Attached files
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EX-32.2 - IntraLinks Holdings, Inc. | v202143_ex32-2.htm |
EX-31.2 - IntraLinks Holdings, Inc. | v202143_ex31-2.htm |
EX-32.1 - IntraLinks Holdings, Inc. | v202143_ex32-1.htm |
EX-31.1 - IntraLinks Holdings, Inc. | v202143_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form
10-Q
þ
|
Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For the quarterly period ended September
30, 2010
or
¨
|
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For the transition period from
to
Commission File Number
001-34832
INTRALINKS HOLDINGS,
INC.
(Exact name of registrant as specified
in its charter)
Delaware
|
20-8915510
|
|
(State or other jurisdiction
of
|
(I.R.S.
Employer
|
|
Incorporation or
organization)
|
Identification
Number)
|
|
150 East 42nd Street, 8th Floor, New York, New
York
|
10017
|
|
(Address of principal executive
offices)
|
(Zip
Code)
|
(212) 543-7700
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No ¨
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 (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ¨ Accelerated
filer ¨ Non-accelerated
filer þ Smaller
reporting company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨
No
þ
Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date.
Class
|
Outstanding at November 10,
2010
|
|
Common Stock, par value $.001 per
share
|
50,267,019
|
INTRALINKS HOLDINGS,
INC
QUARTERLY REPORT ON FORM
10-Q
For the quarter ended September
30,
2010
Table of Contents
Page Number
|
|||
PART 1 FINANCIAL
INFORMATION
|
1
|
||
ITEM 1.
|
Financial Statements
(Unaudited)
|
1
|
|
Consolidated Balance Sheets as of
September 30, 2010 and December 31, 2009
|
1
|
||
Consolidated Statements of
Operations for the three and nine months ended September 30, 2010 and
2009
|
2
|
||
Consolidated Statements of Changes
in Preferred Stock and Stockholder’s Equity (Deficit) for the nine months
ended September 30, 2010
|
3
|
||
Consolidated Statements of Cash
Flows for the nine months ended September 30, 2010 and
2009
|
4
|
||
Notes to Consolidated Financial
Statements
|
5
|
||
ITEM 2.
|
Management's Discussion and
Analysis of Financial Condition and Results of
Operations
|
21
|
|
ITEM 3.
|
Quantitative and Qualitative
Disclosures About Market Risk
|
37
|
|
ITEM 4.
|
Controls and
Procedures
|
38
|
|
PART II OTHER
INFORMATION
|
39
|
||
ITEM 1.
|
Legal
Proceedings
|
39
|
|
ITEM1A.
|
Risk
Factors
|
39
|
|
ITEM 2.
|
Unregistered Sales of Equity
Securities and Use of Proceeds
|
55
|
|
ITEM 3.
|
Defaults Upon Senior
Securities
|
56
|
|
ITEM 4.
|
(Removed and
Reserved)
|
56
|
|
ITEM 5.
|
Other
Information
|
56
|
|
ITEM 6.
|
Exhibits
|
57
|
|
SIGNATURES
|
58
|
SPECIAL NOTE ON FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q
contains forward-looking statements that are based on our management’s belief
and assumptions, and on information currently available to our
management. We generally identify forward looking statements by
terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,”
“could,” “intends,” “target,” “projects,” “contemplates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of these
terms or other similar words. These statements are only predictions. We have
based these forward looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our business, results of operations and financial condition. Accordingly, you
should not rely upon forward looking statements as predictions of future events.
We cannot assure you that the events and circumstances reflected in the forward
looking statements will be achieved or occur, and actual results could differ
materially from those projected in the forward looking statements. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, these statements relate to future events or our future financial
performance, and involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks, uncertainties and other
factors are more fully described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” under the heading “Risk Factors”
in Item 1A of Part II of this Form 10-Q and elsewhere in this Quarterly Report
on Form 10-Q. The forward looking statements made in this Quarterly
Report on Form 10-Q relate only to events as of the date on which the statements
are made. Except as may be required by law, we undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
Unless the context otherwise indicates,
references in this report to the terms “IntraLinks”, “we,” “our” and “us” refer
to IntraLinks Holdings, Inc. and its subsidiaries.
ITEM 1. Financial Statements
INTRALINKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and per
Share Data)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash and cash
equivalents
|
$ | 31,296 | $ | 30,481 | ||||
Restricted
cash
|
- | 87 | ||||||
Accounts receivable, net of
allowances of $2,590 and $2,470,
respectively
|
36,812 | 25,898 | ||||||
Investments
|
960 | 3,414 | ||||||
Deferred
taxes
|
6,979 | 6,979 | ||||||
Prepaid expenses and other current
assets
|
7,125 | 6,355 | ||||||
Total current
assets
|
83,172 | 73,214 | ||||||
Fixed assets,
net
|
9,404 | 7,064 | ||||||
Capitalized software,
net
|
25,230 | 20,734 | ||||||
Goodwill
|
215,478 | 215,478 | ||||||
Other intangibles,
net
|
168,021 | 189,604 | ||||||
Other
assets
|
1,911 | 3,247 | ||||||
Total
assets
|
$ | 503,216 | $ | 509,341 | ||||
LIABILITIES,
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
|
||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 5,646 | $ | 8,870 | ||||
Accrued expenses and other current
liabilities
|
18,335 | 21,958 | ||||||
Deferred
revenue
|
35,239 | 26,795 | ||||||
Total current
liabilities
|
59,220 | 57,623 | ||||||
Long term
debt
|
158,911 | 290,513 | ||||||
Deferred
taxes
|
33,086 | 42,719 | ||||||
Other long term
liabilities
|
3,300 | 4,040 | ||||||
Total
liabilities
|
254,517 | 394,895 | ||||||
Commitments and contingencies
(Note 13)
|
||||||||
Redeemable convertible preferred
stock:
|
||||||||
Series A $0.001 par value,
10,000,000 shares authorized; 0 and 35,864,887
shares
|
- | 176,478 | ||||||
issued and outstanding
(liquidation preference of $0 and $176,604) as of September
30,
|
||||||||
2010 and December 31, 2009,
respectively
|
||||||||
Stockholders' equity
(deficit)
|
||||||||
Common stock, $0.001 par value;
300,000,000 shares authorized; 50,256,662 and
3,152,669
|
50 | 3 | ||||||
shares issued and outstanding as
of September 30, 2010 and December 31, 2009,
respectively
|
||||||||
Additional paid-in
capital
|
326,797 | 4,302 | ||||||
Accumulated
deficit
|
(78,314 | ) | (66,377 | ) | ||||
Accumulated other comprehensive
income
|
166 | 40 | ||||||
Total stockholders' equity
(deficit)
|
248,699 | (62,032 | ) | |||||
Total liabilities, redeemable
convertible preferred stock and stockholders' equity
(deficit)
|
$ | 503,216 | $ | 509,341 |
The accompanying notes are an integral
part of these consolidated financial statements.
1
INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In Thousands, Except Share and per
Share Data)
(unaudited)
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenue
|
$ | 47,874 | $ | 34,037 | $ | 132,215 | $ | 101,523 | ||||||||
Cost of
revenue
|
11,916 | 10,619 | 34,947 | 37,468 | ||||||||||||
Gross
profit
|
35,958 | 23,418 | 97,268 | 64,055 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Product
development
|
5,030 | 2,764 | 13,774 | 8,780 | ||||||||||||
Sales and
marketing
|
20,130 | 15,130 | 58,256 | 43,073 | ||||||||||||
General and
administrative
|
7,234 | 5,099 | 20,376 | 14,640 | ||||||||||||
Restructuring costs (Note
12)
|
- | 45 | - | 338 | ||||||||||||
Total operating
expenses
|
32,394 | 23,038 | 92,406 | 66,831 | ||||||||||||
Income (loss) from
operations
|
3,564 | 380 | 4,862 | (2,776 | ) | |||||||||||
Interest expense,
net
|
5,862 | 7,405 | 19,998 | 21,430 | ||||||||||||
Amortization of debt issuance
costs
|
1,111 | 464 | 2,026 | 1,414 | ||||||||||||
Loss on extinguishment of
debt
|
4,974 | - | 4,974 | - | ||||||||||||
Other (income)
expense
|
(919 | ) | 625 | (1,229 | ) | 10,326 | ||||||||||
Net loss before income
tax
|
(7,464 | ) | (8,114 | ) | (20,907 | ) | (35,946 | ) | ||||||||
Income tax
benefit
|
(4,951 | ) | (5,175 | ) | (8,970 | ) | (15,807 | ) | ||||||||
Net loss
|
$ | (2,513 | ) | $ | (2,939 | ) | $ | (11,937 | ) | $ | (20,139 | ) | ||||
Net loss per common share - basic
and diluted
|
$ | (0.14 | ) | $ | (1.73 | ) | $ | (1.94 | ) | $ | (13.10 | ) | ||||
Weighted average number of shares
used in
|
||||||||||||||||
calculating net loss per common
share - basic and diluted
|
18,056,423 | 1,699,094 | 6,153,359 | 1,537,136 |
The accompanying notes are an integral
part of these consolidated financial statements.
2
INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY
(DEFICIT)
(In Thousands, Except Share and
per Share Data)
(unaudited)
Series A Redeemable Convertible
Preferred Stock
|
Common
Stock
|
|||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Total
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Income
|
Total
|
|||||||||||||||||||||||||||||||
Balance at December 31,
2009
|
35,864,886 | $ | 36 | $ | 176,442 | $ | 176,478 | 3,152,669 | $ | 3 | $ | 4,302 | $ | (66,377 | ) | $ | 40 | $ | (62,032 | ) | ||||||||||||||||||||
Foreign currency translation
adjustment
|
- | - | - | - | - | - | - | - | 126 | 126 | ||||||||||||||||||||||||||||||
Net loss
|
- | - | - | - | - | - | - | (11,937 | ) | - | (11,937 | ) | ||||||||||||||||||||||||||||
Total comprehensive loss for the
nine months ended September 30, 2010
|
- | - | - | - | - | - | - | - | - | (11,811 | ) | |||||||||||||||||||||||||||||
Forfeiture of Restricted Series A
Preferred Stock
|
(1,617 | ) | - | (8 | ) | (8 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||
Proceeds from initial public
offering
|
- | - | - | - | 11,000,000 | 11 | 132,979 | - | - | 132,990 | ||||||||||||||||||||||||||||||
Conversion of Preferred Stock to
Common Stock
|
(35,863,269 | ) | (36 | ) | (176,560 | ) | (176,596 | ) | 35,101,716 | 35 | 176,561 | - | - | 176,596 | ||||||||||||||||||||||||||
Proceeds from underwriters'
overallotment shares
|
- | - | - | - | 980,000 | 1 | 11,847 | - | - | 11,848 | ||||||||||||||||||||||||||||||
Offering costs paid in connection
with initial public offering
|
- | - | - | - | - | - | (1,860 | ) | - | - | (1,860 | ) | ||||||||||||||||||||||||||||
Forfeiture of unvested Restricted
Common Stock
|
- | - | - | - | (122,143 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
Exercise of stock options for
Common Stock
|
- | - | - | - | 144,420 | - | 240 | - | - | 240 | ||||||||||||||||||||||||||||||
Stock-based compensation
expense
|
- | - | 126 | 126 | - | - | 2,728 | - | - | 2,728 | ||||||||||||||||||||||||||||||
Balance at September 30,
2010
|
- | $ | - | $ | - | $ | - | 50,256,662 | $ | 50 | $ | 326,797 | $ | (78,314 | ) | $ | 166 | $ | 248,699 | |||||||||||||||||||||
The accompanying notes are an
integral part of these consolidated financial
statements.
|
3
INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In Thousands)
(unaudited)
Nine Months
Ended
|
||||||||
September
30,
|
||||||||
2010
|
2009
|
|||||||
Net loss
|
$ | (11,937 | ) | $ | (20,139 | ) | ||
Adjustments to reconcile net loss
to net cash provided by operating activities:
|
||||||||
Depreciation and
amortization
|
12,137 | 8,610 | ||||||
Stock-based compensation
expense
|
2,846 | 1,246 | ||||||
Amortization of intangible
assets
|
21,583 | 27,721 | ||||||
Amortization of debt
discount
|
116 | 116 | ||||||
Amortization of debt issuance
cost
|
2,026 | 1,414 | ||||||
Provision for bad debts and
customer credits
|
332 | 479 | ||||||
Gain on disposal of fixed assets,
including insurance proceeds
|
(221 | ) | (4 | ) | ||||
Change in deferred
taxes
|
(9,634 | ) | (16,252 | ) | ||||
(Gain) loss on interest rate
swap
|
(1,393 | ) | 9,666 | |||||
Loss on extinguishment of
debt
|
4,974 | - | ||||||
Non-cash interest
expense
|
4,880 | 8,723 | ||||||
Changes in operating assets and
liabilities:
|
||||||||
Restricted
cash
|
87 | 451 | ||||||
Accounts
receivable
|
(11,219 | ) | (233 | ) | ||||
Prepaid expenses and other current
assets
|
155 | (330 | ) | |||||
Other
assets
|
(2,391 | ) | 50 | |||||
Accounts
payable
|
(3,231 | ) | (1,520 | ) | ||||
Accrued expenses and other
liabilities
|
(1,800 | ) | (3,019 | ) | ||||
Deferred
revenue
|
8,662 | (266 | ) | |||||
Net cash provided by operating
activities
|
15,972 | 16,713 | ||||||
Cash flows from investing
activities:
|
||||||||
Capital
expenditures
|
(6,550 | ) | (3,745 | ) | ||||
Capitalized software development
costs
|
(12,470 | ) | (7,801 | ) | ||||
Purchase of bank time deposits
with maturities greater than three months
|
(4,320 | ) | - | |||||
Sale of investments and maturity
of bank time deposits greater than three months
|
6,810 | 25 | ||||||
Net cash used in investing
activities
|
(16,530 | ) | (11,521 | ) | ||||
Cash flows from financing
activities:
|
||||||||
Proceeds from exercise of stock
options
|
240 | 1 | ||||||
Offering costs paid in connection
with initial public offering
|
(1,767 | ) | - | |||||
Capital lease
payments
|
(27 | ) | (93 | ) | ||||
Proceeds from initial public
offering, including underwriters' overallotment
|
144,838 | - | ||||||
Repayments of outstanding
principal on long-term debt
|
(137,778 | ) | (2,873 | ) | ||||
Prepayment penalty on PIK
loan
|
(4,092 | ) | - | |||||
Net cash provided by (used in)
financing activities
|
1,414 | (2,965 | ) | |||||
Effect of foreign exchange rate
changes on cash and cash equivalents
|
(41 | ) | (65 | ) | ||||
Net increase in cash and cash
equivalents
|
815 | 2,162 | ||||||
Cash and cash
equivalents at beginning of period
|
30,481 | 24,671 | ||||||
Cash and cash
equivalents at end of period
|
$ | 31,296 | $ | 26,833 |
The accompanying notes are an integral
part of these consolidated financial statements.
4
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
1.
|
Basis of
Presentation
|
The accompanying unaudited consolidated
financial statements include the accounts of IntraLinks Holdings, Inc.
(“IntraLinks Holdings”) and its subsidiaries (collectively, the
“Company”). The consolidated financial statements included in this report
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
(“GAAP” or “U.S. GAAP”) have been condensed or omitted pursuant to such SEC
rules and regulations. The Company believes that the disclosures are
adequate to make the information presented not
misleading.
On August 5, 2010, the SEC declared
effective the Company’s registration statement on Form S-1, as amended (File No.
333-165991) (the “Registration Statement”), in connection with its initial
public offering of 11,000,000 shares of Common Stock, par value $0.001 per share
(“Common Stock”), at a public offering price of $13.00 per share. The offering
closed on August 11, 2010. Upon consummation of the Company’s initial public
offering, all outstanding shares of Series A Preferred Stock converted to
35,101,716 shares of Common Stock. On September 9, 2010, the Company
closed the sale of an additional 980,000 shares of Common Stock at the initial
public offering price of $13.00 per share pursuant to the underwriters’ exercise
of their over-allotment option in connection with the Company’s initial public
offering that closed on August 11, 2010.
The financial statements contained
herein should be read in conjunction with the Company’s audited consolidated
financial statements and related notes to audited consolidated financial
statements included in the Registration Statement.
In the opinion of management, the
accompanying unaudited consolidated financial data contain all normal and
recurring adjustments necessary to present fairly the consolidated financial
condition, results of operations and changes in cash flows of the Company for
the interim periods presented. The Company’s historical results are
not necessarily indicative of future operating results, and the results for the
first nine months ended September 30, 2010 are not necessarily indicative of
results to be expected for the full year or for any other
period.
2.
|
Summary of Significant Accounting
Policies
|
During the nine months ended September
30, 2010, there were no material changes to the Company’s significant accounting
policies from those contained in the Company’s audited consolidated financial
statements (and notes thereto) for the year ended December 31,
2009.
Recently Adopted Accounting
Pronouncements
In June 2009, the Financial Accounting
Standards Board (“FASB”) issued two updates, now codified under Accounting
Standards Update (“ASU”) 2009-16, Transfers and
Servicing (Topic 860), Accounting for Transfers of Financial Assets (“ASU 2009-16”), and ASU
2009-17, Consolidations
(Topic 810), Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities (“ASU
2009-17”). ASU 2009-16 amends the derecognition guidance in
Accounting Standards Codification (“ASC”) 860, Transfer and
Servicing, and eliminates
the exemption from consolidation for qualifying special-purpose entities
(‘‘QSPEs’’). As a result, a transferor will need to evaluate all existing QSPEs
to determine whether they must now be consolidated in accordance with ASU
2009-17. The amendments will significantly affect the overall
consolidation analysis under ASC 810, Consolidation (‘‘ASC 810’’), and all
entities and enterprises currently within the scope of ASC 810, as well as QSPEs
that are currently excluded from the scope of ASC 810. ASU 2009-16 is effective
for financial asset transfers occurring after the beginning of an entity’s first
fiscal year that begins after November 15, 2009. ASU 2009-17 is effective as of
the beginning of the first fiscal year that begins after November 15, 2009. The
Company adopted this guidance as of January 1, 2010. The adoption of this
statement did not have a material impact on the Company’s consolidated financial
statements.
In September 2009, the FASB issued ASU No. 2009-12, Fair Value
Measurements and Disclosures (“ASU 2009-12”). ASU 2009-12
amended the existing guidance on arrangements with entities that calculate net
value per share or its equivalent under ASC 820-10, Fair Value
Measurements and Disclosures to disclose (a) the nature of
restrictions on an investor’s ability to redeem its investments at the
measurement date (b) any unfunded commitments (c) investment strategies of the
investees, and (d) determine the basis of the nature and risks of the investment
in a manner consistent with U.S. GAAP. ASU 2009-12 is effective for
the first reporting period, including interim periods, ending after December 15,
2009. Early application is permitted in financial statements for
interim or annual periods that have not been issued. If early
adoption is elected the entity is permitted to defer the adoption of the
disclosure provisions until periods ending after December 15,
2009. The
Company adopted this guidance as of January 1, 2010. The Company does not currently hold any
investments in entities that calculate net asset value per share (or its
equivalent). Therefore, the adoption of this statement did not
have a material impact on the Company’s consolidated financial
statements.
5
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
In October 2009, the FASB issued ASU No. 2009-13,
Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13
amends the current guidance on arrangements with multiple deliverables under ASC
605-25,
Revenue Recognition — Multiple-Element
Arrangements ,
to (a) eliminate the separation criterion that requires entities to establish
objective and reliable evidence of fair value for undelivered elements; (b)
establish a selling price hierarchy to help entities allocate arrangement
consideration to the separate units of account; (c) eliminate the residual
allocation method which will be replaced by the relative selling price
allocation method for all arrangements; and (d) significantly expand the
disclosure requirements. ASU 2009-13 is effective for new or materially modified
arrangements in fiscal years beginning on or after June 15, 2010. Early adoption
is permitted. If early adoption is elected and the period of adoption is not the
beginning of the fiscal year, retrospective application from the beginning of
the fiscal year of adoption and additional disclosure are required.
Retrospective application for all prior periods presented in the financial
statements is also permitted, but not required. The Company adopted this
guidance as of July 1, 2010. As is disclosed in the notes to the Company’s
audited consolidated financial statements for the year ended December 31, 2009,
the Company has determined that the services delivered to customers under its
existing arrangements represent a single unit of
accounting. Therefore, the adoption of this statement did not have a
material impact on the Company’s consolidated financial
statements.
In January 2010, the FASB issued ASU No.
