanding
must be repaid on that date.
As of December 31, 2009, no amounts were outstanding under
the existing credit agreement. As of December 31, 2009,
letters of credit totaling $426,000 had been issued in
connection with the Companys facility leases.
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued payroll related items
|
|
$
|
874
|
|
|
$
|
1,196
|
|
Accrued telephony
|
|
|
646
|
|
|
|
656
|
|
Accrued professional fees
|
|
|
543
|
|
|
|
377
|
|
Accrued other
|
|
|
1,149
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
3,212
|
|
|
$
|
3,158
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Commitments
and Contingencies
|
The Company has various non-cancelable operating leases related
to its office space that expire through 2013. Certain leases
have fixed rent escalations clauses and renewal options, which
are accounted for on a
F-12
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
straight-line basis over the life of the lease. Future minimum
lease payments under non-cancelable operating leases at
December 31, 2009 were as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
819
|
|
2011
|
|
|
856
|
|
2012
|
|
|
892
|
|
2013
|
|
|
690
|
|
2014
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
3,257
|
|
|
|
|
|
|
Total rent expense for office space charged to operations was
$759,000, $775,000, and $485,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. Total rent
expense for hosting sites charged to cost of revenues was
$1.4 million for the year ended December 31, 2009, and
$1.3 million for the years ended December 31, 2008 and
2007. A majority of the Companys hosting facilities are
cancelable with a sixty day notice and thus, are not included in
the above table.
Litigation
and Claims
On June 25, 2008, the Company entered into a settlement
agreement (the Settlement Agreement) relating to two lawsuits
with Universal Recovery Systems (URS). As part of the agreement,
URS made a payment to the Company of $4.6 million. The
Company was also granted a worldwide, perpetual, non-exclusive
license to the URS patents involved in the two lawsuits.
The Company has not ascribed any value to this license.
The $4.6 million received in June 2008 as a settlement
relating to these lawsuits was recorded as a component of other
income (expense) for the year ended December 31, 2008.
From time to time and in the ordinary course of business, the
Company may be subject to various claims, charges,
investigations and litigation. At December 31, 2009, the
Company did not have any pending claims, charges, investigations
or litigation.
|
|
7.
|
Common
Stock and Warrants
|
Authorized
Shares
At December 31, 2009, the Company had authorized
75,000,000 shares of common stock, of which
3,336,164 shares were reserved for future issuance as
follows:
|
|
|
|
|
Warrants to purchase common stock
|
|
|
33,686
|
|
Outstanding options to purchase common stock
|
|
|
3,019,595
|
|
Shares reserved for future option grants
|
|
|
282,883
|
|
|
|
|
|
|
|
|
|
3,336,164
|
|
|
|
|
|
|
Initial
Public Offering
On November 6, 2007, the Company completed an initial
public offering of 4,947,022 shares of its common stock,
including 230,000 shares sold pursuant to the
underwriters exercise of their over-allotment option on
December 5, 2007, at a price of $8.00 per share. Net
proceeds to the Company were approximately $33.5 million
after deducting the underwriting discount of $2.8 million
and other expenses attributable to the initial public offering
of $3.3 million. Upon the closing of the offering, all
shares of redeemable convertible preferred stock then
outstanding automatically converted into 9,613,942 shares
of common stock.
F-13
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Warrants
In connection with the initial public offering in November 2007,
and the associated conversion of the Companys outstanding
redeemable convertible preferred stock to common stock, the
warrants to purchase shares of redeemable convertible preferred
stock were converted to warrants to purchase shares of the
Companys common stock. During the year ended
December 31, 2008, warrants to purchase 117,959 shares
of common stock were exercised in cashless transactions
resulting in the issuance of 46,076 shares of common stock.
As of December 31, 2009, warrants to purchase
33,686 shares of common stock at a weighted average
exercise price of $3.49 remain outstanding and expire in 2010.
|
|
8.
|
Stock-based
compensation
|
Stock
Options
2000
Stock Incentive Plan
Under the Companys 2000 Stock Option Plan (the 2000 Plan),
the Company was permitted to grant incentive stock options and
nonqualified stock options to purchase up to
2,749,083 shares of common stock. The options generally
vest ratably over four years and expire no later than ten years
after the date of grant. Upon completion of the Companys
initial public offering, no further stock options are to be
granted under the 2000 Plan.