2010-06, Improving
Disclosures About Fair Value Measurements (‘‘ASU 2010-06’’), which amends ASC
820, Fair
Value Measurements and Disclosures , to add new requirements for
disclosures about transfers into and out of Level 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements relating to Level
3 measurements. ASU 2010-06 also clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation techniques used to
measure fair value. The ASU is effective for the first reporting period
(including interim periods) beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal years beginning
after December 15, 2010, and for interim periods within those years. Early
adoption is permitted. The Company adopted the guidance related to the Level 1
and 2 disclosures during the three months ended March 31, 2010. The
adoption of the provisions related to Level 3 disclosures are not expected to
have a material impact on the Company’s consolidated financial statements due to
the fact that the Company does not currently have assets or liabilities measured
at fair value using Level 3 inputs. See Note 3 for further
discussion.
3.
|
Fair Value
Measurements
|
As of September 30, 2010, the fair
values of the Company’s financial assets and liabilities are categorized as
presented in the table below:
Assets:
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Money market funds as cash
equivalents
|
$ | 11,937 | $ | 11,937 | $ | - | $ | - | ||||||||
Bank time deposits, maturities in
excess of three months
|
$ | 960 | $ | - | $ | 960 | $ | - | ||||||||
Investments in ARS(a)
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Liability:
|
||||||||||||||||
Interest rate swap(b)
|
$ | 7,034 | $ | - | $ | 7,034 | $ | - |
(a)
|
At June 30, 2010 the Company held
investments in auction rate securities (“ARS”) at a par value of
$900. On July 1, 2010, at the Company’s request under the
Guarantee Rights Agreement, UBS AG redeemed the ARS at par value and the
Company received $900.
|
6
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
(b)
|
Based on one-month U.S. Dollar
LIBOR index, inclusive of a $221 credit valuation adjustment (see Note
8).
|
During the nine months ended September
30, 2010, the Company invested $4,320 in bank time deposits with maturity dates
in excess of three months. The Company classified these investments
as trading securities, with gains and losses recorded to “Other (income)
expense” within the Consolidated Statement of Operations. The gains
and losses incurred during the three and nine months ended September 30, 2010
were not material. The fair value measurement for these bank time
deposits is determined by obtaining quotes from the financial institution, as
these time deposits are not traded on an active market. Therefore,
the bank time deposits are categorized as Level 2 assets, as shown in the table
above.
During the three and nine months ended
September 30, 2010, there were no transfers in or out of the Company’s Level 1
or Level 2 assets or liabilities, other than maturing bank time deposits, of
which $3,360 matured during the three and nine months ended September 30,
2010. Upon maturity, the bank time deposits are transferred into the
Company’s money market fund.
Prior to September 30, 2010, the Company
utilized Level 3 inputs to measure the ARS. As such, the changes in
fair value of the ARS and Rights during the three and nine months ended
September 30, 2010 are as follows:
ARS
|
|||||
Balance at December 31,
2009
|
$
|
3,414
|
|||
Redemptions
|
(550)
|
||||
Gain on ARS
portfolio
|
9
|
||||
Balance at March 31,
2010
|
$
|
2,873
|
|||
Gain on ARS
portfolio
|
27
|
||||
Redemptions
|
(2,000)
|
||||
Balance at June 30,
2010
|
$
|
900
|
|||
Redemptions
|
(900)
|
||||
Balance at September 30,
2010
|
$
|
-
|
|||
Guarantee Rights
Options
|
|||||
Balance at December 31,
2009
|
$
|
36
|
|||
Loss on
Rights
|
(9)
|
||||
Balance at March 31,
2010
|
$
|
27
|
|||
Loss on
Rights
|
(27)
|
||||
Balance at June 30,
2010
|
$
|
-
|
|||
No further activity through
September 30, 2010
|
|||||
4.
|
Goodwill and Other
Intangibles
|
There were no changes in the carrying
amount of goodwill through September 30, 2010.
7
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
As of September 30, 2010, Other
intangibles consists of the
following:
Definite - Lived Intangible
Assets
|
||||||||||||||||||||||||
Developed
|
Customer
|
Contractual
|
Trade Name
|
Non-
Compete
|
Total
|
|||||||||||||||||||
Technology
|
Relationships
|
Backlog
|
Agreement
|
|||||||||||||||||||||
Acquired value at June 15,
2007
|
$ | 132,369 | $ | 141,747 | $ | 9,219 | $ | 14,618 | $ | 728 | $ | 298,681 | ||||||||||||
Amortization
|
(60,118 | ) | (36,027 | ) | (9,219 | ) | (3,096 | ) | (617 | ) | (109,077 | ) | ||||||||||||
Net book value at December 31,
2009
|
$ | 72,251 | $ | 105,720 | $ | - | $ | 11,522 | $ | 111 | $ | 189,604 | ||||||||||||
Amortization
|
(3,309 | ) | (3,544 | ) | - | (304 | ) | (61 | ) | (7,218 | ) | |||||||||||||
Net book value at March 31,
2010
|
$ | 68,942 | $ | 102,176 | $ | - | $ | 11,218 | $ | 50 | $ | 182,386 | ||||||||||||
Amortization
|
(3,309 | ) | (3,544 | ) | - | (305 | ) | (50 | ) | (7,208 | ) | |||||||||||||
Net book value at June 30,
2010
|
$ | 65,633 | $ | 98,632 | $ | - | $ | 10,913 | $ | - | $ | 175,178 | ||||||||||||
Amortization
|
(3,309 | ) | (3,544 | ) | - | (304 | ) | - | (7,157 | ) | ||||||||||||||
Net book value at September 30,
2010
|
$ | 62,324 | $ | 95,088 | $ | - | $ | 10,609 | $ | - | $ | 168,021 | ||||||||||||
The Company has not identified
impairment for any of the definite-lived intangible assets and no additional
definite-lived intangible assets have been acquired through September 30,
2010.
Total intangible amortization expense is
classified in each of the operating expense categories for the periods included
below as follows:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Cost of
revenue
|
$ | 3,309 | $ | 3,309 | $ | 9,928 | $ | 15,994 | ||||||||
Sales and
marketing
|
3,544 | 3,544 | 10,631 | 10,632 | ||||||||||||
General and
administrative
|
304 | 365 | 1,024 | 1,095 | ||||||||||||
Total
|
$ | 7,157 | $ | 7,218 | $ | 21,583 | $ | 27,721 | ||||||||
Estimated intangible amortization
expense on an annual basis for the succeeding five years is as
follows:
For the year ended December
31,
|
Amount
|
|||
2010
(remainder)
|
$ | 7,157 | ||
2011
|
28,630 | |||
2012
|
25,762 | |||
2013
|
23,335 | |||
2014
|
23,335 | |||
Thereafter
|
59,802 | |||
Total
|
$ | 168,021 | ||
5.
|
Fixed Assets and Capitalized
Software
|
Fixed assets consisted of the following
at:
8
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
Computer and office equipment and
software
|
$ | 16,850 | $ | 10,642 | ||||
Furniture and
fixtures
|
772 | 644 | ||||||
Leasehold
improvements
|
1,697 | 1,528 | ||||||
Total fixed
assets
|
19,319 | 12,814 | ||||||
Less: Accumulated depreciation and
amortization
|
(9,915 | ) | (5,750 | ) | ||||
Fixed assets,
net
|
$ | 9,404 | $ | 7,064 |
The Company holds fixed assets in three
locations: the United States, United Kingdom and Brazil. No country
outside of the United States holds greater than 10% of the Company’s total fixed
assets. Depreciation expense relating to fixed assets for the three
and nine months ended September 30, 2010 was $1,736 and $4,163, respectively,
compared to $707 and $2,728, respectively, for the three and nine months
ended September 30, 2009.
On March 5, 2010, the Company entered
into an equipment sales agreement to purchase previously leased equipment from
the lessor for $3,424, thereby releasing the Company from any further commitment
or obligation for continued operating lease payments. The Company
made the final payment for the purchase of the equipment in April 2010, at which
time title of the assets that were previously subject to the lease arrangement
passed to the Company. The cost of the purchased equipment is being
depreciated over the remaining useful lives of the respective
assets. During the nine months ended September 30, 2010 the Company
recorded $1,363 of depreciation expense related to the purchased
equipment.
Capitalized software consisted of
the following at:
|
||||||||
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
Capitalized
software
|
$ | 42,777 | $ | 30,307 | ||||
Less: Accumulated
amortization
|
(17,547 | ) | (9,573 | ) | ||||
Capitalize software,
net
|
$ | 25,230 | $ | 20,734 |
Amortization expense of capitalized
software for the three and nine months ended September 30, 2010
was $2,795 and $7,974, respectively, compared to
$2,018 and $5,884 for the three and nine months ended September 30,
2009, respectively.
6.
|
Accrued Expenses and Other
Current Liabilities
|
Accrued expenses and other current
liabilities consisted of the following at:
9
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
Sales commissions and
bonuses
|
$ | 7,436 | $ | 8,316 | ||||
Current portion of interest rate
swap
|
4,657 | 5,115 | ||||||
Current portion of long-term
debt
|
1,350 | 2,530 | ||||||
Professional
fees
|
444 | 275 | ||||||
Restructuring
reserve
|
- | 732 | ||||||
Current portion of capital lease
obligations
|
- | 29 | ||||||
Accrued interest
payable
|
57 | 53 | ||||||
Other accrued
expenses
|
4,391 | 4,908 | ||||||
Total accrued expenses and other
current liabilities
|
$ | 18,335 | $ | 21,958 |
7.
|
Income
Taxes
|
The Company’s effective income tax rate
for the three months ended September 30, 2010 was 66.3%, compared to 63.8% for
the three months ended September 30, 2009 and 28.4% for the three months ended
June 30, 2010. The tax rate for the three months ended September 30,
2010 was impacted by discrete items, primarily a $3,261 benefit related to a
change in the Company’s apportionment methodology used to determine its state
tax liability, as well as $125 associated with the finalization of the Company’s
2009 tax return. Excluding discrete items, the Company’s effective income tax
rate was 21.3% and 26.9% for the three and nine months ended September 30, 2010,
respectively. The change in apportionment methodology used to
determine the state tax liability is a change in estimate that took place in
conjunction with the filing of the Company’s 2009 state tax returns during the
three months ended September 30, 2010. The resulting income tax
benefit from the decrease in the state rate was recorded as a discrete item in
the third quarter ended September 30, 2010.
The tax rate for the three months ended
September 30, 2009 was also impacted by discrete items, primarily a $3,083
benefit related to research and development tax credits, partially offset by
($872) associated with the finalization of the Company’s 2008 tax return.
Excluding discrete items, the Company’s effective income tax rate was 36.5% for
the three and nine months ended September 30, 2009.
8.
|
Debt and Derivative Financial
Instrument
|
Debt
Long-term debt consisted of the
following at:
10
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
First Lien Credit Agreement
(“First Lien Credit Facility”)
|
$ | 127,573 | $ | 129,765 | ||||
Second Lien Credit Agreement
(“Second Lien Credit Facility”):
|
||||||||
– Tranche B, net of
discount of $652 and $768, respectively
|
14,736 | 29,232 | ||||||
– Tranche
C
|
17,952 | 35,000 | ||||||
Holdings Senior PIK Credit
Agreement (“PIK Loan”)
|
- | 99,046 | ||||||
Total notes
|
160,261 | 293,043 | ||||||
Less: current
portion
|
(1,350 | ) | (2,530 | ) | ||||
Total long-term
debt
|
$ | 158,911 | $ | 290,513 |
Based on available market information,
the estimated fair value of the Company’s long-term debt was approximately
$155,361 as of September 30, 2010.
First Lien Credit
Facility
The First Lien Credit Facility provides
for term loans in the aggregate principal amount of $135,000, and quarterly
installment payments equal to 0.25% of the initial principal balance due on the
last day of each quarter, which commenced on September 30, 2007 and with the
balance due in a final installment on June 15,
2014. Additionally, the First Lien Credit Facility includes a
requirement for mandatory prepayments based on annual excess free cash flow, as
defined in the credit agreement. Term loans under the First Lien Credit
Facility bear interest at the higher of the Eurodollar Rate (as defined in the
credit agreement) or 1.5%, plus 4.5% per annum. At September 30, 2010
the interest rate on the First Lien Credit Facility was 6.0%. In
March 2009, the Company made an election allowable by the credit agreement to
change the basis which determines the variable Eurodollar interest rate from
three-month LIBOR to one-month LIBOR, with a corresponding change in the timing
of interest payments to be due on the last business day of each
month.
The First Lien Credit Facility also
provides for a $15,000 revolving line of credit, of which $12,613 was unused as
of September 30, 2010. At September 30, 2010, $2,387was reserved for
standby letters of credit, $1,587 for operating lease agreements related to the
Company’s various office locations and $800 related to the Company’s corporate
charge card utilized by executives and certain other employees. The interest
rate on the unutilized portion of the revolving line of credit was 0.5% for the
three and nine months ended September 30, 2010.
The current portion of long-term debt
reflects the quarterly mandatory principal payments of approximately $338 on the
First Lien Credit Facility due in the following year. Current portion of
long-term debt aggregated to $1,350 for the period ended September 30,
2010.
Second Lien Credit
Facility
The Second Lien Credit Facility provides
for two tranches of term loans, Tranche B in the amount of $30,000 and Tranche C
in the amount of $35,000. Both tranches are due in full on the maturity date of
December 15, 2014. Tranche B bears interest at the rate of 11.0% per annum
through its maturity date. Tranche C bears interest at the higher of the
Eurodollar Rate (as defined in the credit agreement) or 2.0%, plus 6.5% per
annum. At September 30, 2010 the interest rate on Tranche C of the
Second Lien Credit Facility was 8.5%. Similar to the change noted for the
First Lien Credit Facility above, in March 2009, the Company made an election
allowable by the credit agreement to change the basis which determines the
variable Eurodollar interest rate on the Tranche C term loan from three-month
LIBOR to one-month LIBOR, with a corresponding change in the timing of interest
payments to be due on the last business day of each month.
11
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
The Second Lien Credit Facility permits,
at the Company’s option, interest on the Tranche C term loan to be payable in
full or in part in kind by adding the accrued interest to the principal of the
term loans, which thereafter accrues interest at the rate stated above, plus a
PIK margin of 0.5%. Through September 30, 2010, the Company has not paid any of
the interest on the Tranche C term loan in kind, either in part or in
full.
In connection with the 2007 merger
transaction, pursuant to which IntraLinks, Inc. became a wholly-owned subsidiary
of IntraLinks Holdings, Inc., which was owned by TA Associates, Inc., Rho
Capital Partners, Inc. and other stockholders, former and current officers and
employees of IntraLinks, Inc. (the “2007 Merger”), the Company issued and sold
to affiliates of TA Associates, Inc. an aggregate of 20,557,900 shares of Series
A-2 Preferred Stock at a price of $4.92414 per share and 761,554 shares of
Common Stock for a total of $761.55 and in consideration for the issuance of the
$30,000 loan described above. The Company recognized a debt discount on Tranche
B of the Second Lien Credit Facility of $1,164 representing the relative fair
value associated with the issuance of the 761,554 shares of Common
Stock. The debt discount on Tranche B of the Second Lien Credit
Facility is being recognized as additional interest expense, on a straight-line
basis, over the contractual life of the loan. The 20,557,900 shares
of Series A-2 Preferred Stock held by affiliates of TA Associates, Inc.
converted into 19,796,346 shares of Common Stock on the initial public offering
date.
On May 14, 2010, the Company entered
into an agreement with its lenders to amend the First Lien Credit Agreement and
Second Lien Credit Agreement. The purpose of the amended credit agreements was
to allow the Company to use net proceeds from its initial public offering for
the repayment in full of the PIK Loan under the Holdings Senior PIK Credit
Agreement and for the repayment of the Tranche B and Tranche C term loans under
the Second Lien Credit Agreement on a pro rata basis. Under the terms of the
existing First and Second Lien Credit Agreements, the Company was restricted
with regards to repayment preference. The amendment of the First Lien Credit
Agreement includes updated terms on the interest rate, including a floor of 1.5%
(should the Company elect the Eurodollar Rate option) and an increase in the
rate margin of 1.75%. The amendment of the Second Lien Credit Agreement includes
updated terms on the interest rate of the Tranche C term loan, including a
floor of 2.0% (should the Company elect the Eurodollar Rate option) and an
increase in the rate margin of 0.75%. The updated interest rates under the
amended credit agreements became effective immediately following the
consummation of the Company’s initial public offering, which occurred on August
11, 2010. During the three months ended September 30, 2010, the
Company incurred an amendment fee of $520, payable to the creditors,
equal to 0.25% of the total
outstanding balances, and an arrangement fee of $500 payable to Deutsche Bank
Securities, Inc. who acted as sole arranger and book runner for the amendments
to the First and Second Lien Credit Agreements. The arrangement fee of $500,
paid to Deutsche Bank Securities, Inc. as a third-party administrator, was
expensed as incurred during the three months ended September 30, 2010, with $333
classified as “Amortization of deferred financing costs” and $167, representing
the portion of the fee allocated to the PIK Loan, classified as “Loss on
extinguishment of debt” within the Consolidated Statement of
Operations. See Use of IPO
Proceeds and Accounting for Debt
Modification below for
further details regarding the accounting treatment for the amendment
fee.
PIK Loan
During the three months ended September
30, 2010, the Company prepaid the PIK Loan balance using the proceeds from the
initial public offering (see “Use of IPO Proceeds” below for additional
details). The PIK Loan provided for loans in the amount of $75,000
and bore interest at the rate of 12.0% per annum for dates prior to June 15,
2009 and 13.0% per annum thereafter. Interest payments were due
quarterly on the last business day of each March, June, September and
December. PIK Loan interest was automatically payable in kind and
added to the principal balance of the PIK Loan, which thereafter accrued
interest. Under the terms of the First Lien Credit Facility, the
Company was allowed to elect to pay PIK Loan interest in cash in amounts up to
$2,000 per year and an additional $7,500 over the term of the
loan. On March 31, 2010, the Company exercised its option and elected
to pay the quarterly interest due in cash of $3,219. All PIK Loan
interest for the period of April 1, 2010 through the date the PIK Loan was paid
in full, was paid-in-kind, adding to the principal amount
due.
Use of IPO
Proceeds
Pursuant to the amended terms of the
First and Second Lien Credit Agreements, the Company used the proceeds from its
initial public offering to first prepay in full all outstanding indebtedness
under the PIK Loan, with a portion of the remaining proceeds applied to Tranche
B and Tranche C of the Second Lien Credit Facility, on a pro rata
basis. Upon repayment of the PIK Loan, the Company incurred a prepayment
penalty in the amount of $4,092, or 4% of the outstanding
balance. The prepayment penalty, as well as $715 in accelerated
amortization of deferred financing costs from original issuance and $167 in
financing costs from the arrangement of the credit amendments, was recorded as a
“Loss on extinguishment of debt” within the Consolidated Statement of Operations
for the three and nine months ended September 30, 2010.
12
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
Accounting for Debt
Modification
The modification of certain terms of the
First and Second Lien Credit Agreements, as described above, required the
Company to perform an assessment of future cash flows to determine if the
modified terms represented a substantial difference when compared to the
original terms. Based on the results of the assessment of future cash flows, the
Company concluded that the amendments to the First and Second Lien Credit
Agreements did not represent substantially different terms and therefore,
modification accounting, rather than debt extinguishment accounting, should be
applied. Therefore, the Company calculated a new effective interest
rate based on the carrying amounts of the original debt
instruments. The effective interest rates for the First Lien Credit
Facility and Tranches B and C of the Second Lien Credit Facility as of September
30, 2010 were 6.7%, 11.4% and 8.9%, respectively. The effective
interest rates for each debt instrument include the pro rata share of the
amendment fee, which was deferred and will be amortized over the remaining term
of the loan utilizing the effective interest rate
method. Amortization of deferred financing costs is disclosed
separately as a non-operating expense within the Consolidated Statement of
Operations.
The following table summarizes the
interest expense incurred on long-term debt:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
First Lien Credit
Facility
|
$ | 1,561 | $ | 1,036 | $ | 3,573 | $ | 3,532 | ||||||||
– Tranche B, inclusive
of $39, $39, $117, and $117, respectively, related to debt
discount
|
717 | 882 | 2,454 | 2,619 | ||||||||||||
– Tranche
C
|
513 | 540 | 1,571 | 1,724 | ||||||||||||
PIK Loan
|
1,625 | 3,185 | 8,099 | 8,754 | ||||||||||||
Interest Rate Swap (see
below)
|
1,452 | 1,776 | 4,336 | 4,876 | ||||||||||||
Total interest expense on
long-term debt
|
$ | 5,868 | $ | 7,419 | $ | 20,033 | $ | 21,505 |
Derivative Financial
Instrument
Interest Rate Swap
Transaction
For the periods presented, the Company
recorded the fair value of the interest rate swap liability as
follows:
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
Interest rate swap
liability
|
|
$ | 7,034 | $ | 8,427 | |||
Less: current portion as recorded
within Accrued expenses and other current liabilities (See Note
6)
|
(4,657 | ) | (5,115 | ) | ||||
Total long-term liability as
recorded within Other long - term liabilities
|
$ | 2,377 | $ | 3,312 |
On July 19, 2007, the Company entered
into an interest rate swap agreement that fixed the interest rate at 5.43% on a
beginning notional amount of $170,000. The notional amount amortizes over a
period ending June 30, 2012. At September 30, 2010 the notional
amount of $115,000 covered approximately 79% of the Company’s variable rate debt
on the First Lien Credit Facility and Tranche C of the Second Lien Credit
Facility.
13
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
On March 25, 2009, in conjunction with
the elections made on the First and Second Lien Credit Facility variable rate
bases (from three-month LIBOR to one-month LIBOR, and quarterly interest
payments to monthly), the Company amended the variable leg of its interest rate
swap agreement to mirror the current terms of the First and Second Lien
Facilities. The fixed rate payable on the interest rate swap was also revised
from 5.43% to 5.25%.
The fair value of the interest rate swap
derivative is derived from dealer quotes, which incorporate a credit valuation
adjustment at the reporting date. The credit valuation adjustments represent
discounts to consider the Company’s own credit risk, since the interest rate
swap is in a liability position. Valuations may fluctuate considerably from
period-to-period due to volatility in underlying interest rates, which is driven
by market conditions and the duration of the swap. The Company recorded $221 in
credit valuation adjustments during the three months ended September 30,
2010. The value of the interest rate swap represents the estimate
amount the Company would receive (or pay) to terminate the agreement at the
respective measurement date.
Prior to March 25, 2009, the Company had
not recorded any gain or loss due to ineffectiveness of the hedge, or as the
result of a discontinuance of the hedge. Based on the changes made to the swap
agreement on March 25, 2009, as of that date, the Company no longer qualified to
use hedge accounting, and therefore recorded a loss of $10,653 during the three
months ended March 31, 2009, which was reflected in “Other (income) expense” within the Consolidated Statement of
Operations. The loss of $10,653 represents the accumulated fair value
adjustments that were recorded through “Accumulated other comprehensive
income” on the Consolidated
Balance Sheet, from the inception of the swap agreement through the date of the
hedge de-designation.
The effects of derivative instruments on
the consolidated statements of operations were as follows for the periods
presented (amounts presented excluded any income tax
effects):
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Other (income)
expense
|
$ | (639 | ) | $ | 611 | $ | (1,393 | ) | $ | 9,666 |
9.
|
Stockholders’ Equity
(Deficit)
|
In August 2010, the Company completed
its initial public offering, issuing 11,000,000 shares of Common Stock at a
public offering price of $13.00 per share. As a result of the offering, the
Company received net proceeds of $132,990 after deducting underwriting discounts
and commissions of $10,010. As of September 30, 2010, offering costs
paid in connection with the initial public offering totaled $1,860, consisting
primarily of legal and accounting fees.
Upon completion of the initial public
offering, the Company filed an amended and restated certificate of incorporation
to increase the Company’s authorized capital stock to 310,000,000 shares,
consisting of 300,000,000 shares of Common Stock and 10,000,000 shares of Series
A Preferred Stock.
At the closing of the initial public
offering, all outstanding shares of Series A Preferred Stock converted to
35,101,716 shares of Common Stock. At September 30, 2010, there were
no shares of Series A Preferred Stock issued or outstanding.
In September 2010, the underwriters
exercised their over-allotment option to purchase 980,000 shares of Common Stock
at the public offering price of $13.00 per share. The Company received an
additional $11,848 in net proceeds, after deducting underwriting discounts and
commissions of $892.
At September 30, 2010, there were
50,256,662 shares of Common Stock issued and outstanding.
14
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
10.
|
Employee Stock
Plans
|
The Company maintains several
share-based compensation plans which are more fully described
below. Total stock-based compensation expense related to all of the
Company’s stock awards was included in various operating expense categories for
the periods included below, as follows:
2007 Restricted Preferred Stock
Plan
The following table summarizes the
Restricted Preferred Stock Plan activity for the three and nine months ended
September 30, 2010:
Shares
|
Weighted Average
Grant Date Fair
Value
|
|||||||
Non-vested shares at December 31,
2009
|
48,065 | $ | 4.92 | |||||
Vested
|
(19,897 | ) | 4.92 | |||||
Cancelled
|
(1,617 | ) | 4.92 | |||||
Non-vested shares at March 31,
2010
|
26,551 | 4.92 | ||||||
Vested
|
(19,082 | ) | 4.92 | |||||
Non-vested shares at June 30,
2010
|
7,469 | 4.92 | ||||||
Vested
|
(1,516 | ) | 4.92 | |||||
Converted to Common
Stock
|
(5,953 | ) | $ | 4.92 | ||||
Non-vested shares at September 30,
2010
|
― |
The aggregate intrinsic value of
restricted Series A-1 Preferred shares outstanding at September 30, 2010 was
$0. Stock based compensation for the restricted Series A-1 Preferred
shares during the three and nine months ended September 30, 2010 was $6 and
$118, respectively, and $96 and $399, respectively, for the three and nine
months ended September 30, 2009.
2007 Stock Option and Grant
Plan
The maximum number of shares of Common
Stock initially reserved and available for issuance under the 2007 Stock Option
and Grant Plan was 4,000,000 shares. Under the 2007 Stock Option and Grant Plan,
the maximum number of shares will increase by one share automatically for every
share of restricted Series A-1 Preferred issued under the Restricted Preferred
Stock Plan that fails to vest and is cancelled. On March 8, 2010, an
additional 4,000,000 shares of Common Stock were authorized for issuance under
the 2007 Stock Option and Grant Plan, increasing the number of shares of Common
Stock authorized for issuance to 8,000,000. Effective upon the
adoption of the Company’s 2010 Equity Incentive Plan, the Company’s board of
directors decided not to grant any further awards under the 2007 Stock Option
and Grant Plan.
2010 Equity Incentive
Plan
The 2010 Equity Incentive Plan was
adopted by the Company’s board of directors in March 2010 and approved by its
stockholders in July 2010. The 2010 Equity Incentive Plan permits the Company to
make grants of stock options (both incentive stock options and non-qualified
stock options), stock appreciation rights, restricted stock, restricted stock
units, unrestricted stock, cash-based awards, performance shares and dividend
equivalent rights to its executives, employees, non-employee directors and
consultants. The maximum number of shares of Common Stock reserved
and available for issuance under the 2010 Equity Incentive Plan is 8,000,000
shares. Generally, shares that are forfeited or canceled from awards under the
2010 Equity Incentive Plan, the 2007 Stock Option and Grant Plan and the
Restricted Preferred Stock Plan also will be available for future
awards.
15
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
The following table summarizes the
weighted average values of the assumptions used in the Black-Scholes pricing
model to estimate the fair value of the options granted during the period
presented:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||
September
30,
|
September
30,
|
|||||||||
2010
|
2009
|
2010
|
2009
|
|||||||
Expected
volatility
|
78.1%
|
77.0%
|
77.1%
|
77.0%
|
||||||
Expected life of
option
|
6.19 Years
|
5.91 Years
|
6.17 Years
|
5.91 Years
|
||||||
Risk free interest
rate
|
2.00%
|
2.59%
|
2.48%
|
2.59%
|
||||||
Estimated forfeiture
rate
|
11% - 20%
|
11% - 20%
|
11% - 20%
|
11% - 20%
|
||||||
Expected dividend
yield
|
0%
|
0%
|
0%
|
0%
|
The following table summarizes stock
option activity for the three and nine months ended September 30,
2010:
Shares
|
Weighted Average
Exercise
Price
|
|||||||
Outstanding at December 31,
2009
|
1,585,243 | $ | 2.03 | |||||
Granted
|
1,010,000 | 6.76 | ||||||
Exercised
|
(72,365 | ) | 1.59 | |||||
Cancelled
|
(36,023 | ) | 2.06 | |||||
Outstanding at March 31,
2010
|
2,486,855 | 3.97 | ||||||
Exercised
|
(14,597 | ) | 1.59 | |||||
Cancelled
|
(62,792 | ) | 2.57 | |||||
Outstanding at June 30,
2010
|
2,409,466 | 4.03 | ||||||
Granted
|
537,500 | 13.00 | ||||||
Exercised
|
(57,458 | ) | 1.77 | |||||
Cancelled
|
(93,642 | ) | 4.37 | |||||
Outstanding at September 30,
2010
|
2,795,866 | $ | 5.76 |
At September 30, 2010 the aggregate
intrinsic value of stock options outstanding and exercisable was $31,175 and
$10,947, respectively. The intrinsic value for stock options is calculated based
on the exercise price of the underlying awards and the calculated fair value of
such awards as of each respective period-end date.
The following table summarizes
non-vested stock option activity for the three and nine months ended September
30, 2010:
16
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
Shares
|
Weighted Average
Grant Date Fair
Value
|
|||||||
Non-vested options outstanding at
December 31, 2009
|
972,811 | $ | 3.35 | |||||
Granted
|
1,010,000 | 7.05 | ||||||
Vested
|
(85,003 | ) | 2.51 | |||||
Cancelled
|
(16,288 | ) | 4.04 | |||||
Non-vested options outstanding at
March 31, 2010
|
1,881,520 | 5.36 | ||||||
Vested
|
(104,610 | ) | 3.36 | |||||
Cancelled
|
(59,793 | ) | 4.25 | |||||
Non-vested options outstanding at
June 30, 2010
|
1,717,117 | 5.52 | ||||||
Granted
|
537,500 | 8.95 | ||||||
Vested
|
(95,066 | ) | 3.18 | |||||
Cancelled
|
(90,231 | ) | 5.82 | |||||
Non-vested options outstanding at
September 30, 2010
|
2,069,320 | $ | 6.50 |
Stock-based compensation expense for the
Company’s stock options under the 2007 Stock Option and Grant Plan, during the
three and nine months ended September 30, 2010 was $750 and $1,763,
respectively, and $116 and $309, respectively, for the three and nine months
ended September 30, 2009.
Restricted Stock Awards
(“RSAs”)
Information concerning RSA’s outstanding
under the 2007 Stock Option and Grant Plan is as follows:
Shares
|
Weighted
Average
Grant Date Fair
Value
|
|||||||
Non-vested shares at December 31,
2009
|
1,197,607 | $ | 2.90 | |||||
Vested and exchanged for Common
Stock
|
(141,820 | ) | 2.94 | |||||
Cancelled
|
(41,786 | ) | 1.59 | |||||
Non-vested shares at March 31,
2010
|
1,014,001 | 2.95 | ||||||
Vested and exchanged for Common
Stock
|
(105,215 | ) | 1.59 | |||||
Non-vested shares at June 30,
2010
|
908,786 | $ | 3.11 | |||||
Preferred shares converted to
Common Stock
|
5,953 | 4.92 | ||||||
Vested and exchanged for Common
Stock
|
(162,747 | ) | 3.73 | |||||
Cancelled
|
(80,357 | ) | 1.59 | |||||
Non-vested shares at September 30,
2010
|
671,635 | $ | 3.14 |
The aggregate intrinsic value of RSAs
outstanding at September 30, 2010 was $11,278. The intrinsic value
for RSAs is calculated based on the par value of the underlying awards and the
calculated fair value of such awards as of each period-end
date.
Stock-based compensation expense for the
Company’s RSAs under the 2007 Stock Option and Grant Plan, for the three and
nine months ended September 30, 2010 was $346 and $965, respectively, and $217
and $539, respectively, for the three and nine months ended September 30,
2009.
2010 Employee Stock Purchase
Plan
The 2010 Employee Stock Purchase Plan
(the “2010 ESPP”) was adopted by the Company’s board of directors and approved
by its stockholders in July 2010. The Company’s 2010 Employee Stock
Purchase Plan authorizes the issuance of up to a total of 400,000 shares of its
Common Stock to participating employees. The Company will make one or
more offerings each year to its employees to purchase stock under the 2010
Employee Stock Purchase Plan, usually beginning on each January 1, April 1, July
1 and October 1 and will continue for three-month periods. For the
three months ended September 30, 2010, no shares were issued under the 2010
ESPP.
17
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
11.
|
Net Loss per
Share
|
Basic net loss per share is computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period, excluding the dilutive effects of Common Stock
equivalents. Common Stock equivalents include stock options, unvested
shares of restricted Common Stock and convertible securities, such as
convertible preferred stock. Diluted net loss per share assumes the
conversion of the Series A Preferred Stock using the “if converted” method, if
dilutive, and includes the dilutive effect of stock options and restricted
shares of Common Stock under the treasury stock method.
The following table provides a
reconciliation of the numerator and denominator used in computing basic and
diluted net loss per common share:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net loss
|
$ | (2,513 | ) | $ | (2,939 | ) | $ | (11,937 | ) | $ | (20,139 | ) | ||||
Denominator:
|
||||||||||||||||
Basic
shares
|
― | ― | ― | ― | ||||||||||||
Weighted-average common shares
outstanding
|
18,056,423 | 1,699,094 | 6,153,359 | 1,537,136 | ||||||||||||
Diluted
shares:
|
||||||||||||||||
Weighted-average shares used to
compute basic net loss per share
|
18,056,423 | 1,699,094 | 6,153,359 | 1,537,136 | ||||||||||||
Effect of potentially dilutive
securities:
|
― | ― | ― | ― | ||||||||||||
Options to purchase Common
Stock
|
― | ― | ― | ― | ||||||||||||
Unvested shares of restricted
Common Stock
|
― | ― | ― | ― | ||||||||||||
Series A Preferred
Stock
|
― | ― | ― | ― | ||||||||||||
Weighted-average shares used to
compute diluted net loss per share
|
18,056,423 | 1,699,094 | 6,153,359 | 1,537,136 | ||||||||||||
Net loss per
share:
|
||||||||||||||||
Basic and
Diluted
|
$ | (0.14 | ) | $ | (1.73 | ) | $ | (1.94 | ) | $ | (13.10 | ) | ||||
The following outstanding options,
unvested shares of restricted Common Stock, and Series A Preferred Stock were
excluded from the computation of diluted net loss per share for the periods
presented as their effect would have been antidilutive:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Options to purchase Common
Stock
|
2,795,866 | 1,635,397 | 2,795,866 | 1,635,397 | ||||||||||||
Unvested shares of restricted
Common Stock
|
671,635 | 1,090,945 | 671,635 | 1,090,945 | ||||||||||||
Series A Preferred Stock
(as-converted basis)
|
― | 35,110,873 | ― | 35,110,873 |
12.
|
Restructuring
Costs
|
The restructuring in 2009 included
employee severance and other employee-related termination costs and primarily
involved a reorganization of the Company’s sales and sales supporting operation
functions (the “2009 Plan”). The 2009 Plan was designed to enable the Company to
operate more efficiently in a still uncertain economic environment and for
continued expansion of its services into broader markets. The 2009 Plan
encompassed approximately 60 employees that were terminated in
2009.
18
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
The restructuring in 2008 included
employee severance and other employee-related termination costs and involved a
broad organizational streamlining, consolidating responsibilities in certain
related functions and eliminating overlapping support functions (the “2008
Plan”). These changes were designed to streamline internal processes
and to enable the Company to continue to be more effective and efficient in
meeting the needs of the organization and its customers. The 2008
Plan was also designed to enable the Company to operate more efficiently in an
uncertain economic environment, as well as to position the Company for expansion
of its services into broader markets. The 2008 Plan encompassed
approximately 69 employees that were terminated in 2008.
The following table displays activity
and balances of the restructuring reserves through September 30,
2010:
2008 Plan
|
2009 Plan
|
Total Costs
|
||||||||||
Balance at December 31,
2008
|
$ | 657 | $ | - | $ | 657 | ||||||
Expense
|
- | 47 | 47 | |||||||||
Payments
|
(551 | ) | (56 | ) | (607 | ) | ||||||
Balance at March 31,
2009
|
106 | (9 | ) | 97 | ||||||||
Expense
|
- | 244 | 244 | |||||||||
Payments
|
(106 | ) | (235 | ) | (341 | ) | ||||||
Balance at June 30,
2009
|
- | - | - | |||||||||
Expense
|
- | 46 | 46 | |||||||||
Payments
|
- | (46 | ) | (46 | ) | |||||||
Balance at September 30,
2009
|
- | - | - | |||||||||
Expense
|
- | 1,157 | 1,157 | |||||||||
Payments
|
- | (425 | ) | (425 | ) | |||||||
Balance at December 31,
2009
|
- | 732 | 732 | |||||||||
Payments
|
- | (557 | ) | (557 | ) | |||||||
Balance at March 31,
2010
|
- | 175 | 175 | |||||||||
Payments
|
- | (175 | ) | (175 | ) | |||||||
Balance at June 30,
2010
|
$ | - | $ | - | $ | - | ||||||
No further activity through
September 30, 2010
|
13.
|
Commitments and
Contingencies
|
Legal Proceedings
The Company is involved in claims and
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of such matters will not have a material
effect on the Company’s financial position, results of operations, or liquidity.
Presently, the Company is not involved in any material legal
proceedings.
14. Comprehensive Loss
Comprehensive
Loss is comprised of two
components, net loss and other comprehensive loss. For the three and nine months
ended September 30, 2010 and 2009, comprehensive loss consisted of the
following:
19
INTRALINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(In Thousands, Except Share and per
Share Data)
(unaudited)
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net loss
|
$ | (2,513 | ) | $ | (2,939 | ) | $ | (11,937 | ) | $ | (20,139 | ) | ||||
Other comprehensive income, net of
tax:
|
||||||||||||||||
Foreign currency translation
adjustments (net of tax of $7, $12, $34 and ($108),
respectively)
|
31 | 33 | 126 | (295 | ) | |||||||||||
Loss on derivatives, reclassified
to earnings (net of tax of $4,634)
|
― | ― | ― | 6,019 | ||||||||||||
Total other comprehensive income,
net of tax
|
31 | 33 | 126 | 5,724 | ||||||||||||
Comprehensive
loss
|
$ | (2,482 | ) | $ | (2,906 | ) | $ | (11,811 | ) | $ | (14,415 | ) |
20
ITEM 2: MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of
our financial condition and results of operations should be read together with
our consolidated financial statements and related notes to consolidated
financial statements included elsewhere in this Quarterly Report on Form
10-Q. Dollars in tabular format are presented in thousands, except
share and per share data, or otherwise indicated.
Overview
IntraLinks is a leading global provider
of Software-as-a-Service (“SaaS”) solutions for securely managing content,
exchanging critical business information and collaborating within and among
organizations. Our cloud-based solutions enable organizations to
control, track, search and exchange time-sensitive information inside and
outside the firewall, all within a secure and easy-to-use
environment. Our customers rely on our cost-effective solutions to
manage large amounts of electronic information, accelerate information intensive
business processes, reduce time to market, optimize critical information
workflow, meet regulatory and risk management requirements and collaborate with
business counterparties in a secure, auditable and compliant
manner. We help our customers eliminate the inherent risks and
inefficiencies of using email, fax, courier services and other existing
solutions to collaborate and exchange information.
At our founding in 1996, we introduced
cloud-based collaboration for the debt capital markets industry and, shortly
thereafter, extended our solutions to merger and acquisitions
transactions. We have since enhanced our IntraLinks Platform to
address the needs of a wider enterprise market consisting of customers of all
sizes across a variety of industries using our solutions for the secure
management and online exchange of information within and among
organizations. Today, this enterprise market is our largest and
fastest growing market and includes organizations in the financial services,
pharmaceutical, biotechnology, consumer, energy, industrial, legal, insurance,
real estate and technology sectors, as well as government
agencies. Across all of our principal markets, we help transform a
wide range of slow, expensive and information-intensive tasks into streamlined,
efficient and real-time business processes. In the year ended
December 31, 2009, over 4,300 customers across 25 countries used the IntraLinks
Platform to enable collaboration among more than 400,000 end-users and
approximately 50,000 organizations worldwide.
We deliver our solutions entirely
through a multi-tenant SaaS architecture in which a single instance of our
software serves all of our customers. Our business model has provided
us with a high level of revenue visibility. We sell our solutions
directly through an enterprise sales team with industry-specific expertise, and
indirectly through a customer referral network and channel
partners. During the nine months ended September 30, 2010, we
generated $132.2 million in revenue, of which approximately 35% was derived from
international sales across 60 countries.
On August 5, 2010, the SEC declared
effective our registration statement on Form S-1, as amended (File No.
333-165991) (the “Registration Statement”), in connection with our initial
public offering of 11,000,000 shares of Common Stock, par value $0.001 per share
(“Common Stock”), at a public offering price of $13.00 per share. The offering
closed on August 11, 2010. On September 9, 2010, we closed the sale
of an additional 980,000 shares of Common Stock at the initial public offering
price of $13.00 per share pursuant to the underwriters’ exercise of their
over-allotment option in connection with our initial public offering that closed
on August 11, 2010. Total net proceeds received from the initial
public offering, including the underwriters’ exercise of the over-allotment
option, was $144.8 million after deducting underwriter commissions and discounts
of $10.9 million. We used substantially all of the net
proceeds of our initial public offering and the sale of the underwriters’
over-allotment shares to repay indebtedness.