2007
Stock Incentive Plan
In August 2007, the Companys Board of Directors approved
the SoundBite Communications, Inc. 2007 Stock Incentive Plan
(the 2007 Plan), which became effective upon completion of the
Companys initial public offering. The 2007 Plan provides
for the grant of incentive stock options, nonstatutory stock
options, restricted stock, restricted stock units, stock
appreciation rights and other stock-based awards. The number of
shares of common stock that may be issued under the 2007 Plan
equals the sum of 1,500,000 shares of common stock plus any
shares of common stock subject to awards outstanding under the
Companys 2000 Stock Option Plan at the time of the closing
of the initial public offering which awards expire, terminate,
or are otherwise surrendered, canceled, forfeited or repurchased
by the Company at their original issuance price pursuant to a
contractual repurchase right. In addition, the 2007 Plan
provides for an annual increase in the number of shares
available for issuance under the 2007 Plan on the first day of
each year from 2008 through 2017 equal to the least of
a) 1.5 million shares of common stock, b) 5% of
the outstanding shares on such date and c) an amount
determined by the Board. The options generally vest ratably over
four years and expire no later than ten years after the date of
grant.
F-14
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2009, there were 282,883 shares
available for grant under the 2007 Plan. Stock option activity
during the year ended December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Average Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
Options
|
|
|
Price
|
|
|
(in years)
|
|
|
(in 000s)
|
|
|
Outstanding January 1, 2009
|
|
|
2,471,044
|
|
|
$
|
2.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,469,000
|
|
|
|
1.99
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(805,086
|
)
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(115,363
|
)
|
|
|
4.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2009
|
|
|
3,019,595
|
|
|
$
|
2.51
|
|
|
|
8.0
|
|
|
$
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable end of year
|
|
|
1,209,150
|
|
|
$
|
2.47
|
|
|
|
6.2
|
|
|
$
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested & Expected to vest end of year
|
|
|
2,618,217
|
|
|
$
|
2.53
|
|
|
|
7.8
|
|
|
$
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted
during the years ended December 31, 2009, 2008 and 2007 was
$1.21, $2.43 and $5.29, respectively. The intrinsic value of
options exercised during the years ended December 31, 2009,
2008 and 2007 was $1.3 million, $181,000 and $265,000,
respectively.
For the years ended December 31, 2009, 2008 and 2007, the
Company used the Black-Scholes option pricing model to value
option grants and determine the related compensation expense.
The assumptions used in calculating the fair value of
stock-based payment awards represent managements best
estimates.
The Company estimates expected volatility based on that of the
Companys publicly traded peer companies and expects to
continue to do so until such time as the Company has adequate
historical data. The comparable peer companies selected are
publicly traded companies with similar operations as determined
by the Companys Board of Directors. The Company intends to
continue to consistently use the same group of publicly traded
peer companies to determine volatility in the future until such
time that sufficient information regarding the volatility of its
share price becomes available or that the selected companies are
no longer suitable for this purpose.
The risk-free interest rate used within the Black Scholes model
for each grant is equal to the U.S. Treasury securities
interest rate for the expected life of the option.
The expected term of options granted was determined based on the
simplified method, in which the expected term is equal to the
midpoint of the vesting term and the original contractual term.
The Companys stock has been publicly traded for slightly
more than two years, and therefore, there is not sufficient
historical share option experience to estimate the expected term
using company specific data.
The Company recognizes compensation expense for only the portion
of options that are expected to vest. The estimated forfeiture
rate was based upon an analysis of the Companys historical
data and future expectations. If the actual number of
forfeitures differs from those estimated by management,
additional adjustments to compensation expense may be required
in future periods.