We evaluate our operating and financial
performance using various performance indicators, including the financial
metrics discussed under “Key Metrics” below, as well as the macroeconomic trends
affecting the demand for our solutions in our principal markets. We
also monitor relevant industry performance, including transactional activity in
the debt capital markets and M&A market globally, to provide insight into
the success of our sales activities as compared to our peers and to estimate our
market share in each of our principal markets.
Key Metrics
Our management relies on certain
performance indicators to manage and assess our business. The key
performance indicators set forth below help us evaluate growth trends, establish
budgets, measure the effectiveness of our sales and marketing efforts and assess
operational efficiencies. We discuss revenue and cash flow provided
by operating activities under “Results of Operations” and “Liquidity
and Capital Resources”, respectively, below. The non-GAAP measures of
our performance, including adjusted gross margin, adjusted EBITDA and adjusted
EBITDA margin are discussed under “Non-GAAP Financial Measures”
below.
21
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Consolidated Statement of
Operations Data:
|
||||||||||||||||
Revenue
|
$ | 47,874 | $ | 34,037 | $ | 132,215 | $ | 101,523 | ||||||||
Adjusted gross
margin
|
82.1
|
% |
78.6
|
% |
81.1
|
% |
78.9
|
% | ||||||||
Adjusted
EBITDA
|
$ | 16,354 | $ | 10,752 | $ | 41,428 | $ | 34,803 | ||||||||
Adjusted EBITDA
margin
|
34.2
|
% |
31.6
|
% |
31.3
|
% |
34.3
|
% | ||||||||
Consolidated Balance Sheet
Data:
|
||||||||||||||||
Deferred revenue at September
30,(1)
|
$ | 35,239 | $ | 24,797 | $ | 35,239 | $ | 24,797 | ||||||||
Consolidated Statement of Cash
Flows Data:
|
||||||||||||||||
Cash flow provided by operating
activities
|
$ | 11,887 | $ | 8,761 | $ | 15,972 | $ | 16,713 | ||||||||
(1)
|
Deferred revenue represents the
billed but unearned portion of existing contracts for services to be
provided. Deferred revenue does not include future potential
revenue represented by the unbilled portion of existing contractual
commitments of our
customers.
|
In addition to the metrics listed in the
table above, our management regularly analyzes customer contract data, including
aggregate contract values, contract durations and payment terms, which provide
indications of future revenue represented by contractual fees not yet
billed. Management also monitors sales and marketing activity,
customer renewal rates, the mix of subscription and transaction business and
international business growth to evaluate various aspects of our operating and
financial performance. These items are discussed elsewhere in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Non-GAAP Financial
Measures
To supplement our consolidated financial
statements presented in accordance with generally accepted accounting principles
in the United States (“GAAP” or “U.S. GAAP”), we consider certain financial
measures that are not prepared in accordance with GAAP, including non-GAAP
adjusted EBITDA, non-GAAP adjusted EBITDA margin and non-GAAP adjusted gross
margin. These non-GAAP measures are not based on any standardized methodology
prescribed by GAAP and are not necessarily comparable to similar measures
presented by other companies.
Adjusted EBITDA represents net income
(loss) adjusted for (1) interest expense, net of interest income, (2) income tax
provision (benefit), (3) depreciation and amortization, (4) amortization of
intangible assets, (5) stock-based compensation expense, (6) amortization of
debt issuance costs, (7) loss on extinguishment of debt and (8) other (income)
expense. Items (1) through (8) are excluded from net income (loss) internally
when evaluating our operating performance. Adjusted EBITDA margin represents
adjusted EBITDA as a percentage of revenue. Adjusted gross margin represents
gross profit, adjusted for amortization of intangible assets and stock-based
compensation expense classified within the cost of revenue line item, as a
percentage of revenue.
Management believes that adjusted
EBITDA, adjusted EBITDA margin and adjusted gross margin, when viewed with our
results under U.S. GAAP and the accompanying reconciliations, provide useful
information about operating performance and period-over-period growth, and
provide additional information that is useful for evaluating our operating
performance. Additionally, management believes that adjusted EBITDA, adjusted
EBITDA margin and adjusted gross margin provide a more meaningful comparison of
our operating results against those of other companies in our industry, as well
as on a period-to-period basis, because these measures exclude items that are
not representative of our operating performance, such as ongoing costs related
to the 2007 Merger, including amortization of intangible assets that were
recorded as a result of the merger, and interest expense and fair value
adjustments to the interest rate swap related to the long-term debt incurred to
finance the merger. Management believes that including these costs in our
results of operations results in a lack of comparability between our operating
results and those of our peers in the industry, the majority of which are not
highly leveraged and do not have comparable amortization costs related to
intangible assets. However, adjusted EBITDA, adjusted EBITDA margin and adjusted
gross margin are not measures of financial performance under U.S. GAAP and,
accordingly, should not be considered as an alternative to net loss as an
indicator of operating performance.
22
The table below provides reconciliations
between the non-GAAP financial measures discussed above to the comparable U.S.
GAAP measures of net loss and gross profit, respectively:
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net loss
|
$ | (2,513 | ) | $ | (2,939 | ) | $ | (11,937 | ) | $ | (20,139 | ) | ||||
Interest expense,
net
|
5,862 | 7,405 | 19,998 | 21,430 | ||||||||||||
Income tax
benefit
|
(4,951 | ) | (5,175 | ) | (8,970 | ) | (15,807 | ) | ||||||||
Depreciation and
amortization
|
4,531 | 2,725 | 12,137 | 8,612 | ||||||||||||
Amortization of intangible
assets
|
7,157 | 7,218 | 21,583 | 27,721 | ||||||||||||
Stock-based compensation
expense
|
1,102 | 429 | 2,846 | 1,246 | ||||||||||||
Amortization of debt issuance
costs
|
1,111 | 464 | 2,026 | 1,414 | ||||||||||||
Loss on extinguishment of
debt
|
4,974 | ― | 4,974 | ― | ||||||||||||
Other (income)
expense
|
(919 | ) | 625 | (1,229 | ) | 10,326 | ||||||||||
Adjusted
EBITDA
|
$ | 16,354 | $ | 10,752 | $ | 41,428 | $ | 34,803 | ||||||||
Adjusted EBITDA
margin
|
34.2 | % | 31.6 | % | 31.3 | % | 34.3 | % | ||||||||
Gross
profit
|
35,958 | 23,418 | 97,268 | 64,055 | ||||||||||||
Gross
margin
|
75.1 | % | 68.8 | % | 73.6 | % | 63.1 | % | ||||||||
Adjustments:
|
||||||||||||||||
Cost of revenue - amortization of
intangible assets
|
3,309 | 3,309 | 9,928 | 15,994 | ||||||||||||
Cost of revenue - stock-based
compensation expense
|
36 | 13 | 64 | 53 | ||||||||||||
Adjusted gross
profit
|
$ | 39,303 | $ | 26,740 | $ | 107,260 | $ | 80,102 | ||||||||
Adjusted gross
margin
|
82.1 | % | 78.6 | % | 81.1 | % | 78.9 | % | ||||||||
23
Results
of Operations
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||||||||||||||||||
Amount
|
% of
Revenue
|
Amount
|
% of
Revenue
|
Amount
|
% of
Revenue
|
Amount
|
% of
Revenue
|
|||||||||||||||||||||||||
Revenue
|
$ | 47,874 | 100.0 | % | $ | 34,037 | 100.0 | % | $ | 132,215 | 100.0 | % | $ | 101,523 | 100.0 | % | ||||||||||||||||
Cost of
revenue
|
11,916 | 24.9 | 10,619 | 31.2 | 34,947 | 26.4 | 37,468 | 36.9 | ||||||||||||||||||||||||
Gross
profit
|
35,958 | 75.1 | % | 23,418 | 68.8 | % | 97,268 | 73.6 | % | 64,055 | 63.1 | % | ||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||
Product
development
|
5,030 | 10.5 | 2,764 | 8.1 | 13,774 | 10.4 | 8,780 | 8.6 | ||||||||||||||||||||||||
Sales and
marketing
|
20,130 | 42.0 | 15,130 | 44.5 | 58,256 | 44.1 | 43,073 | 42.4 | ||||||||||||||||||||||||
General and
administrative
|
7,234 | 15.1 | 5,099 | 15.0 | 20,376 | 15.4 | 14,640 | 14.4 | ||||||||||||||||||||||||
Restructuring
costs
|
- | 0.0 | 45 | 0.1 | - | 0.0 | 338 | 0.3 | ||||||||||||||||||||||||
Total operating
expenses
|
32,394 | 67.7 | 23,038 | 67.7 | 92,406 | 69.9 | 66,831 | 65.8 | ||||||||||||||||||||||||
Income (loss) from
operations
|
3,564 | 7.4 | 380 | 1.1 | 4,862 | 3.7 | (2,776 | ) | (2.7 | ) | ||||||||||||||||||||||
Interest expense,
net
|
5,862 | 12.2 | 7,405 | 21.8 | 19,998 | 15.1 | 21,430 | 21.1 | ||||||||||||||||||||||||
Amortization of debt issuance
costs
|
1,111 | 2.3 | 464 | 1.4 | 2,026 | 1.5 | 1,414 | 1.4 | ||||||||||||||||||||||||
Loss on extinguishment of
debt
|
4,974 | 10.4 | - | 0.0 | 4,974 | 3.8 | - | 0.0 | ||||||||||||||||||||||||
Other (income)
expense
|
(919 | ) | (1.9 | ) | 625 | 1.8 | (1,229 | ) | (0.9 | ) | 10,326 | 10.2 | ||||||||||||||||||||
Net loss before income
tax
|
(7,464 | ) | (15.6 | ) | (8,114 | ) | (23.8 | ) | (20,907 | ) | (15.8 | ) | (35,946 | ) | (35.4 | ) | ||||||||||||||||
Income tax
benefit
|
(4,951 | ) | (10.3 | ) | (5,175 | ) | (15.2 | ) | (8,970 | ) | (6.8 | ) | (15,807 | ) | (15.6 | ) | ||||||||||||||||
Net loss
|
$ | (2,513 | ) | (5.2 | )% | $ | (2,939 | ) | (8.6 | )% | $ | (11,937 | ) | (9.0 | )% | $ | (20,139 | ) | (19.8 | )% | ||||||||||||
Net loss per common share - basic
and diluted
|
$ | (0.14 | ) | $ | (1.73 | ) | $ | (1.94 | ) | $ | (13.10 | ) | ||||||||||||||||||||
Weighted average number of shares
used in
|
||||||||||||||||||||||||||||||||
calculating net loss per common
share - basic and diluted
|
18,056,423 | 1,699,094 | 6,153,359 | 1,537,136 | ||||||||||||||||||||||||||||
Comparison of the Three Months Ended
September 30, 2010 and 2009
Revenue
Revenue increased to $47.9 million for
the three months ended September 30, 2010, from $34.0 million for the three
months ended September 30, 2009. For the three months ended September 30,
2010, approximately 16% of
the contracts we entered into with our customers were based in foreign
currency. Comparatively, during the three months ended September 30,
2009, approximately 11% of
the contracts we entered into with our customers were based in foreign
currency. Foreign exchange transaction gains and losses are recorded
in “Other (income) expense” on the Consolidated Statement of
Operations. See
Item
3:
Quantitative and Qualitative Disclosures about Market Risk within this Quarterly Report on Form
10-Q for additional details.
The following table sets forth revenues
by our principal markets: Enterprise, Mergers and Acquisitions (“M&A”) and
Debt Capital Markets (“DCM”), for the three months ended September 30, 2010
compared to the three months ended September 30, 2009, the percentage increase
or decrease between those periods, and the percentage of total revenue that each
principal market represented for those periods:
24
% Revenue
|
||||||||||||||||||||||||
Three Months
Ended
|
Three Months
Ended
|
|||||||||||||||||||||||
September
30,
|
Increase
|
% Increase
|
September
30,
|
|||||||||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
2010
|
2009
|
|||||||||||||||||||
Enterprise
|
$ | 22,082 | $ | 14,865 | $ | 7,217 | 48.6 | % | 46.1 | % | 43.7 | % | ||||||||||||
M&A
|
18,153 | 11,483 | 6,670 | 58.1 | 37.9 | 33.7 | ||||||||||||||||||
DCM
|
7,639 | 7,689 | (50 | ) | (0.7 | ) | 16.0 | 22.6 | ||||||||||||||||
Total
Revenues
|
$ | 47,874 | $ | 34,037 | $ | 13,837 | 40.7 | % | 100.0 | % | 100.0 | % |
Enterprise – The results for the three months
ended September 30, 2010 reflect an increase in Enterprise revenue of $7.2
million or 48.6%, as compared to the three months ended September 30,
2009. The increase in Enterprise revenue for the three month period,
as compared to the prior year period, was primarily driven by an increased
customer base, larger contract values for new customers (compared to historic
levels), as well as higher exchange utilization and renewal levels for existing
customers. This activity reflects both wider adoption of our services
across customers’ organizations and greater utilization of our services than
customers initially expected, thus resulting in increased overage fees and
higher renewal levels. We attribute this growth to our increased
investment in Enterprise-related product development initiatives, additional
sales headcount and marketing resources dedicated to this market, as well as
improved global market conditions. We believe our revenue growth
going forward will be driven by the following key trends: expanded geographic
and industry focus to establish a wider distribution of our services, ongoing
investment in our platform to ensure we continue to meet customer needs, and
increased focus on providing the types of services that generate repeat business
and expand our subscription base. We believe that the resources
invested in our platform, as well as our operational infrastructure, will allow
us to better serve larger clients on a global basis. Additionally, we
believe the Enterprise principal market represents a significant long-term
expansion opportunity and we plan to continue to invest in resources dedicated
to serving this market.
M&A
– The results for the
three months ended September 30, 2010 reflect an increase in M&A revenue of
$6.7 million, or 58.1%, as compared to the three months ended September 30,
2009. The increase in M&A revenue for the three month period, as
compared to the prior year period, was primarily driven by improved global
economic conditions resulting in an increased volume of transactions in the
overall market, and also reflects the capture of market share from our
competition. Our growth in this principal market will be driven
primarily by the pace of the overall economic recovery, our ability to continue
to increase our market share by winning business from our competition and by
penetrating sectors that are currently not yet taking advantage of services such
as ours, both geographic and deal size dependent. We plan to continue
to invest in our platform as well as our operating, sales and servicing
infrastructures in order to enhance our offering for existing customers and
better attract new customers.
DCM – DCM revenue for the
three months ended September 30, 2010, as compared to the three months ended
September 30, 2009, remained relatively flat. The DCM market
continues to be affected by the slower recovery of the loan credit markets,
compared to other financial service areas. While we have experienced certain
client-specific over-utilization of existing exchanges and contract renewals at
generally larger amounts, these are not yet at a level that has been able to
offset prior year over-utilization and subscription levels. However, we are
seeing positive trends on a quarter-over-quarter basis, primarily driven by
increased subscription renewals and revenue generated by customer
overutilization of existing exchanges. We believe results in this
principal market will continue to generally be in line with macroeconomic
conditions and also reflect the maturity of this market in terms of
organizations adopting services such as ours, as well as our current leading
market position. We plan to increase our growth potential in this
market primarily through a focus on product development initiatives, which will
allow us to expand the level of services provided to our existing customer base,
attract customers away from our competition and allow us to enter adjacent and
similar markets to expand our customer reach.
Cost of Revenue and Gross
Margin
The following table presents cost of
revenue, gross profit and gross margin for the three months ended September 30,
2010, compared to the three months ended September 30, 2009:
25
Three Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Cost of
revenue
|
$ | 11,916 | $ | 10,619 | $ | 1,297 | 12.2 | % | ||||||||
Gross
profit
|
$ | 35,958 | $ | 23,418 | $ | 12,540 | 53.5 | % | ||||||||
Gross
margin
|
75.1 | % | 68.8 | % | 6.3 | % |
The results for the three months ended
September 30, 2010 reflect an increase in cost of revenue of $1.3 million, or
12.2%, as compared to the three months ended September 30, 2009. The
increase in cost of revenue for the three month period, as compared to the prior
year period, was attributed primarily to an increase in amortization of
capitalized software costs and an increase in client support costs, reflecting
the growth of the business and expanded product portfolio. The
increase in total revenue described above, offset by the increase in cost of
revenue, drove improvements in gross margin of 6.3 percentage points for the
three months ended September 30, 2010, on a year-over-year
basis.
Operating Expenses
Total operating expenses for the three
months ended September 30, 2010 increased by approximately $9.4 million, or
40.6%, as compared to the three months ended September 30,
2009.
The following table presents the
components of operating expenses for the three months ended September 30, 2010,
compared to the three months ended September 30, 2009:
Three Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Product
development
|
$ | 5,030 | $ | 2,764 | $ | 2,266 | 82.0 | % | ||||||||
Sales and
marketing
|
20,130 | 15,130 | 5,000 | 33.0 | ||||||||||||
General and
administrative
|
7,234 | 5,099 | 2,135 | 41.9 | ||||||||||||
Restructuring
costs
|
― | 45 | (45 | ) | (100.0 | ) | ||||||||||
Total operating
expenses
|
$ | 32,394 | $ | 23,038 | $ | 9,356 | 40.6 | % | ||||||||
Product
Development – The results
for the three months ended September 30, 2010 reflect an increase in product
development expense of $2.3 million, or 82.0%, as compared to the three months
ended September 30, 2009. The increase in product development expense
for the three month period, as compared to prior year period, was primarily
driven by additional development on previously launched platforms and
commencement of various development initiatives that under our guidelines of
software capitalization cannot yet be capitalized. Product
development expense as a percentage of revenue was 10.5% for the three months
ended September 30, 2010, compared to 8.1% for the three months ended September
30, 2009.
Total product development costs comprise
both capitalized software and product development expense. For the
three months ended September 30, 2010, product development costs totaled $8.9
million, $3.9 million of capitalized software related to product development
enhancements and $5.0 million in product development expense. For the
three months ended September 30, 2009, product development costs totaled $6.1
million, $3.1 million of capitalized software related to product development
enhancements and $2.8 million of product development expense. The
increase in total product development costs of $2.8 million, or 45.9% reflects a
higher level of spending to support our expanded focus on Enterprise-related and
geography-related initiatives as well as increased support and maintenance costs
reflecting an expanded product portfolio. Total product development
costs as a percentage of revenue was 18.6% for the three months ended September
30, 2010, compared to 17.9% for the three months ended September 30,
2009.
Sales and
Marketing – The results for
the three months ended September 30, 2010 reflect an increase in sales and
marketing expense of $5.0 million, or 33.0%, as compared to the three months
ended September 30, 2009. The increase in sales and marketing expense
for the three month period, as compared to the prior year period, was primarily
driven by (i) an increase in headcount-related expenses, including recruitment,
which reflects the expansion of the sales function in line with growth plans,
particularly around the Enterprise principal market, (ii) an increase in travel
and entertainment expenses, driven by increased headcount and a wider geographic
focus (iii) additional expenditures on marketing programs and initiatives as
well as consulting and research projects, (iv) higher sales commission expense
reflecting both the higher level of sales achieved during the period by our
internal sales representatives as well as our partners, and the impact of the
revised 2010 commission plan for our internal sales representatives as compared
to the 2009 plan, and (v)
additional non-cash stock compensation charges. Sales and marketing
expense as a percentage of revenue was 42.0% for the three months ended
September 30, 2010, compared to 44.5% for the three months ended September 30,
2009.
26
General and
Administrative – The
results for the three months ended September 30, 2010 reflect an increase in
general and administrative expense of $2.1 million, or 41.9%, as compared to the
three months ended September 30, 2009. The increase in general and
administrative expenses was driven by our overall growth strategy, specifically,
(i) an increase in accrued expense relating to 2010 Company bonus plan in line
with performance against targets, for which payments will be made in Q1
2011, (ii) sales tax, to be absorbed by the Company rather than
charged to customers, relating to our subsidiary in Brazil, (iii) increase in
salaries reflecting an increase in headcount supporting our growth strategies,
(iv) an increase in depreciation expense as a result of capital expenditures
made during 2009 and 2010, and (v) expenses incurred related to the initial
public offering as well as ongoing public company operating costs not incurred
in the prior year. General and administrative expense as a percentage
of revenue was 15.1% for the three months ended September 30, 2010, compared to
15.0% for the three months ended September 30, 2009.
Restructuring
Costs –Restructuring costs
incurred during the three months ended September 30, 2009 included employee
severance and other employee related termination costs, for which we have no
comparable costs during the current year period. The 2009
restructuring plan primarily involved a reorganization of our sales and sales
supporting operation functions and was designed to enable us to operate more
efficiently in a still uncertain economic environment and for continued
expansion of our services into broader markets.