F-15
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following table provides the assumptions used in determining
the fair value of the share-based awards:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk Free Rate
|
|
1.81 - 3.40%
|
|
2.71 - 3.77%
|
|
4.50 - 5.71%
|
Expected Life
|
|
6.02 - 6.25 years
|
|
6.02 - 6.25 years
|
|
6.02 - 6.25 years
|
Expected Volatility
|
|
61.0 - 64.3%
|
|
57.2 - 65.4%
|
|
75.3%
|
Weighted Average Volatility
|
|
63.8%
|
|
61.5%
|
|
75.3%
|
Expected Dividend Yield
|
|
0%
|
|
0%
|
|
0%
|
As of December 31, 2009 the total compensation cost related
to stock-based awards granted to employees and directors but not
yet recognized was $2.0 million, net of estimated
forfeitures. These costs will be recognized on a straight-line
basis over a weighted average period of 2.7 years.
The following table presents stock-based compensation expense
included in the consolidated statements of operations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of revenues
|
|
$
|
22
|
|
|
$
|
33
|
|
|
$
|
6
|
|
Research and development
|
|
|
101
|
|
|
|
85
|
|
|
|
17
|
|
Sales and marketing
|
|
|
352
|
|
|
|
403
|
|
|
|
120
|
|
General and administrative
|
|
|
502
|
|
|
|
337
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
977
|
|
|
$
|
858
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Goodwill
And Intangibles
|
On
February 26, 2008, the Company acquired substantially all
of the assets of Mobile Collect, Inc. Mobile Collect was a
privately held company that provided text messaging and mobile
communications solutions. The Company acquired these assets with
the goal of supplementing the Companys service
capabilities to include
Free-To-End-User
text messaging. The acquisition included cash payments of
$500,000 upon closing and contingent cash payments of up to
$2 million payable through 2013 upon Mobile Collect
achieving certain established financial targets. As of
December 31, 2009, the Company had recorded $424,000 of
contingent consideration and increased the carrying value of
goodwill. Of this amount, $213,000 has been recognized as
goodwill at December 31, 2009 and the remaining balance of
$211,000 has been included in the impairment of goodwill charge
in the consolidated statement of operations for the years ended
December 31, 2009 and 2008. As of December 31, 2009,
the Company had remaining contingent consideration related to
its acquisition of up to approximately $1.6 million. The
results of operations of Mobile Collect have been included in
the accompanying financial statements from the date of the
acquisition.
During the third and fourth quarters of 2008, as well as each of
the quarters in the year ended December 31, 2009, as a
result of the economic environment impacting the Companys
business and operating results coupled with a material decline
of the Companys stock price, the Company determined that
impairment triggering events had occurred that would require
interim impairment evaluations. Therefore, in addition to the
annual November 1 review date, the Company initiated a review of
the carrying value of the goodwill for possible impairment. The
Company determined the fair value of its reporting unit using
the market approach. This review indicated that the carrying
value of its goodwill may be impaired as of September 30,
2008, December 31, 2008, March 31, 2009 and
June 30, 2009. The Company then performed the second step
of the goodwill impairment test used to measure the amount of
impairment loss, if any, and
F-16
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
compared the implied fair value of the goodwill with the
carrying amount of that goodwill. The fair value of the
reporting unit was determined using a market approach, as well
as an estimation of the fair value of the Companys assets
and liabilities required in Step 2 of the impairment test. The
fair value of the Companys assets and liabilities used in
Step 2 includes certain identifiable intangible assets, for
which fair value is typically measured using an analysis of
discounted cash flows. This resulted in impairment charges of
$121,000 for the year ended December 31, 2009 and $248,000
for the year ended December 31, 2008.
The changes in the carrying amount of the Companys
goodwill for the years ended December 31, 2009 and 2008 are
as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2008:
|
|
|
|
|
Goodwill
|
|
$
|
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition to goodwill
|
|
|
248
|
|
Impairments recognized
|
|
|
(248
|
)
|
Balance at December 31, 2008:
|
|
|
|
|
Goodwill
|
|
$
|
248
|
|
Accumulated impairment losses
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
|
|
Additions to goodwill
|
|
|
334
|
|
Impairments recognized
|
|
|
(121
|
)
|
|
|
|
|
|
Balance at December 31, 2009:
|
|
|
|
|
Goodwill
|
|
$
|
582
|
|
Accumulated impairment losses
|
|
|
(369
|
)
|
|
|
|
|
|
|
|
$
|
213
|
|
|
|
|
|
|
Amortized intangible assets consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
December 31, 2009
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Technology
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
|
|
Non-compete agreements
|
|
|
20
|
|
|
|
7
|
|
|
|
13
|
|
Customer relationships
|
|
|
320
|
|
|
|
254
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350
|
|
|
$
|
271
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
2
|
|
Non-compete agreements
|
|
|
20
|
|
|
|
3
|
|
|
|
17
|
|
Customer relationships
|
|
|
320
|
|
|
|
134
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350
|
|
|
$
|
145
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is amortizing the Mobile Collect identifiable
intangible assets over their estimated useful lives of two to
five years using methods that most closely relate to the
depletion of these assets. Estimated
F-17
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
annual amortization expense related to the intangible assets
acquired in connection with the Mobile Collect transaction is as
follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2010
|
|
$
|
63
|
|
2011
|
|
|
12
|
|
2012
|
|
|
4
|
|
|
|
|
|
|
Total
|
|
$
|
79
|
|
|
|
|
|
|
10.