Non-Operating
Expenses
The following table presents the
components of non-operating expenses for the three months ended September 30,
2010 compared to the three months ended September 30, 2009:
Three Months
Ended
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Interest expense,
net
|
$ | 5,862 | $ | 7,405 | $ | (1,543 | ) | (20.8 | )% | |||||||
Amortization of debt issuance
costs
|
$ | 1,111 | $ | 464 | $ | 647 | 139.4 | % | ||||||||
Loss on extinguishment of
debt
|
$ | 4,974 | $ | ― | $ | 4,974 | 100.0 | % | ||||||||
Other (income)
expense
|
$ | (919 | ) | $ | 625 | $ | (1,544 | ) | (247.0 | )% |
Interest Expense,
Net
Interest expense, net
for the three months ended September 30, 2010 decreased by $1.5 million, or
20.8%, compared to $7.4 million for the three months ended September 30,
2009. The decrease was primarily driven by the use of the initial
public offering net proceeds to repay $137.8 million of our debt during the
three months ended September 30, 2010. Interest expense, net
represented 12.2% and 21.8% of total revenue for the three months ended
September 30, 2010 and 2009, respectively. In our consolidated
statement of operations, interest expense is shown net of interest
income. Interest income for the three months ended September 30, 2010
and 2009 was de minimis.
Amortization of Debt Issuance
Costs
Amortization of debt issuance costs for
the three months ended September 30, 2010 increased by $0.6 million, or 139.4%,
as compared to the three months ended September 30, 2009, primarily due to
acceleration of $0.3 million representing the pro rata share of the original
debt issuance costs incurred during the 2007 merger transaction, as it relates
to the portion of debt that was repaid during the three months ended September
30, 2010. In addition to the acceleration of the original debt
issuance costs, we also incurred $0.3 million in issuance costs related to the
amendment of the First and Second Lien Credit Facilities, which allowed us to
change the priority of repayment and use the net proceeds from the initial
public offering to first reduce outstanding indebtedness under the PIK Loan,
with a portion of the remaining proceeds applied to Tranche B and C of the
Second Lien Credit Facility, on a pro rata basis. The balance of the
debt issuance costs will be amortized over the term of the remaining loans,
using the effective interest rate method. Amortization of debt
issuance costs for the three months ended September 30, 2010 and 2009 was
approximately 2.3% and 1.4% of total revenue,
respectively.
27
Loss on Extinguishment of
Debt
During the three months ended September
30, 2010, we recorded $5.0
million as a loss on extinguishment of debt, which included a 4% prepayment
penalty on the PIK Loan totalling $4.1 million, $0.7 million in accelerated recognition
of original issuance costs and $0.2 million in issuance costs related to the
amendment of the First and Second Lien Credit Facilities, which allowed us to
change the priority of repayment and use the net proceeds from the initial
public offering to reduce outstanding indebtedness under the PIK
Loan. No comparable costs were incurred during the three months ended
September 30, 2009.
Other (Income)
Expense
The major components of other (income)
expense are foreign exchange gains and losses and fair value adjustments to our
interest rate swap. Other income for the three months ended September
30, 2010 was $0.9 million, primarily driven by the decrease of $0.6 million in
the fair value of our interest rate swap liability and $0.1 million in foreign
exchange gains, compared to other expense of $0.6 million incurred during the
three months ended September 30, 2009, representing a $0.6 million increase in
the fair value of our interest rate swap liability. We expect the
fair value adjustments to the interest rate swap will continue to be recorded in
“Other (income) expense” through the end of the swap agreement in
2012.
Income Tax Provision
(Benefit)
|
||||||||||||||||
Three Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Income tax
benefit
|
$ | (4,951 | ) | $ | (5,175 | ) | $ | (224 | ) | (4.3 | )% | |||||
Effective tax
rate
|
66.3 | % | 63.8 | % | 2.6 | % |
The effective tax rate was 66.3% for the
three months ended September 30, 2010, compared with an effective tax rate of
63.8% for the three months ended September 30, 2009. The effective tax rate for the three
months ended September 30, 2010 was impacted by discrete items, primarily a
$3,261 benefit related to a change in the apportionment methodology used to
determine our state tax liability, as well as $125 associated with the
finalization of our 2009 tax return. Excluding discrete items, our effective tax
rate was 21.3% for the three months ended September 30,
2010.
The change in apportionment methodology
used to determine our state tax liability is a change in estimate that took
place in conjunction with the filing of our 2009 state tax returns during the
three months ended
September 30, 2010. Therefore, the resulting
income tax benefit from the decrease in the state rate was recorded as a
discrete item in the three
months ended September 30, 2010.
The effective tax rate for the
three months ended
September 30, 2009 was
impacted by discrete items, primarily a $3,083 benefit related to research and
development tax credits, partially offset by ($872) associated with the
finalization of our 2008 tax return. Excluding these items, our effective tax
rate was 36.5% for the three months ended September 30,
2009. Our effective tax rates for the periods
described above, excluding the discrete items, differ from the statutory rate
due to the impact of state and local income taxes, certain nondeductible
expenses and foreign earnings taxed at different tax rates.
Comparison of the Nine Months Ended
September 30, 2010 and 2009
Revenue
Revenue increased to $132.2 million for
the nine months ended September 30, 2010, from $101.5 million for the nine
months ended September 30, 2009. For the nine months ended September 30,
2010, approximately 15% of
the contracts we entered into with our customers were based in foreign
currency. Comparatively, during the nine months ended September 30,
2009, approximately 6% of
the contracts we entered into with our customers were based in foreign
currency. Foreign exchange transaction gains and losses are recorded
in “Other (income) expense” on the Consolidated Statement of
Operations. See
Item
3:
Quantitative and Qualitative Disclosures about Market Risk within this Quarterly Report on Form
10-Q for additional details.
The following table sets forth revenues
by principal market for the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009, the percentage increase or decrease
between those periods, and the percentage of total revenue that each principal
market represented for those periods:
28
% Revenue
|
||||||||||||||||||||||||
Nine Months
Ended
|
Nine Months
Ended
|
|||||||||||||||||||||||
September
30,
|
Increase
|
% Increase
|
September
30,
|
|||||||||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
2010
|
2009
|
|||||||||||||||||||
Enterprise
|
$ | 59,817 | $ | 38,824 | $ | 20,993 | 54.1 | % | 45.3 | % | 38.2 | % | ||||||||||||
M&A
|
48,578 | 37,019 | 11,559 | 31.2 | 36.7 | 36.5 | ||||||||||||||||||
DCM
|
23,820 | 25,680 | (1,860 | ) | (7.2 | )% | 18.0 | 25.3 | ||||||||||||||||
Total
Revenues
|
$ | 132,215 | $ | 101,523 | $ | 30,692 | 30.2 | % | 100.0 | % | 100.0 | % |
Enterprise – The results for the nine months ended
September 30, 2010 reflect an increase in Enterprise revenue of $21.0 million or
54.1%, as compared to the nine months ended September 30, 2009. The
increase in Enterprise revenue for the nine month period, as compared to the
prior year period, was primarily driven by an increased customer base, larger
contract values for new customers (compared to historic levels), as well as
higher renewal levels for existing customers. This activity reflects
both wider adoption of our services across customers’ organizations and greater
utilization of our services than customers initially expected, thus resulting in
increased overage fees and higher renewal levels. We attribute this
growth to improved global market conditions as well as our increased investment
in product development, sales headcount and marketing resources dedicated to
this market.
M&A
– The results for the nine
months ended September 30, 2010 reflect an increase in M&A revenue of $11.6
million, or 31.2%, as compared to the nine months ended September 30,
2009. The increase in M&A revenue for the nine month period, as
compared to the prior year period, was primarily driven by improved global
economic conditions resulting in increased volume of transactions in the overall
market, and also reflects the capture of market share from our
competition.
DCM – The results for the nine months ended
September 30, 2010 reflect a decrease in DCM revenue of $1.9 million, or 7.2%,
as compared to the nine months ended September 30, 2009. The decrease
in the nine month period, as compared to the prior year period, reflects the
impact of lower subscription commitment levels year-over-year, partially offset
by account overages. In light of the slower recovery of the loan
credit markets throughout most of 2010, clients are still adopting a cautious
stance regarding upfront annual commitment levels.
Our beliefs regarding future performance
in these principal markets were discussed in the Comparison of the
Three Months Ended September 30, 2010 and 2009 section of this Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
Cost of Revenue and Gross
Margin
The following table presents cost of
revenue, gross profit and gross margin for the nine months ended September 30,
2010 compared to the nine months ended September 30, 2009:
Nine Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Cost of
revenue
|
$ | 34,947 | $ | 37,468 | $ | (2,521 | ) | (6.7 | )% | |||||||
Gross
profit
|
$ | 97,268 | $ | 64,055 | $ | 33,213 | 51.9 | % | ||||||||
Gross
margin
|
73.6 | % | 63.1 | % | 10.5 | % | ||||||||||
The results for the nine months ended
September 30, 2009 reflect a decrease in cost of revenue of $2.5 million, or
6.7%, as compared to the nine months ended September 30, 2009. The
decrease in cost of revenue for the nine month period, as compared to the prior
year period, was attributed primarily to the scheduled decrease in amortization
of definite-lived intangible assets. This decrease in cost of revenue
was partially offset by an increase in amortization of capitalized software
costs and an increase in software maintenance and license fees reflecting the
growth of, and costs to support, the business. The decrease in cost
of revenue, coupled with the increase in total revenue described above, drove
improvements in gross margin of 10.5 percentage points, from 63.1% to 73.6% for
the nine months ended September 30, 2010, on a year-over-year
basis.
29
Operating Expenses
Total operating expenses for the nine
months ended September 30, 2010 increased by approximately $25.6 million, or
38.3%, as compared to the nine months ended September 30,
2009.
The following table presents the
components of operating expenses for the nine months ended September 30, 2010,
compared to the nine months ended September 30, 2009:
Nine Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Product
development
|
$ | 13,774 | $ | 8,780 | $ | 4,994 | 56.9 | % | ||||||||
Sales and
marketing
|
58,256 | 43,073 | 15,183 | 35.2 | ||||||||||||
General and
administrative
|
20,376 | 14,640 | 5,736 | 39.2 | ||||||||||||
Restructuring
costs
|
― | 338 | (338 | ) | (100.0 | ) | ||||||||||
Total operating
expenses
|
$ | 92,406 | $ | 66,831 | $ | 25,575 | 38.3 | % | ||||||||
Product
Development – The results
for the nine months ended September 30, 2010 reflect an increase in product
development expense of $5.0 million, or 56.9%, as compared to the nine months
ended September 30, 2009. The increase in product development expense
for the nine month period, as compared to prior year period, was primarily
driven by additional development on previously launched platforms and
commencement of various new development initiatives that, under our guidelines
of software capitalization cannot yet be capitalized. Product
development expense as a percentage of revenue was 10.4% for the nine months
ended September 30, 2010, compared to 8.6% for the nine months ended September
30, 2009.
Total product
development costs comprise both capitalized software and product development
expense. For the nine months ended September 30, 2010, product
development costs totaled $26.3 million, $12.5 million of capitalized software
related to product development enhancements and $13.8 million in product
development expense. For the nine months ended September 30, 2009,
product development costs totaled $16.6 million, $7.6 million of capitalized
software related to product development enhancements and $8.8 million of product
development expense. The increase in total product development costs
of $9.7 million, or 58.4% reflects a higher level of spending to support our
expanded focus on Enterprise-related and geography-related initiatives as well
as increased support and maintenance costs reflecting an expanded product
portfolio. Total product development costs as a percentage of revenue
was 19.9% for the nine months ended September 30, 2010, compared to 16.4% for
the nine months ended September 30, 2009.
Sales and
Marketing – The results for
the nine months ended September 30, 2010 reflect an increase in sales and
marketing expense of $15.2 million, or 35.2%, as compared to the nine months
ended September 30, 2009. The increase in sales and marketing expense
for the nine month period, as compared to the prior year period, was primarily
driven by (i) an increase in headcount related expenses, including recruitment,
which reflects the expansion of the sales function in line with growth plans,
particularly around the Enterprise principal market, (ii) an increase in travel
and entertainment expenses, driven by increased headcount, a wider geographic
focus and the costs of our worldwide annual sales conference which was
reinstated for 2010, (iii) additional expenditures on marketing programs and
initiatives as well as consulting and research projects, and (iv) additional
non-cash stock compensation charges as a result of the nine months ended
September 30, 2010 representing a full nine months of expense as compared to the
nine months ended September 30, 2009, due to awards being granted to sales
executives during the third quarter of 2009 (therefore, resulting in less than
nine months of expense). Sales and marketing expense as a percentage
of revenue was 44.1% for the nine months ended September 30, 2010, compared to
42.4% for the nine months ended September 30, 2009.
General and
Administrative – The
results of the nine months ended September 30, 2010 reflect an increase in
general and administrative expense of $5.7 million, or 39.2%, as compared to the
nine months ended September 30, 2009. The increase in general and
administrative costs for the nine month period, as compared to prior year
period, was attributed to the primarily one-time professional fees and other
related expenses incurred in preparation of becoming a public
company. Additionally, the increase in general and administrative
expenses was driven by our overall growth strategy, specifically, (i) increased
professional and advisory fees incurred in setting up our new global entity
organization structure, (ii) an increase in depreciation expense as a result of
capital expenditures made during 2009 and 2010, (iii) sales tax to be absorbed
by the Company, relating to our subsidiary in Brazil, (iv) an increase in costs
for temporary services and consultants to support our overall growth strategy,
and (v) expenses incurred related to the initial public offering, as well as
ongoing public company operating costs not incurred in the prior
year. Additionally, during the first quarter of 2010, we recorded a
$0.9 million credit to general and administrative expenses representing a
reversal of an accrual for corporate, non-income taxes, for which we had no
liability as of March 31, 2010. This credit to general and
administrative expenses in the first quarter of 2010 partially offset the
increase in general and administrative expense described
above. General and administrative expense as a percentage of revenue
was 15.4% for the nine months ended September 30, 2010, compared to 14.4% for
the nine months ended September 30, 2009.
30
Restructuring
Costs –Restructuring costs
incurred during the nine months ended September 30, 2009 included employee
severance and other employee related termination costs, for which we have no
comparable costs during the current year period. The 2009
restructuring plan primarily involved a reorganization of our sales and sales
supporting operation functions and was designed to enable us to operate more
efficiently in a still uncertain economic environment and for continued
expansion of our services into broader markets.
Non-Operating
Expenses
The following table presents the
components of non-operating expenses for the nine months ended September 30,
2010 compared to the nine months ended September 30, 2009:
Nine Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Interest expense,
net
|
$ | 19,998 | $ | 21,430 | $ | (1,432 | ) | (6.7 | )% | |||||||
Amortization of debt issuance
costs
|
$ | 2,026 | $ | 1,414 | $ | 612 | 43.3 | % | ||||||||
Loss on extinguishment of
debt
|
$ | 4,974 | $ | - | $ | 4,974 | 100.0 | % | ||||||||
Other (income)
expense
|
$ | (1,229 | ) | $ | 10,326 | $ | (11,555 | ) | (111.9 | )% |
Interest Expense,
Net
Interest expense, net for the nine
months ended September 30, 2010 decreased by $1.4 million, or 6.7%, as compared
to the nine months ended September 30, 2009. The decrease was primarily driven by the
use of the initial public offering net proceeds to repay $137.8 million of our
debt during the nine months
ended September 30, 2010. Interest expense, net represented 15.1% and
21.1% of revenue for the nine months ended September 30, 2010 and 2009,
respectively. In our consolidated statement of operations, interest
expense is shown net of interest income. Interest income for the nine
months ended September 30, 2010 and 2009, respectively, was de
minimis.
Amortization of Debt Issuance
Costs
Amortization of debt issuance costs for
the nine months ended September 30, 2010 increased by $0.6 million, or 43.3%, as
compared to the nine months ended September 30, 2009, primarily due to acceleration of $0.3
million representing the pro rata share of the original debt issuance costs
incurred during the 2007 merger transaction, as it relates to the portion of
debt that was paid down during the nine months ended September 30,
2010. In
addition to the acceleration of the original debt issuance costs, we also
incurred $0.3 million in issuance costs related to the amendment of the First
and Second Lien Credit Facilities, which allowed us to change the priority of
repayment and use the net proceeds from the initial public offering to first
reduce outstanding indebtedness under the PIK Loan, with a portion of the
remaining proceeds applied to Tranche B and C of the Second Lien Credit
Facility, on a pro rata basis. The balance of the debt issuance costs
will be amortized over the term of the remaining loans, using the effective
interest rate method. Amortization of debt issuance costs for
the nine months ended September 30, 2010 and 2009 was approximately 1.5% and
1.4% of total revenue, respectively.
Loss on Extinguishment of
Debt
During the nine months ended September 30,
2010, we recorded $5.0
million as a loss on extinguishment of debt, which included a 4% prepayment
penalty on the PIK Loan totalling $4.1 million, $0.7 million in accelerated
recognition of original issuance costs and $0.2 million in issuance costs
related to the amendment of the First and Second Lien Credit Facilities, which
allowed us to change the priority of repayment and use the net proceeds from the
initial public offering to reduce outstanding indebtedness under the PIK
Loan. No comparable costs were incurred during the nine months ended September 30,
2009.
31
Other (Income)
Expense
The major components of other (income)
expense are foreign exchange gains and losses and fair value adjustments to our
interest rate swap. Other income for the nine months ended September
30, 2010 was $1.2 million, compared to other expense $10.3 million for the nine
months ended September 30, 2009. Other income for the nine months
ended September 30, 2010 was $1.2 million, primarily driven by the decrease of
$1.4 million in the fair value of our interest rate swap liability, partially
offset by $0.3 million in foreign exchanges losses. Other expense for
the nine months ended September 30, 2009 included a reclassification of $10.7
million from accumulated other comprehensive income within the consolidated
balance sheet, due to the determination that our interest rate swap no longer
qualified for hedge accounting under the FASB’s standards (see Note 8) to our
Financial Statements in Item 1 of this Form 10-Q for additional details
regarding the accounting treatment of the interest rate swap prior to March 31,
2009). The $10.7 million recorded to other expense during the nine
months ended September 30, 2009 represents cumulative fair value adjustments
that were made through accumulated other comprehensive income during the period
that the hedge was determined to be effective for accounting purposes. We expect
the fair value adjustments to the interest rate swap will continue to be
recorded in “Other (income) expense” through the end of the swap agreement in
2012.
Income Tax Provision
(Benefit)
|
||||||||||||||||
Nine Months
Ended
|
||||||||||||||||
September
30,
|
Increase
|
% Increase
|
||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Income tax
benefit
|
$ | (8,970 | ) | $ | (15,807 | ) | $ | (6,837 | ) | (43.3 | )% | |||||
Effective tax
rate
|
42.9 | % | 44.0 | % | (1.1 | )% |
The effective tax rate was 42.9% for the
nine months ended September 30, 2010, compared with an effective tax rate of
44.0% for the nine months ended September 30, 2009. The effective tax rate for the nine
months ended September 30, 2010 was impacted by discrete items recorded in the
third quarter of 2010, primarily a $3,261 benefit related to a change in the
apportionment methodology used to determine our state tax liability, as well as
$125 associated with the finalization of our 2009 tax return, as described
within the three month discussion and analysis.
The effective tax rate for the
nine months ended September
30, 2009 was impacted by
discrete items recorded in the third quarter of 2009, primarily a $3,083 benefit
related to research and development tax credits, partially offset by ($872)
associated with the finalization of our 2008 tax return. Our
effective tax rates for the periods described above, excluding the discrete
items, differ from the statutory rate due to the impact of state and local
income taxes, certain non-deductible expenses and foreign earnings taxed at
different tax rates.
32
Liquidity and Capital
Resources
As of
September
30,
|
||||||||
2010
|
2009
|
|||||||
Cash and cash
equivalents
|
$ | 31,296 | $ | 26,833 | ||||
Cash provided by operating
activities
|
15,972 | 16,713 | ||||||
Cash used in investing
activities
|
(16,530 | ) | (11,521 | ) | ||||
Cash provided by (used in)
financing activities
|
1,414 | (2,965 | ) | |||||
Effect of exchange rates on cash
and cash equivalents
|
(41 | ) | (65 | ) | ||||
Net increase in
cash and cash equivalents
|
$ | 815 | $ | 2,162 |
Since inception, we have financed our
operations primarily through private sales of equity securities, credit
facilities and more recently, cash generated from operations. We
currently use the net cash generated from operations to fund our working capital
needs and our capital expenditure requirements. Our available
financing arrangements include credit under a $15.0 million revolving line of
credit, of which $12.6 million is available to us as of September 30, 2010, term
loans and credit agreements with financial institutions and vendor financing
arrangements. At September 30, 2010, we had approximately $31.2
million in cash and cash equivalents, $1.0 million in short-term investments,
and $36.8 million in accounts receivable, net of allowances for doubtful
accounts and credit reserves. We believe that we have sufficient cash
resources to continue in operation for at least the next 12
months.