Fair value
The fair value hierarchy requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs
when measuring fair value. Observable inputs are obtained from
independent sources and can be validated by a third party,
whereas unobservable inputs reflect assumptions regarding what a
third party would use in pricing an asset or liability. The fair
value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. There are three
levels of inputs that may be used to measure fair value as
follows:
Level 1 Quoted prices in active markets for
identical assets or liabilities
Level 2 Other inputs that are directly or
indirectly observable in the marketplace
Level 3 Unobservable inputs that are supported
by little or no market activity
The carrying value of the Companys financial instruments,
including cash, accounts receivable and accounts payable,
approximate their fair value because of their short-term nature.
The Company measures cash equivalents at fair value, which are
classified within Level 2 of the fair value hierarchy
because fair value is determined based on quoted prices of
similar assets. Assets measured at fair value on a recurring
basis consisted of the following types of instruments and were
reported as cash equivalents as of December 31, 2009 and
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Balance
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund deposits
|
|
$
|
|
|
|
$
|
35,626
|
|
|
$
|
|
|
|
$
|
35,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
|
|
|
$
|
35,626
|
|
|
$
|
|
|
|
$
|
35,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund deposits
|
|
$
|
|
|
|
$
|
36,036
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
|
|
|
$
|
36,036
|
|
|
$
|
|
|
|
$
|
36,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
11.
Income taxes
The Companys provision for income taxes for the years
ended December 31, 2009, 2008 and 2007 totaled $16,000,
$21,000 and $56,000, respectively, and is comprised primarily of
current state and Canadian income taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys net deferred income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
6,809
|
|
|
$
|
5,820
|
|
Accounts receivable
|
|
|
61
|
|
|
|
88
|
|
Intangibles amortization and goodwill
|
|
|
222
|
|
|
|
143
|
|
Accrued expenses
|
|
|
177
|
|
|
|
168
|
|
Research and development credits
|
|
|
1,356
|
|
|
|
1,115
|
|
Deferred revenue
|
|
|
62
|
|
|
|
|
|
Stock compensation
|
|
|
162
|
|
|
|
92
|
|
Depreciation
|
|
|
102
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
8,951
|
|
|
|
7,541
|
|
Valuation allowance
|
|
|
(8,951
|
)
|
|
|
(7,541
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. federal taxes at the statutory
rate to the Companys recorded tax provision for the years
ended December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax at U.S. federal statutory rate
|
|
$
|
(1,365
|
)
|
|
$
|
(445
|
)
|
|
$
|
178
|
|
State taxes, net of federal benefit
|
|
|
9
|
|
|
|
6
|
|
|
|
19
|
|
Research and development and other credits (generated) used
|
|
|
(292
|
)
|
|
|
44
|
|
|
|
190
|
|
Nondeductible meals and entertainment
|
|
|
28
|
|
|
|
51
|
|
|
|
57
|
|
Nondeductible stock options
|
|
|
223
|
|
|
|
255
|
|
|
|
68
|
|
Nondeductible warrants
|
|
|
|
|
|
|
|
|
|
|
120
|
|
Canadian subsidiary
|
|
|
|
|
|
|
2
|
|
|
|
(3
|
)
|
Change in valuation allowance
|
|
|
1,413
|
|
|
|
108
|
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16
|
|
|
$
|
21
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance is recorded to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. After consideration of all the
evidence, both positive and negative, including that the Company
has not achieved a history of profitable operations, management
has determined that a full valuation allowance at
December 31, 2009 and 2008 is necessary to reduce the
deferred tax assets to the amount that will more likely than not
be realized.