On August 5, 2010, the SEC declared
effective our registration statement on Form S-1, as amended (File No.
333-165991) (the “Registration Statement”), in connection with our initial
public offering of 11,000,000 shares of Common Stock at a public offering price
of $13.00 per share. The offering closed on August 11, 2010. As a result of the
offering, we received net proceeds of approximately $133.0 million, after
deducting underwriting discounts and commissions of $10.0 million. In September
2010, the underwriters exercised their over-allotment option to purchase 980,000
shares of Common Stock at the public offering price of $13.00 per
share. We received an additional $11.8 million in net proceeds, after
deducting underwriting discounts and commissions of $0.9
million.
We used substantially all of the net
proceeds of our initial public offering, including the underwriters’ exercise of
their over-allotment option, to repay indebtedness. Pursuant to the
amended terms of the First and Second Lien Agreements, as discussed in detail
below under “Financing Activities,” we used the net proceeds from our initial
public offering to first reduce outstanding indebtedness under the PIK Loan,
with a portion of the remaining initial public offering proceeds, as well as the
proceeds from the underwriters’ exercise of their over-allotment option, applied
to Tranche B and Tranche C of the Second Lien Credit Facility, on a pro rata
basis. The reduction in debt will reduce our total interest expense
due to a decrease in the non-cash interest on the PIK Loan. However,
from a cash flow perspective, the resulting benefits from reducing the debt will
be offset by the increase in interest rates on the remaining term
loans.
The credit markets have experienced
disruption that reached unprecedented levels during late 2008 and
2009. The disruption in the financial markets has affected some of
the financial institutions with which we do business. A continued,
sustained decline in the stability of these financial institutions could
adversely affect our access to financing, as well as our revenue growth (due to
our customer base in the DCM and M&A markets). Additionally, if
the national or global economy or credit market conditions in general were to
deteriorate further, it is possible that such changes could adversely affect our
ability to obtain external financing or to refinance our existing
indebtedness.
Operating Activities
Cash flows provided by operating
activities during the nine months ended September 30, 2010 were $16.0 million,
consisting of a net loss of $11.9 million plus the impact of the change in
deferred taxes of $9.6 million, offset by non-cash items including amortization
of intangible assets of $21.6 million, depreciation and amortization of $12.1
million, non-cash interest expense of $4.9 million, non-cash stock-based
compensation of $2.8 million and an unrealized gain on the interest rate swap of
$1.4 million,. Working capital uses of cash during the nine months
ended September 30, 2010 included (i) a $3.2 million decrease in accounts
payable due to timing of payments (ii) a $2.5 million net decrease in accounts
receivable ($11.2 million increase in accounts receivable offset by $8.7 million
increase in deferred revenue) primarily driven by an increase in business
activity for the period reflected by increased invoicing.
33
Cash flows provided by operating
activities during the nine months ended September 30, 2009 were $16.7 million,
consisting of a net loss of $20.1 million, plus the impact of the change in
deferred taxes of $16.3 million, offset by non-cash items including amortization
of intangible assets of $27.7 million, an unrealized loss on the interest rate
swap of $9.7 million, depreciation and amortization of $8.6 million and non-cash
interest expense of $8.7 million. Working capital uses of cash during the nine
months ended September 30, 2009 included a $3 million decrease in accrued
expenses and other current liabilities primarily attributable to payments made
during the period for capital expenditures on investments in our software and
equipment and sales commissions and annual bonuses awarded under our 2008 cash
incentive plans, and a $1.5 million decrease in accounts payable due to timing
of payments.
Investing Activities
Currently, our investing activities
primarily relate to our investment in the business through capital expenditures
for network infrastructure and investments in software
development. Cash used in investing activities for the nine months
ended September 30, 2010 and 2009 was $16.5 million and $11.5 million,
respectively. Cash used in investing activities related to capital expenditures
for infrastructure during the nine months ended September 30, 2010 and 2009 was
$6.6 million and $3.7 million, respectively. Investments in
capitalized software development costs for the nine months ended September 30,
2010 and 2009 were $12.5 million and $7.8 million, respectively. We anticipate
future capital expenditures and investments in our software development may
increase in future periods, however, due to restrictive covenants contained
within the current, amended credit agreements, future capital expenditures are
not expected to exceed $25.0 million on an annual
basis. Additionally, purchases of investments during the nine months
ended September 30, 2010 totaled $4.3 million and consisted primarily of bank
time deposits with maturities greater than three months. Sales of investments
during the nine months ended September 30, 2010 totaled $6.8 million and
consisted primarily of redemptions of our auction rate securities and
maturities of our bank time deposits.
Financing Activities
Cash flows provided by financing
activities for the nine months ended September 30, 2010 were $1.4 million,
primarily consisting of $144.8 million in net proceeds from our initial public
offering, including the underwriters’ exercise of their over-allotment option,
partially offset by $137.8 million in payments made on our outstanding long-term
debt and a $4.1 million prepayment penalty on the PIK Loan during the nine
months ended September 30, 2010. Cash flows used in financing
activities for the nine months ended September 30, 2009 were $3.0 million,
primarily consisting of $2.9 million of principal payments on our long-term
debt.
As described in Note 8 to our
consolidated financial statements set forth in Item 1 of this Form 10-Q, on May
14, 2010, we entered into an agreement with our lenders to amend the First Lien
Credit Agreement and Second Lien Credit Agreement. The purpose of the
amended credit agreements was to allow us to use the net proceeds from our
initial public offering for the repayment in full of the PIK Loan under the
Holdings Senior PIK Credit Agreement and for the repayment of the Tranche B and
Tranche C term loans under the Second Lien Credit Agreement on a pro rata
basis. Under the terms of the original First and Second Lien Credit
Agreements, we were restricted with regards to repayment preference. The
amendment of the First Lien Credit Agreement includes updated terms on the
interest rate, including a floor of 1.5% (should we elect the Eurodollar Rate
option) and an increase in the rate margin of 1.75%. The amendment of the Second
Lien Credit Agreement includes updated terms on the interest rate of the Tranche
C term loan, including a floor of 2.0% (should we elect the Eurodollar Rate
option) and an increase in the rate margin of 0.75%. The updated
interest rates under the amended credit agreements became effective immediately
following the consummation of our initial public offering, which occurred on
August 11, 2010.
The First Lien Credit Agreement (“First
Lien Credit Facility”) provides for term loans in the aggregate principal amount
of $135.0 million, with quarterly installment payments equal to 0.25% of the
initial principal balance due on the last day of each quarter, which commenced
on September 30, 2007 and continues for 27 installments, with the balance due in
a final installment on June 15, 2014. Additionally, the First Lien Credit
Facility includes a requirement for mandatory prepayments of 50% of our excess
free cash flow as measured on an annual basis. Excess free cash flow is
generally defined as our adjusted EBITDA less debt service costs, capital
expenditures, current income taxes paid and any cash security deposits made in
respect of leases for office space, as adjusted for changes in our working
capital. As a result of our fiscal 2009 excess free cash flow, we made a
mandatory prepayment on April 1, 2010 of approximately $1.2 million under the
First Lien Credit Facility. The term loans under the amended First Lien Credit
Agreement bear interest at the higher of the Eurodollar Rate (as defined in the
credit agreement) or 1.50%, plus 4.50% per annum, which was 6.00% at September
30, 2010. As of September 30, 2009, the interest rate on the First
Lien Credit Facility was based on the Eurodollar Rate, plus 2.75% per annum,
which was 3.01%. Interest payments on the First Lien Credit Facility
are due on the last business day of each month. The First Lien Credit Facility
also provides for a $15.0 million revolving line of credit, of which $12.6
million was unused as of September 30, 2010. As of September 30, 2010, $1.6
million of the revolving line of credit was reserved for standby letters of
credit for several of the operating lease agreements related to our various
office locations. During the three months ended September 30, 2010,
an additional $0.8 million of the revolving line of credit was reserved for a
standby letter of credit related to our corporate charge card utilized by
executives and certain other employees.
34
The Second Lien Credit Agreement
(“Second Lien Credit Facility”) provides for two tranches of term loans, Tranche
B in the amount of $30.0 million and Tranche C in the amount of $35.0 million.
Both tranches are due in full on the maturity date of December 15, 2014. Tranche
B bears interest at the rate of 11.00% per annum through its maturity date, with
interest payments due on the last business day of each March, June, September
and December of each year. Under the amended terms of the Second Lien Credit
Agreement, Tranche C bears interest at the higher of the Eurodollar Rate (as
defined in the credit agreement), or 2.00%, plus 6.50% per annum, which was
8.50% at September 30, 2010. As of September 30, 2009, the interest
rate on Tranche C was based on the Eurodollar Rate, plus 5.75% per annum, which
was 6.01%. Interest payments on the Tranche C term loan are due on the
last business day of each month. The Second Lien Credit Facility permits, at our
option, interest on the Tranche C term loan to be payable in full or in part in
kind by adding the accrued interest to the principal of the term loans, which
thereafter accrues interest at the rate stated above, plus a PIK margin of 0.5%.
To date, we have not paid any of the interest on the Tranche C term loan in
kind, either in part or in full.
The First Lien Credit Facility and
Second Lien Credit Facility are secured by security interests and liens against
all of our assets, including a pledge of 100% of the equity interests in our
domestic subsidiaries and an obligation to pledge 65% of the equity interests in
our direct foreign subsidiaries.
All obligations under the First Lien
Credit Facility and Second Lien Credit Facility are unconditionally guaranteed
by our direct and indirect domestic subsidiaries. These guarantees are secured
by substantially all the present and future property of the
guarantors.
Cash paid for interest on the loans
described above, during the three and nine months ended September 30, 2010 was
$4.2 million and $15.0 million, respectively. Cash paid for interest
on the loans described above, during the three and nine months ended September
30, 2009 was $4.2 million and $12.7 million, respectively.
Due to the continued positive operating
performance of our business and the absence of any acquisition activity, we have
not needed to borrow additional amounts under our credit facilities or obtain
additional financing to fund operations and capital
expenditures.
Contractual Obligations and
Commitments
The following table sets forth, as of
September 30, 2010, certain significant cash obligations that will affect our
future liquidity.
Less than
|
1-3
|
3-5
|
More than
|
|||||||||||||||||
Total
|
1 year
|
Years
|
Years
|
5 years
|
||||||||||||||||
Long-term debt, including current
portion
|
$ | 160,913 | $ | 1,350 | $ | 2,700 | $ | 156,863 | $ | - | ||||||||||
Interest on long-term
debt
|
49,124 | 16,006 | 23,878 | 9,240 | - | |||||||||||||||
Operating
leases
|
26,009 | 2,348 | 4,565 | 5,456 | 13,640 | |||||||||||||||
Third-party hosting
commitments
|
10,451 | 3,114 | 6,495 | 842 | - | |||||||||||||||
Total
|
$ | 246,497 | $ | 22,818 | $ | 37,638 | $ | 172,401 | $ | 13,640 |
Long-Term Debt and Interest on Long-Term
Debt
Cash obligations on long-term debt,
presented in the table above, represent scheduled principal payments due in each
respective period.
35
Interest on long-term debt consists of
expected interest payments on the First and Second Lien Credit Facilities
through the respective maturity dates, based on assumptions regarding the amount
of debt outstanding and assumed interest rates. The assumed interest rate on the
First Lien Credit Facility was 6.0%, representing a 1.5% LIBOR floor plus 4.5%
spread. The assumed interest rate on Tranche C of the Second Lien
Credit Facility was 8.5%, representing a 2.0% LIBOR floor plus 6.5%
spread. The interest rate on Tranche B of the Second Lien Credit
Facility is fixed at 11%. Interest expense was assumed through maturity of the
loans. In addition, this amount reflects the impact of the interest
rate swap on the variable rate debt, for which we expect to pay a fixed rate of
5.25% through June 2012.
Operating Leases and Service
Obligations
Our principal commitments consist of
obligations under operating leases for office space in New York, NY, Boston, MA
London, UK, Chicago, IL, Sao Paolo, Brazil, Paris, France and Hong Kong which
expire in July 2011 (see below for details regarding execution of new lease for
the space in New York, NY beginning August 2011), December 2015, June 2013,
April 2013, January 2012, May 2011 and March 2011 respectively. Rent is
amortized on a straight-line basis over the applicable lease terms. Our office
space lease obligations may increase as a result of customary contractual
escalation clauses or if we enter into new agreements to lease additional office
space. In December 2009, we executed a new 10 year lease directly with the
landlord for our corporate headquarters in New York, NY. Currently we occupy the
space under a sublease arrangement that expires immediately prior to the time
the new lease takes effect. The new lease begins in August 2011 for 10 years and
provides for approximately 12 months of initial free rent and an allowance from
the landlord to be used for office improvements and certain other payments of
approximately $1.9 million. The present value of the future minimum lease
payments of the new lease is included in the above table.
Service obligations consist of our
commitments to our third-party hosting provider, which expire in December 2013.
Our hosting obligations are largely impacted by service expansion requirements
in line with the growth of our business.
Uncertain Tax
Positions
In addition to the above, our uncertain
tax positions are included within ‘‘other long term liabilities’’ on the
consolidated balance sheet. We have classified these uncertain tax positions as
long-term, as we do not anticipate that settlement of the liabilities will
require payment of cash within the next twelve months. We are not able to
reasonably estimate when we would make any cash payments required to settle
these liabilities, but do not believe that the ultimate settlement of our
obligations will materially affect our liquidity.
Critical Accounting Policies and
Estimates
The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities on an
ongoing basis. We evaluate these estimates including those related to the
determination of the fair value of stock options and awards issued, fair value
of our reporting unit, valuation of intangible assets (and their related useful
lives), fair value of financial instruments, income tax provisions, compensation
accruals, and accounts receivable and sales. Actual results may differ from
those estimates under different assumptions or conditions.
We believe the accounting policies and
estimates discussed within “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Registration Statement reflect our
more significant judgments and estimates used in the preparation of the
consolidated financial statements. There have been no material changes to the
critical accounting policies and estimates as filed in such
report.
Off-Balance Sheet
Arrangements
We did not have during the periods
presented, and we do not currently have, any off-balance sheet arrangements, as
defined under SEC rules, such as relationships with unconsolidated entities or
financial partnerships, which are often referred to as structured finance or
special purpose entities, established for the purpose of facilitating financing
transactions that are not required to be reflected on our consolidated balance
sheets.
Recently Adopted Accounting
Pronouncements
We refer
to Note 2 to the Consolidated Financial Statements, contained within Item 1 of
this Quarterly Report on Form 10-Q, for discussion regarding the expected
impact of the adoption of certain accounting pronouncements on future period
consolidated financial statements.
36
ITEM 3: QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The following discussion should be read
together with our consolidated financial statements and related notes to
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q, as well as those discussed within our audited consolidated financial
statements, related notes to audited consolidated financial statements included
in our Registration Statement.
Interest Rate
Sensitivity
The primary objectives of our investment
activities are to preserve principal, provide liquidity and maximize income
without significantly increasing risk. Some of the securities we invest in are
subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. To minimize this
risk, we maintain our portfolio of cash and cash equivalents and investments in
a variety of securities, including bank time deposits, money market funds, and
U.S. treasuries. A 10% decrease in interest rates in the three and nine months
ended September 30, 2010, or the three and nine months ended September 30, 2009,
would not have had a material impact (on a total dollar basis) on our interest
income during those periods, respectively, due to the immateriality of the
interest income generated by our investments during those
periods.
We maintain an interest rate swap
agreement that, as of September 30, 2010, fixed the interest rate on 79% of our
variable rate debt. The fair value of the interest rate swap derivative is
measured based on dealer quotes and a credit valuation adjustment to reflect
credit risk. The fair value measurement of the swap may fluctuate considerably
from period-to-period due to volatility in underlying interest rates, which is
driven by market conditions and the duration of the swap. For the three and nine
months ended September 30, 2010, a 10% increase or decrease in interest rates
would have resulted in an increase or decrease of less than $0.1 million to
“Other (income) expense,” within our consolidated statement of operations.
For the three and nine months ended September 30, 2009, a 10% increase or
decrease in interest rates would have resulted in an increase or decrease of
$0.4 million to “Other (income) expense,” within our consolidated statement of
operations.
Foreign Currency Exchange
Risk
Our results of operations and cash flows
are subject to fluctuations due to changes in foreign currency exchange rates,
particularly changes in the British Pounds Sterling and the Euro. During the
nine months ended September 30, 2010, approximately 35% of our revenues were
generated from sales across 60 countries outside of the United States.
However, for the three and nine months ended September 30, 2010, only 16% and
15%, respectively, of the contracts we entered into with our customers were
based in foreign currency. Comparatively, during the nine months ended
September 30, 2009, approximately 32% of our revenues were generated from sales
across 60 countries outside of the United States. However, for the three
and nine months ended September 30, 2009, only 11% and 6%, respectively, of the
contracts we entered into with our customers were based in foreign
currency. Additionally, during the three and nine months ended September
30, 2010, approximately 25% and 22%, respectively, of our expenses were incurred
in foreign currency. For the comparable periods of the prior year
approximately 15% and 14%, respectively, of our expenses were incurred in
foreign currency.
To date, we have not entered into any
foreign currency hedging contracts, since exchange rate fluctuations have had
little impact on our operating results and cash flows. For the three and nine
months ended September 30, 2010, we incurred a $0.1 million foreign currency
transaction gain and a $0.3 million foreign currency transaction loss,
respectively, which represents less than 1% of our revenues for the same
periods. For the three and nine months ended September 30, 2009, we incurred
foreign currency transaction losses of less than $0.1 million and $0.7 million,
respectively, which represents less than 1% of our revenues from the same
periods.
Inflation Risk
Our monetary assets, consisting
primarily of cash, cash equivalents and investments, are not affected
significantly by inflation because they are short-term. We believe the impact of
inflation on replacement costs of equipment, furniture and leasehold
improvements will not materially affect our operations. The rate of inflation,
however, affects our cost of revenue and expenses, such as those for employee
compensation, which may not be readily recoverable in the price of the services
offered by us.
37
ITEM 4: CONTROLS AND
PROCEDURES
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 defined in Rules
13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this report. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
Based on that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
Changes in Internal Control over
Financial Reporting
There were no changes in our internal
control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f)
under the Exchange Act) during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
38
PART II: OTHER
INFORMATION
ITEM 1: LEGAL
PROCEEDINGS
We are parties to various legal matters
and claims arising in the ordinary course of business. We do not expect that the
final resolution of these ordinary course matters will have a material adverse
impact on our financial position, results of operations or cash
flows.
ITEM 1A: RISK
FACTORS
The following risks and uncertainties,
together with all other information in this Quarterly Report, including our
consolidated financial statements and related notes, should be considered
carefully. Any of the risk factors we describe below could adversely affect our
business, financial condition or results of operations, and could cause the
market price of our common stock to fluctuate or decline.
Risks Related to Our Business and Our
Industry
Our future profitability is
uncertain.
We have historically incurred
significant net operating losses. As a result of these operating losses, we
accumulated a deficit of $78.3 million from June 15, 2007 through September 30,
2010. Our future profitability depends on, among other things, our ability to
generate revenue in excess of our costs. At the same time, we have significant
and continuing fixed costs relating to the maintenance of our assets and
business, including our substantial debt service requirements, which we may not
be able to reduce adequately to sustain our profitability if our revenue
decreases. Our stock began trading publicly on August 6, 2010. As a public
company, we will incur additional significant legal, accounting and other
expenses that we did not incur as a private company. These increased
expenditures will make it more difficult for us to achieve and maintain future
profitability. Our profitability also may be impacted by non-cash charges such
as stock-based compensation charges and impairment of goodwill, which will
negatively affect our reported financial results. Even if we achieve our
profitability on an annual basis, we may not be able to achieve profitability on
a quarterly basis. You should not consider recent revenue growth as indicative
of our future performance. In fact, in future quarters we may not have any
revenue growth and our revenue could decline. We may continue to incur
significant losses in the future for a number of reasons, including the other
risks described in this Form 10-Q, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown events. Our failure to
achieve and maintain our profitability could negatively impact the market price
of our common stock.
We may be unable to sustain positive
cash flow.
Our ability to continue to generate
positive cash flow depends on our ability to generate collections from sales in
excess of our cash expenditures. Our collections from sales can be negatively
affected by many factors, including but not limited to:
|
·
|
our inability to convince new
customers to use our services or existing customers to renew their
contracts or use additional
services;
|
|
·
|
the lengthening of our sales
cycle;
|
|
·
|
changes in our customer
mix;
|
|
·
|
a decision by any of our existing
customers to cease or reduce using our
services;
|
|
·
|
failure of customers to pay our
invoices on a timely basis or at
all;
|
|
·
|
a failure in the performance of
our solutions or our internal controls that adversely affects our
reputation or results in loss of
business;
|
|
·
|
the loss of market share to
existing or new competitors;
|
|
·
|
regional or global economic
conditions affecting the perceived need or value of our services;
and
|
39
|
·
|
our inability to develop new
products or expand our offering on a timely basis and thus potentially not
meet evolving market needs.
|
We anticipate that we will incur
increased sales and marketing and general and administrative expenses as we
continue to diversify our business into new industries and geographic markets.
Our business will also require significant amounts of working capital to support
our growth. We may not achieve sufficient collections from sales to offset these
anticipated expenditures to maintain positive future cash flow. In addition, we
may encounter unforeseen expenses, difficulties, complications, delays and other
unknown events that cause our costs to exceed our expectations. An inability to
generate positive cash flow may decrease our long-term
viability.
Our operating results are likely to
fluctuate from quarter to quarter, which may have an impact on our stock
price.
Our operating results have varied
significantly from quarter to quarter and may vary significantly from quarter to
quarter in the future. As a result, we may not be able to accurately forecast
our revenues or operating results. Our operating results may fall below market
analysts’ expectations in some future quarters, which could lead to downturns in
the market price of our common stock. Quarterly fluctuations may result from
factors such as:
|
·
|
changes in the markets that we
serve;
|
|
·
|
changes in demand for our
services;
|
|
·
|
rate of penetration within our
existing customer base;
|
|
·
|
loss of customers or business from
one or more customers, including from consolidations and acquisitions of
customers;
|
|
·
|
increased
competition;
|
|
·
|
changes in the mix of customer
types;
|
|
·
|
changes in our standard service
contracts that may affect when we recognize
revenue;
|
|
·
|
loss of key
personnel;
|
|
·
|
interruption in our service
resulting in a loss of
revenue;
|
|
·
|
changes in our pricing policies or
the pricing policies of our
competitors;
|
|
·
|
write-offs affecting any of our
material assets;
|
|
·
|
changes in our operating
expenses;
|
|
·
|
software “bugs” or other service
quality problems;
|
|
·
|
concerns relating to the security
of our systems; and
|
|
·
|
general economic
conditions.
|
We believe that our quarterly operating
results may vary significantly in the future, that period-to-period comparisons
of results of operations may not necessarily be meaningful and, as a result,
such comparisons should not be relied upon as indications of future
performance.
40
We have a substantial amount of debt
that exposes us to risks that could adversely affect our business, operating
results and financial condition.
We had approximately $160.3 million of
debt outstanding as of September 30, 2010, all of which is secured by liens on
substantially all of our assets. Even after giving effect to the uses of
proceeds of our initial public offering as described in the Registration
Statement, we expect to continue to have a significant amount of debt. The level
and nature of our indebtedness could, among other things:
|
·
|
make it difficult for us to obtain
any necessary financing in the
future;
|
|
·
|
limit our flexibility in planning
for or reacting to changes in our
business;
|
|
·
|
reduce funds available for use in
our operations;
|
|
·
|
impair our ability to incur
additional debt because of financial and other restrictive covenants or
the liens on our assets which secure our current
debt;
|
|
·
|
hinder our ability to raise equity
capital, because in the event of a liquidation of our business, debt
holders receive a priority before equity
holders;
|
|
·
|
make us more vulnerable in the
event of a downturn in our business;
and
|
|
·
|
place us at a possible competitive
disadvantage relative to less leveraged competitors and competitors that
have better access to capital
resources.
|
In addition, we may incur significantly
more debt in the future, which will increase each of the risks described above
related to our indebtedness. As of September 30, 2010, we had $12.6 million
available to us for additional borrowing under a $15.0 million revolving credit
facility. If we increase our indebtedness by borrowing under our credit
facilities or incur other new indebtedness, each of the risks described above
would increase.
Failure to maintain the security and
integrity of our systems could seriously damage our reputation and affect our
ability to retain customers and attract new business.
Maintaining the security and integrity
of our systems is an issue of critical importance for our customers and users
because they use our system to store and exchange large volumes of proprietary
and confidential information. Individuals and groups may develop and deploy
viruses, worms and other malicious software programs that attack or attempt to
infiltrate our system. We may not be able to detect and prevent such events from
occurring. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched
against a target, we may be unable to anticipate these techniques or to
implement adequate preventive measures. If an actual or perceived breach of our
security occurs, the market perception of the effectiveness of our security
measures could be harmed and we could lose sales and
customers.
In addition, we rely upon our customers
and users of our solutions to perform important activities relating to the
security of the data maintained on our cloud-based platform, or IntraLinks
Platform, such as assignment of user access rights and administration of
document access controls. Because we do not control the access provided by our
customers to third-parties with respect to the data on our systems, we cannot
ensure the complete integrity or security of such data in our systems. Errors or
wrongdoing by users resulting in security breaches may be attributed to us.
Because many of our engagements involve business-critical projects for financial
institutions and their customers and for other types of customers where
confidentiality is of paramount importance, a failure or inability to meet
customers’ expectations with respect to security and confidentiality could
seriously damage our reputation and affect our ability to retain customers and
attract new business.
The security and integrity of our
systems also may be jeopardized by a breach of our internal controls and
policies by our employees, consultants or subcontractors having access to such
systems. If our systems fail or are breached as a result of a third-party attack
or an error, violation of internal controls or policies or a breach of contract
by an employee, consultant or subcontractor causing the unauthorized disclosure
of proprietary or confidential information or customer data, we may lose
business, suffer irreparable damage to our reputation, and incur significant
costs and expenses relating to the investigation and possible litigation of
claims relating to such event. We may be liable in such event for damages,
penalties for violation of applicable laws or regulations and costs for
remediation and efforts to prevent future occurrences, any of which liabilities
could be significant. There can be no assurance that the limitations of
liability in our contracts would be enforceable or adequate or would otherwise
protect us from any such liabilities or damages with respect to any particular
claim. We also cannot assure you that our existing general liability insurance
coverage and coverage for errors and omissions will continue to be available on
acceptable terms or will be available in sufficient amounts to cover one or more
large claims, or that the insurer will not deny coverage as to any future claim.
The successful assertion of one or more large claims against us that exceeds
available insurance coverage, or the occurrence of changes in our insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, litigation,
regardless of its outcome, could result in a substantial cost to us and divert
management’s attention from our operations. Any significant claim or litigation
against us could have a material adverse effect on our business, financial
condition and results of operations.
41
A significant part of our business is
derived from the use of our solutions in connection with financial and strategic
business transactions. If the volume of such transactions does not increase,
demand for our services may not grow and could decline.
A significant portion of our revenue
depends on the purchase of our services by parties involved in financial and
strategic business transactions such as mergers and acquisitions, loan
syndications and other debt capital markets transactions. During the fiscal
years ended December 31, 2007, 2008 and 2009 and the nine months ended September
30, 2010, revenues generated from the M&A and DCM markets constituted
approximately 79%, 75%, 61% and 55%, respectively, of our total revenues. We
expect to continue to derive a significant portion of our revenue from these
sources for the foreseeable future. The volume of these transactions decreased
from 2008 to 2009 as the world experienced a significant economic recession. If
the volume of such transactions does not increase, demand for our services may
not grow and could decline. The credit crisis, deterioration of global
economies, rising unemployment and reduced equity valuations all create risks
that could harm our business. If macroeconomic conditions worsen, we are not
able to predict the impact of such worsening conditions on our results of
operations. Our customers in the financial services industry are facing
difficult conditions and their budgets for our services have been negatively
affected. The level of activity in the financial services industry, including
the financial transactions our services are used to support, is sensitive to
many factors beyond our control, including interest rates, regulatory policies,
general economic conditions, our customers’ competitive environments, business
trends, terrorism and political change. Unfavorable conditions or changes in any
of these factors could adversely affect our business, operating results and
financial condition.
Changes
in laws, regulations or governmental policy applicable to our customers or
potential customers may decrease the demand for our
solutions.
The level of our customers’ and
potential customers’ activity in the business processes our services are used to
support is sensitive to many factors beyond our control, including governmental
regulation and regulatory policies. Many of our customers and potential
customers in the life sciences, energy, utilities, insurance, financial and
other industries are subject to substantial regulation and may be the subject of
further regulation in the future. Accordingly, significant new laws or
regulations or changes in, or repeals of, existing laws, regulations or
governmental policy may change the way these customers do business and could
cause the demand for and sales of our solutions to decrease. For example, many
products developed by our customers in the life sciences industry require
approval of the U.S. Food and Drug Administration, or FDA, and other similar
foreign regulatory agencies before they can market their products. The processes
for filing and obtaining FDA approval to market these products are guided by
specific protocols that our services help support, such as 21 CFR Part 11 which
provides the criteria for acceptance by the FDA of electronic records. If new
government regulations from future legislation or administrative action or from
changes in FDA policy occur in the future, the services we currently provide may
no longer support these life science processes and protocols, and we may lose
customers in the life sciences industry. Any change in the scope of applicable
regulations that decreases the volume of transactions that our customers or
potential customers enter into or otherwise negatively impact their use of our
solutions would have a material adverse effect on our revenues or gross margins.
Moreover, complying with increased or changed regulations could cause our
operating expenses to increase. We may have to reconfigure our existing services
or develop new services to adapt to new regulatory rules and policies which will
require additional expense and time. Such changes could adversely affect our
business, results of operations and financial condition.
If we are unable to increase our
penetration in our principal existing markets and expand into additional
markets, we will be unable to grow our business and increase
revenue.
We currently market our solutions for a
wide range of business processes. These include clinical trial management;
safety information exchange and drug development and licensing for the life
sciences industry; private equity fundraising and investor reporting; energy
exploration and production ventures for the oil and gas industry; loan
syndication and other debt capital markets transactions; due diligence for
mergers and acquisitions; initial public offerings and other strategic
transactions; contract and vendor management; and board reporting. We intend to
continue to focus our sales and marketing efforts in these markets to grow our
business. In addition, we believe our future growth depends not only on
increasing our penetration into the principal markets in which our services are
currently used, but also identifying and expanding the number of industries,
communities and markets that use or could use our services. Efforts to expand
our service offerings beyond the markets that we currently serve, however, may
divert management resources from existing operations and require us to commit
significant financial resources to an unproven business, either of which could
significantly impair our operating results. Moreover, efforts to expand beyond
our existing markets may never result in new services that achieve market
acceptance, create additional revenue or become profitable. Our inability to
further penetrate our existing markets or our inability to identify additional
markets and achieve acceptance of our services in these additional markets could
adversely affect our business, results of operations and financial
condition.
42
Our performance depends on customer
referrals from financial institutions and other users of our
services.
We depend on end-users of our solutions
to generate customer referrals for our services. We depend in part on the
financial institutions, legal providers and other third parties who use our
services to recommend them to a larger customer base than we can reach through
our direct sales and internal marketing efforts. For instance, a significant
portion of our revenues from the mergers and acquisitions sector business is
derived from referrals by investment banks, financial advisors and law firms
that have relied on our services in connection with merger and acquisition
transactions. These referrals are an important source of new customers for our
services, and generally are made without expectation of compensation. We intend
to continue to focus our marketing efforts on these referral partners in order
to expand our reach and improve the efficiency of our sales efforts. The
willingness of these users to provide referrals depends on a number of factors,
including the performance, ease of use, reliability, reputation and
cost-effectiveness of our services as compared to those offered by our
competitors. We may not be able to maintain strong relationships with these
financial institutions or professional advisors. The loss of any of our
significant referral sources or a decline in the number of referrals could
require us to devote substantially more resources to the sales and marketing of
our services, which would increase our costs, and could lead to a decline in our
revenue, slow our growth and have a material adverse effect on our business,
results of operations and financial condition. In addition, the revenue we
generate from our referral relationships may vary from period to
period.
If we are unable to maintain or expand
our direct sales capabilities, we may not be able to generate anticipated
revenues.
We rely primarily on our direct sales
force to sell our services. As of September 30, 2010, we had a team of 181
dedicated sales professionals. Our services and solutions require a
sophisticated sales effort targeted at the senior management of our prospective
customers. We must expand our sales force to generate increased revenue from new
customers. Failure to hire or retain qualified sales personnel will preclude us
from expanding our business and generating anticipated revenue. Competition for
such personnel is intense, and there can be no assurance that we will be able to
retain our existing sales personnel or attract, assimilate or retain enough
highly qualified sales personnel. Many of the companies with which we compete
for experienced personnel have greater resources than we have. If any of our
sales representatives were to leave us and join one of our competitors, we may
be unable to prevent such sales representatives from helping competitors to
solicit business from our existing customers, which could adversely affect our
revenue. In addition, in making employment decisions, particularly in the
software industry, job candidates often consider the value of the stock options
they are to receive in connection with their employment. Significant volatility
in the price of our stock may, therefore, adversely affect our ability to
attract or retain key employees. In the past, we have had high turn-over rates
among our sales force. New hires require training and take time to achieve full
productivity. If we experience high turnover in our sales force in the future,
we cannot be certain that new hires will become as productive as necessary to
maintain or increase our revenue.
We may lose sales opportunities if we do
not successfully develop and maintain strategic relationships to sell and
deliver our solutions.
In addition to generating customer
referrals through third-party users of our solutions, we intend to pursue
additional relationships with other third parties, such as technology and
content providers and implementation partners. Identifying partners and
negotiating and documenting relationships with them require significant time and
resources as does integrating third-party content and technology. Some of these
third parties have entered and may continue to enter, into strategic
relationships with our competitors. Further, these third parties may have
multiple strategic relationships and may not regard us as significant for their
businesses. They may terminate their respective relationships with us, pursue
other partnerships or relationships, or attempt to develop or acquire services
or solutions that compete with ours. Our strategic partners also may interfere
with our ability to enter into other desirable strategic relationships. If we
are unsuccessful in establishing or maintaining our relationships with these
third parties on favorable economic terms, our ability to compete in the
marketplace or to grow our revenue could be impaired, and our business, results
of operations and financial condition would suffer. Even if we are successful,
we cannot assure you that these relationships will result in increased revenue
or customer usage of our solutions or that the economic terms of these
relationships will not adversely affect our margins.
43
Our business depends substantially on
customers renewing and expanding their subscriptions for our services. Any
decline in our customer renewals and expansions would harm our future operating
results.
We enter into subscription agreements
with certain of our customers that are generally one year in length. As a
result, maintaining the renewal rate of our subscription agreements is critical
to our future success. Contracts with annual commitment terms typically contain
an automatic renewal clause; however, optional notification of non-renewal is
typically permitted to be given by customers within 30 to 90 days prior to the
end of the contract term. Repeat customers who do not have automatic renewal
terms typically must negotiate renewal terms at each annual termination date.
Our customers have no obligation to renew their subscriptions for our services
after the expiration of the initial term of their agreements, and some customers
have elected not to do so. We cannot assure you that any of our customer
agreements will be renewed. Our renewal rates may decline due to a variety of
factors, including:
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the price, performance and
functionality of our
solutions;
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the availability, price,
performance and functionality of competing products and
services;
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our ability to demonstrate to new
customers the value of our solutions within the initial
term;
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the relative ease and low cost of
moving to a competing product or
service;
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consolidation in our customer
base;
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the effects of economic downturns,
including the current global economic recession, and global economic
conditions;
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reductions in our customers’
spending levels; or
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if any of our customers cease
using, or anticipate declining requirements for, our services in their
operations.
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If our renewal rates are lower than
anticipated or decline for any reason, or if customers renew on terms less
favorable to us, our revenue may decrease and our profitability and gross margin
may be harmed, which would have a material adverse effect on our business,
results of operations and financial condition.
The nature of our transactional
contracts, such as those for merger and acquisition transactions, require
frequent new contracts with customers.
Many of our contracts with customers are
entered into in connection with discrete one-time financial and strategic
business transactions and projects such as merger and acquisition transactions.
During the fiscal years ended December 31, 2007, 2008 and 2009, revenues
generated from transactional contracts constituted approximately 53%, 53% and
43%, respectively, of our total revenues. These transactional agreements
typically have initial terms of six to twelve months depending on the purpose of
the exchange. Accordingly, our business depends on our ability to replace these
transactional agreements as they expire. Our inability to enter into new
contracts with existing customers or find new customers to replace these
contracts could have a material adverse effect on our business, results of
operations and financial condition.
Consolidation in the commercial and
investment banking industries and other industries we serve could adversely
impact our business by eliminating a number of our existing and potential
customers.
There has been, and continues to be,
merger, acquisition and consolidation activity in the banking and financial
services industry. Mergers or consolidations of banks and financial institutions
have reduced and may continue to reduce the number of our customers and
potential customers for our solutions. A smaller market for our services could
have a material adverse impact on our business and results of operations. For
example, in 2008 and 2009, some of our largest customers in the commercial and
investment banking industries merged with each other causing the consolidation
of several contracts. In addition, it is possible that the larger banks or
financial institutions which result from mergers or consolidations could perform
themselves some or all of the services that we currently provide or could
provide. A merger of two of our existing customers may also result in the merged
entity deciding not to use our service or to purchase fewer of our services than
the companies did separately or may result in the merged entity seeking pricing
advantages or discounts using the leverage of its increased size. If that were
to occur, it could adversely impact our revenue, which in turn would adversely
affect our business, results of operations and financial
condition.
44
If we do not maintain the compatibility
of our services with third-party applications that our customers use in their
business processes, demand for our services could decline.
Our solutions can be used alongside a
wide range of other systems, such as email and enterprise software systems used
by our customers in their businesses. If we do not support the continued
integration of our services with third-party applications, including through the
provision of application programming interfaces that enable data to be
transferred readily between our services and third-party applications, demand
for our services could decline and we could lose sales. We will also be required
to make our services compatible with new or additional third-party applications
that are introduced to the markets that we serve. We may not be successful in
making our services compatible with these third-party applications, which could
reduce demand for our services. In addition, prospective customers, especially
large Enterprise customers, may require heavily customized features and
functions unique to their business processes. If prospective customers require
customized features or functions that we do not offer, and that would be
difficult for them to develop and integrate within our services, then the market
for our services will be adversely affected.
We operate in highly competitive
markets, which could make it more difficult for us to acquire and retain
customers.
The market for online collaborative
content workspaces is intensely competitive and rapidly changing with relatively
low barriers to entry. We expect competition to increase from existing
competitors as well as new and emerging market entrants such as Microsoft
Corporation and Google, Inc. We compete primarily on product functionality,
service, price and reputation. Our competitors include companies that provide
online products that serve as document repositories or dealrooms, together with
other products or services, which may result in such companies effectively
selling these services at lower prices and creating downward pricing pressure
for us. Some of our competitors have longer operating histories and
significantly greater financial resources. They may be able to devote greater
resources to the development and improvement of their services than we can and,
as a result, may be able to more quickly implement technological changes and
respond to customers’ changing needs. In addition, if our competitors
consolidate, or our smaller competitors are acquired by other, larger
competitors, they may be able to provide services comparable to ours at a lower
price due to their size. Our competitors may also develop services or products
that are superior to ours, and their products or services may gain greater
market acceptance than our services. Furthermore, our customers or their
advisors, including investment banks and law firms, may acquire or develop their
own technologies, such as client extranets, that could decrease the need for our
services. The arrival of new market entrants or the use of these internal
technologies could reduce the demand for our services, or cause us to reduce our
pricing, resulting in a loss of revenue and adversely affecting our business,
results of operations and financial condition.
The average sales price of our solutions
may decrease, which may reduce our profitability.
The average sales price for our
solutions may decline for a variety of reasons, including competitive pricing
pressures, discounts we offer, a change in the mix of our solutions,
anticipation of the introduction of new solutions or promotional programs.
Competition continues to increase in the market for online collaborative content
workspaces and we expect competition to further increase in the future, thereby
leading to increased pricing pressures. We cannot assure you that we will be
successful maintaining our prices at levels that will allow us to maintain
profitability. Failure to maintain our prices could have an adverse effect on
our business, results of operations and financial condition.
If we fail to adapt our services to
changes in technology or the marketplace, we could lose existing customers and
be unable to attract new business.
Our customers and users regularly adopt
new technologies and industry standards continue to evolve. The introduction of
products or services and the emergence of new industry standards can render our
existing services obsolete and unmarketable in short periods of time. We expect
others to continue to develop and introduce new products and services, and
enhancements to existing products and services, which will compete with our
services. Our future success will depend, in part, on our ability to enhance our
current services and to develop and introduce new services that keep pace with
technological developments, emerging industry standards and the needs of our
customers. We cannot assure you that we will be successful in cost effectively
developing, marketing and selling new services or service enhancements that meet
these changing demands, that we will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of these
services, or that our new service and service enhancements will adequately meet
the demands of the marketplace and achieve market
acceptance.
Our customers may adopt technologies
that decrease the demand for our services, which could reduce our revenue and
adversely affect our business.
We target large institutions such as
commercial banks, investment banks and life sciences companies for many of our
services and we depend on their continued need for our services. However, over
time, our customers or their advisors, such as law firms, may acquire, adopt or
develop their own technologies such as client extranets that decrease the need
for our solutions. The use of such internal technologies could reduce the demand
for our services, result in pricing pressures or cause a reduction in our
revenue. If we fail to manage these challenges adequately, our business, results
of operations and financial condition could be adversely
affected.