F-19
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2009, the Company has available federal and
state net operating loss carryforwards of approximately
$20.8 million and $4.1 million, respectively, which
will begin to expire between 2010 and 2029. These operating loss
carryforwards include $1.3 million in income tax deductions
related to stock options which will be tax effected and the
benefit will be reflected as a credit to additional paid-in
capital when realized. In addition, the Company has federal and
state R&D tax credits of approximately $911,000 and
$402,000, respectively. In addition, federal Alternative Minimum
Tax credits of $42,000 are available for carryforward. All of
these credits expire between 2018 and 2028.
Ownership changes, as defined by the Internal Revenue Code, may
substantially limit the amount of net operating loss and tax
credit carryforwards that can be utilized annually to offset
future taxable income. The Company believes that ownership
changes occurred in 2000, 2001 and at November 6, 2007, the
closing date of the Companys initial public offering.
Included in the net operating loss and tax credit carryforwards
above are $6.8 million and $225,000, respectively, as a
result of the 2000 and 2001 ownership changes which are subject
to full limitation. The ownership change in 2007 results in an
annual limitation amount of $3.6 million for the use of the
NOL carryforward generated after November 28, 2001 through
November 8, 2007.
The tax years 2000 through 2008 remain open to examination by
major taxing jurisdictions to which the Company is subject,
which are primarily in the United States, as carryforward
attributes generated in years past may still be adjusted upon
examination by the Internal Revenue Service or state tax
authorities if they have or will be used in a future period. The
Company is currently not under examination by the Internal
Revenue Service or any other jurisdictions for any tax years.
The Company recognizes both accrued interest and penalties
related to unrecognized benefits in income tax expense. The
Company has not recorded any interest or penalties on any
unrecognized tax benefits since its inception. The Company does
not believe material uncertain tax positions have arisen to
date, and as a result, no reserves for these matters have been
recorded.
12.
Benefit Plan
The Company has a retirement savings plan under
Section 401(k) of the Internal Revenue Code. Participants
may contribute up to a maximum percentage of their annual
compensation to this plan as determined by the Company, limited
to a maximum annual amount set by the Internal Revenue Service.
The Company did not make any matching contributions to this plan
during the years ended December 31, 2009, 2008 and 2007.
13.
Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
9,433
|
|
|
$
|
9,684
|
|
|
$
|
10,457
|
|
|
$
|
10,609
|
|
Cost of revenues
|
|
|
3,754
|
|
|
|
3,784
|
|
|
|
4,202
|
|
|
|
4,159
|
|
Gross profit
|
|
|
5,679
|
|
|
|
5,900
|
|
|
|
6,255
|
|
|
|
6,450
|
|
Net loss
|
|
|
(1,049
|
)
|
|
|
(1,589
|
)
|
|
|
(689
|
)
|
|
|
(704
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
F-20
SOUNDBITE
COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Revenues
|
|
$
|
10,635
|
|
|
$
|
11,308
|
|
|
$
|
10,613
|
|
|
$
|
10,655
|
|
Cost of revenues
|
|
|
4,077
|
|
|
|
4,322
|
|
|
|
4,155
|
|
|
|
4,141
|
|
Gross profit
|
|
|
6,558
|
|
|
|
6,986
|
|
|
|
6,458
|
|
|
|
6,514
|
|
Net (loss) income
|
|
|
(1,519
|
)
|
|
|
2,916
|
|
|
|
(1,509
|
)
|
|
|
(1,207
|
)
|
Basic (loss) earnings per share
|
|
|
(0.10
|
)
|
|
|
0.19
|
|
|
|
(0.10
|
)
|
|
|
(0.08
|
)
|
Diluted (loss) earnings per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
(1) |
|
Net (loss) income and basic and diluted (loss) earnings per
share include a $4.6 million gain in connection with the
settlement of the lawsuit with Universal Recovery Systems,
offset by $1.9 million of related expenses for the quarter
ended June 30, 2008. |
F-21