45
Government regulation of the Internet
and e-commerce and of the international exchange of certain technologies is
subject to possible unfavorable changes, and our failure to comply with
applicable regulations could harm our business and operating
results.
As Internet commerce continues to
evolve, increasing regulation by federal, state or foreign governments becomes
more likely. For example, we believe increased regulation is likely in the area
of data privacy, and laws and regulations applying to the solicitation,
collection, processing or use of personal or consumer information could affect
our customers’ ability to use and share data, potentially reducing demand for
our products and services. In addition, taxation of products and services
provided over the Internet or other charges imposed by government agencies or by
private organizations for accessing the Internet may also be imposed. Any
regulation imposing greater fees for Internet use or restricting the exchange of
information over the Internet could result in reduced growth or a decline in the
use of the Internet and could diminish the viability of our Internet-based
services, which could harm our business and operating
results.
Interruptions or delays in our service
due to problems with our third-party web hosting facility or other third-party
service providers could adversely affect our business.
We rely on SunGard Availability Services
LP for the maintenance of the equipment running our solutions and software at
geographically dispersed hosting facilities. Our agreement with SunGard
Availability Services LP expires on December 31, 2013. If we are unable to
renew, extend or replace this contract, we may be unable to timely arrange for
replacement services at a similar cost, which could cause an interruption in our
service. We do not control the operation of these SunGard Availability Services
LP facilities and each may be subject to damage or interruption from
earthquakes, floods, fires, power loss, telecommunications failures or similar
events. These facilities may also be subject to break-ins, sabotage, intentional
acts of vandalism or similar misconduct. Despite precautions taken at these
facilities, the occurrence of a natural disaster, cessation of operations by our
third-party web hosting provider or its decision to close a facility without
adequate notice or other unanticipated problems at either facility could result
in lengthy interruptions in our service. In addition, the failure by these
facilities to provide our required data communications capacity could result in
interruptions in our service. Further, our services are highly dependent on our
computer and telecommunications equipment and software systems. Disruptions in
our service and related software systems could be the result of errors or acts
by our vendors, customers, users or other third parties, or electronic or
physical attacks by persons seeking to disrupt our operations. Any damage to, or
failure or capacity limitations of, our systems and our related network could
result in interruptions in our service. Interruptions in our service may cause
us to lose revenue, cause us to issue credits or refunds, cause customers to
terminate their subscriptions and adversely affect our renewal rates. Our
business and reputation will be adversely affected if our customers and
potential customers believe our service is unreliable.
Our business may not generate sufficient
cash flow from operations, or future borrowings under our credit facilities or
from other sources may not be available to us, in amounts sufficient to enable
us to repay our indebtedness or to fund our other liquidity needs, including
capital expenditure requirements.
We cannot guarantee that we will be able
to generate or obtain enough capital to service our debt and fund our planned
capital expenditures and business plan. We may be more vulnerable to adverse
economic conditions than less leveraged competitors and thus less able to
withstand competitive pressures. Any of these events could reduce our ability to
generate cash available for investment or debt repayment or to make improvements
or respond to events that would enhance profitability. If we are unable to
service or repay our debt when it becomes due, our lenders could seek to
accelerate payment of all unpaid principal and foreclose on our assets, and we
may have to take actions such as selling assets, seeking additional equity
investments or reducing or delaying capital expenditures, strategic
acquisitions, investments and alliances. Additionally, we may not be able to
effect such actions, if necessary, on commercially reasonable terms, or at all.
Any such event would have a material adverse effect on our business, results of
operations and financial condition.
Our loan agreements contain operating
and financial covenants that may restrict our business and financing
activities.
We had total indebtedness of $160.3
million outstanding as of September 30, 2010, pursuant to a First Lien Credit
Agreement and Second Lien Credit Agreement each entered into on June 15, 2007.
These borrowings are secured by substantially all of our assets, including our
intellectual property. Our loan agreements restrict our ability
to:
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incur additional
indebtedness;
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46
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create
liens;
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make investments and
acquisitions;
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sell
assets;
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pay dividends or make
distributions on and, in certain cases, repurchase our stock;
or
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consolidate or merge with other
entities.
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In addition, our loan agreements have
change in control provisions that may accelerate the maturity date of our loans.
With respect to our First Lien Credit Facility, upon the occurrence of a change
in control, all first-lien credit facility commitments shall terminate and all
first-lien loans shall become due and payable. With respect to our Second Lien
Credit Facility, upon a change in control, each holder of second-lien term loans
will be entitled to require us to repay the second-lien term loans at a price of
101% of the principal plus accrued and unpaid interest. Furthermore, our loan
agreements require us to meet specified minimum financial measurements. The
operating and financial restrictions and covenants in these loan agreements, as
well as any future financing agreements that we may enter into, may restrict our
ability to finance our operations, engage in business activities or expand or
fully pursue our business strategies. Our ability to comply with these covenants
may be affected by events beyond our control, and we may not be able to meet
those covenants. A breach of any of these covenants could result in a default
under our loan agreements, which could cause all of the outstanding indebtedness
under our loan agreements to become immediately due and payable and terminate
all commitments to extend further credit.
We might require additional capital to
support business growth, and this capital might not be
available.
We intend to continue to make
investments to support our business growth and may require additional funds to
respond to business challenges, including the need to develop new services or
enhance our existing services, enhance our operating infrastructure and acquire
complementary businesses and technologies. Accordingly, we may need to engage in
equity or debt financings to secure additional funds. If we raise additional
funds through further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges superior to
those of holders of our common stock. Any debt financing secured by us in the
future could involve restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue business
opportunities, including potential acquisitions. In addition, we may not be able
to obtain additional financing on terms favorable to us, if at all. If we are
unable to obtain adequate financing or financing on terms satisfactory to us,
when we require it, our ability to continue to support our business growth and
to respond to business challenges could be significantly
limited.
Our growth may strain our management,
information systems and resources.
Our business has expanded rapidly in
recent years. This rapid growth has placed, and may continue to place, a
significant strain on our managerial, administrative, operational, financial and
other resources. We intend to further expand our overall business, customer
base, headcount and operations both domestically and internationally. Growing a
global organization and managing a geographically dispersed workforce will
require substantial management effort and significant additional investment in
our infrastructure. We will be required to continue to improve our information
technology infrastructure, operational, financial and management controls and
our reporting systems and procedures, and manage expanded operations in
geographically distributed locations. Our expected additional growth will
increase our costs, which will make it more difficult for us to offset any
future revenue shortfalls by offsetting expense reductions in the short term. If
we fail to successfully manage our growth we will be unable to successfully
execute our business plan, which could have a negative impact on our business,
financial condition and results of operations.
Expansion of our business
internationally will subject us to additional economic and operational risks
that could increase our costs and make it difficult for us to operate
profitably.
One of our key growth strategies is to
pursue international expansion. International revenue accounted for
approximately 33% of our revenue in both 2008 and 2009. The continued expansion
of our international operations may require significant expenditure of financial
and management resources and result in increased administrative and compliance
costs. In addition, such expansion will increasingly subject us to the risks
inherent in conducting business internationally, including:
47
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foreign currency fluctuations,
which could result in reduced revenue and increased operating
expenses;
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localization of our services,
including translation into foreign languages and adaptation for local
practices and regulatory
requirements;
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longer accounts receivable payment
cycles and increased difficulty in collecting accounts
receivable;
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the effect of applicable foreign
tax structures, including tax rates that may be higher than tax rates in
the United States or taxes that may be duplicative of those imposed in the
United States;
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tariffs and trade
barriers;
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difficulties in managing and
staffing international
operations;
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general economic and political
conditions in each country;
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inadequate intellectual property
protection in foreign
countries;
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dependence on certain third
parties, including channel partners with whom we may not have extensive
experience;
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the difficulties and increased
expenses in complying with a variety of foreign laws, regulations and
trade standards, including data protection and privacy laws which may or
may not be in conflict with U.S. law;
and
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international regulatory
environments.
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Because we recognize revenue for our
services ratably over the term of our customer agreements, downturns or upturns
in the value of signed contracts will not be fully and immediately reflected in
our operating results.
We offer our services primarily through
fixed commitment contracts and recognize revenue ratably over the related
service period, which typically range from six to twelve months. As a result,
some portion of the revenue we report in each quarter is revenue from contracts
entered into during prior quarters. Consequently, a decline in signed contracts
in any quarter will not be fully and immediately reflected in the revenue of
that quarter and will negatively affect our revenue in future quarters. In
addition, we may be unable to adjust our cost structure to take account of this
reduced revenue. Similarly, revenue attributable to an increase in contracts
signed in a particular quarter will not be fully and immediately recognized in
the quarter that the contract is signed, as revenue from new or renewed
contracts is recognized ratably over the applicable service period. Because we
incur sales commissions at the time of sale, we may not recognize revenues from
some customers despite incurring considerable expense related to our sales
processes. Timing differences of this nature could cause our margins and
profitability to fluctuate significantly from quarter to
quarter.
The sales cycles for Enterprise
customers can be long and unpredictable, and require considerable time and
expense, which may cause our operating results to fluctuate.
The timing of our revenue from sales to
Enterprise customers is difficult to predict. These efforts require us to
educate our customers about the use and benefit of our services, including the
technical capabilities and potential cost savings to an organization. Enterprise
customers typically undertake a significant evaluation process that has in the
past resulted in a lengthy sales cycle, typically several months. We spend
substantial time, effort and money on our Enterprise sales efforts without any
assurance that our efforts will produce any sales. If sales expected from a
specific customer for a particular quarter are not realized in that quarter or
at all, our results could fall short of public expectations and our business,
operating results and financial condition could be adversely
affected.
If we fail to maintain proper and
effective internal controls in the future, our ability to produce accurate and
timely financial statements could be impaired, which could harm our operating
results, investors’ views of us and, as a result, the value of our common
stock.
Ensuring that we have effective internal
control over financial reporting and disclosure controls and procedures in place
is a costly and time-consuming effort that needs to be frequently evaluated. In
connection with our initial public offering, we commenced the process of
documenting, reviewing and improving our internal controls over financial
reporting for compliance with Section 404 of the Sarbanes-Oxley Act of 2002,
which requires an annual management assessment of the effectiveness of our
internal controls over financial reporting and a report from our independent
registered public accounting firm addressing the effectiveness of our internal
controls over financial reporting. Both we and our independent registered public
accounting firm will be attesting to the effectiveness of our internal controls
over financial reporting in connection with the audit of our financial
statements for the year ending December 31, 2011.
48
We have identified deficiencies in our
internal controls over financial reporting in the past, including in connection
with the audit of our financial statements for the year ended December 31, 2009.
In addition, in connection with our 2009 audit, we identified a material
weakness in our internal control over financial reporting related to our
application of certain provisions within ASC 815, Derivatives
and Hedging (“ASC 815”) as it relates to
an interest rate hedging instrument that we have held since 2007. A material
weakness is defined as a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis by the company’s
internal controls. From the date of inception of the interest rate hedging
instrument through March 2009, we properly interpreted and applied the guidance
of ASC 815. In March 2009 we made certain amendments to the swap agreement that
under the guidance of ASC 815 should have resulted in the de-designation of the
hedge as of that date. Based on our interpretation of the guidance, in periods
subsequent to the amendment made in March 2009, we improperly concluded that the
interest rate hedging instrument qualified for hedge accounting treatment. The
resulting adjustment to reclassify the cumulative fair value adjustments out
of Other
comprehensive (loss) income on the Consolidated Balance
Sheet to Other
expense in the
Consolidated Statement of Operations, both of which are contained elsewhere in
our consolidated financial statements contained in the Registration Statement,
was considered an audit adjustment and was recorded prior to the issuance of the
consolidated financial statements for the year ended December 31, 2009. The
adjustment recorded as a result of this material weakness is discussed within
Note 9 to our consolidated financial statements contained elsewhere in the
Registration Statement. We have concluded no remedial action is required with
respect to this material weakness as we no longer apply hedge accounting
treatment to the existing interest rate swap.
As part of our process of documenting
and testing our internal controls over financial reporting, we may identify
areas for further attention and improvement. We expect to incur substantial
accounting and auditing expense and to expend significant management time in
complying with the requirements of Section 404 of the Sarbanes-Oxley Act. If we
are not able to comply with these requirements in a timely manner, or if we or
our independent registered public accounting firm identify deficiencies in our
internal controls over financial reporting that could rise to the level of a
material weakness, we may not be able to complete our evaluation, testing and
any required remediation in a timely fashion. During the evaluation and testing
process, if we identify one or more material weaknesses in our internal controls
over financial reporting, we will be unable to assert that our internal controls
over financial reporting are effective. If we are unable to assert that our
internal controls over financial reporting are effective, or if our independent
registered public accounting firm is unable to express an opinion on the
effectiveness of our internal controls over financial reporting, we could be
subject to investigations or sanctions by the Securities and Exchange Commission
or other regulatory authorities, and we could lose investor confidence in the
accuracy and completeness of our financial reports, which could cause an adverse
effect on the market price of our common stock, our business, reputation,
financial position and results of operation. In addition, we could be required
to expend significant management time and financial resources to correct any
material weaknesses that may be identified or to respond to any regulatory
investigations or proceedings.
We rely on third-party software and
hardware to support our system and services and our business and reputation
could suffer if our services fail to perform properly.
We rely on hardware purchased or leased
and software licensed from third parties to offer our service. This hardware and
software may not continue to be available on commercially reasonable terms or at
all. Any loss of the right to use any of this hardware or software could result
in delays in the provisioning of our services, which could negatively affect our
business until equivalent technology is either developed by us or, if available,
is identified, obtained and integrated. The software underlying our services can
contain undetected errors or bugs. We may be forced to delay commercial release
of our services until such problems are corrected and, in some cases, may need
to implement enhancements to correct errors that we do not detect until after
deployment of our services. In addition, problems with the software underlying
our services could result in:
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damage to our
reputation;
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loss of or delayed
revenue;
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loss of
customers;
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warranty claims or
litigation;
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loss of or delayed market
acceptance of our services;
and
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unexpected expenses and diversion
of resources to remedy
errors.
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Our use of “open source” software could
negatively affect our ability to sell our services and subject us to possible
litigation.
A portion of the technologies licensed
by us incorporate so-called “open source” software, and we may incorporate open
source software in the future. Such open source software is generally licensed
by its authors or other third parties under open source licenses. If we fail to
comply with these licenses, we may be subject to certain conditions, including
requirements that we offer our services that incorporate the open source
software for no cost, that we make available source code for modifications or
derivative works we create based upon, incorporating or using the open source
software and that we license such modifications or alterations under the terms
of the particular open source license. If an author or other third party that
distributes such open source software were to allege that we had not complied
with the conditions of one or more of these licenses, we could be required to
incur significant legal expenses defending against such allegations and could be
subject to significant damages, enjoined from the sale of our services that
contained the open source software and required to comply with the foregoing
conditions, which could disrupt the distribution and sale of some of our
services.
If we are found to infringe on the
proprietary rights of others, we could be required to redesign our services, pay
significant royalties or enter into license agreements with third parties. This
may significantly increase our costs or adversely affect our results of
operations and stock price.
A third-party may assert that our
technology or services violates its intellectual property rights. In particular,
as the number of products and services offered in our markets, as well as the
number of related patents issued in the United States and elsewhere, increase,
and the functionality of these products and services further overlap, we believe
that infringement claims may arise. Any claims, regardless of their merit,
could:
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be expensive and time-consuming to
defend;
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force us to stop providing
services that incorporate the challenged intellectual
property;
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require us to redesign our
technology and services;
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divert management’s attention and
other company resources; and
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require us to enter into royalty
or licensing agreements in order to obtain the right to use necessary
technologies, which may not be available on terms acceptable to us, if at
all.
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If we are unable to protect our
proprietary technology and other rights, the value of our business and our
competitive position may be impaired.
If we are unable to protect our
intellectual property, our competitors could use our intellectual property to
market products and services similar to ours, which could decrease demand for
our services. We rely on a combination of copyright, patent, trademark and trade
secret laws as well as third-party nondisclosure agreements and other
contractual provisions and technical measures to protect our intellectual
property rights. These protections may not be adequate to prevent our
competitors from copying or reverse-engineering our technology and services to
create similar offerings. The scope of patent protection, if any, we may obtain
from our patent applications is difficult to predict and our patents may be
found invalid, unenforceable, or of insufficient scope to prevent competitors
from offering similar services. Our competitors may independently develop
technologies that are substantially equivalent or superior to our technology. To
protect our trade secrets and other proprietary information, we require
employees, consultants, advisors, subcontractors and collaborators to enter into
confidentiality agreements and maintain policies and procedures to limit access
to our trade secrets and proprietary information. These agreements and the other
actions taken by us may not provide meaningful protection for our trade secrets,
know-how or other proprietary information from unauthorized use,
misappropriation or disclosure. Existing copyright and patent laws may not
provide adequate or meaningful protection in the event competitors independently
develop technology, products or services similar to ours. Even if such laws
provide protection, we may have insufficient resources to take the legal actions
necessary to protect our interests. In addition, our intellectual property
rights and interests may not be afforded the same protection under the laws of
foreign countries as they are under the laws of the United
States.
50
Our
success depends on our customers’ continued high-speed access to the Internet
and the continued reliability of the Internet
infrastructure.
Our future sales growth depends on our
customers’ high-speed access to the Internet, as well as the continued
maintenance and development of the Internet infrastructure. The future delivery
of our services will depend on third-party Internet service providers to expand
high-speed Internet access, to maintain a reliable network with the necessary
speed, data capacity and security, and to develop complementary products and
services, including high-speed modems, for providing reliable and timely
Internet access and services. The success of our business depends directly on
the continued accessibility, maintenance and improvement of the Internet as a
convenient means of customer interaction, as well as an efficient medium for the
delivery and distribution of information among businesses and by businesses to
their employees. All of these factors are out of our control. If for any reason
the Internet does not remain a widespread communications medium and commercial
platform, the demand for our services would be significantly reduced, which
would harm our business, results of operations and financial
condition.
To the extent that the Internet
continues to experience increased numbers of users, frequency of use or
bandwidth requirements, the Internet may become congested and be unable to
support the demands placed on it, and its performance or reliability may
decline. Any future Internet outages or delays could adversely affect our
ability to provide services to our customers, which could adversely affect our
business.
We may not successfully develop or
introduce new services or enhancements to our IntraLinks Platform and, as a
result, we may lose existing customers or fail to attract new customers and our
revenues may suffer.
Our ability to attract new customers and
increase revenue from existing customers will depend in large part on our
ability to enhance and improve our existing IntraLinks Platform and to introduce
new functionality either by acquisition or internal development. Our operating
results would suffer if our innovations are not responsive to the needs of our
customers, are not appropriately timed with market opportunity, or are not
effectively brought to market. We have in the past experienced delays in the
planned release dates of new features and upgrades, and have discovered defects
in new services after their introduction. There can be no assurance that new
services or upgrades will be released according to schedule, or that when
released they will not contain defects. Either of these situations could result
in adverse publicity, loss of revenues, delay in market acceptance or claims by
customers brought against us, all of which could have a material adverse effect
on our business, results of operations and financial condition. Moreover,
upgrades and enhancements to our service offerings may require substantial
investment and we have no assurance that such investments will be successful. If
new innovations to our solutions do not become widely adopted by customers, we
may not be able to justify the investments we have made. If we are unable to
develop, license or acquire new products or enhancements to existing services on
a timely and cost-effective basis, or if such new products or enhancements do
not achieve market acceptance, our business, results of operations and financial
condition will be materially adversely affected.
If we fail to develop our brand
cost-effectively, our business may suffer.
We believe that developing and
maintaining awareness of the IntraLinks brand in a cost-effective manner is
critical to achieving widespread acceptance of our existing and future services
and is an important element in attracting new customers. Furthermore, we believe
that the importance of brand recognition will increase as competition in our
market develops. Successful promotion of our brand will depend largely on the
effectiveness of our marketing efforts and on our ability to provide reliable
and useful services at competitive prices. Brand promotion and protection will
also require protection and defense of our trademarks, service marks and trade
dress, which may not be adequate to protect our investment in our brand or
prevent competitors’ use of similar brands. In the past, our efforts to build
our brand have involved significant expense. Brand promotion activities may not
yield increased revenue, and even if they do, any increased revenue may not
offset the expenses we incur in building our brand. If we fail to successfully
promote and maintain our brand, or incur substantial expenses in an unsuccessful
attempt to promote and maintain our brand, we may fail to attract enough new
customers or retain our existing customers to the extent necessary to realize a
sufficient return on our brand-building efforts, and our business could
suffer.
If
we are unable to retain our key executives, we may not be able to implement our
business strategy.
We rely on the expertise and experience
of our senior management, especially our President and Chief Executive Officer,
J. Andrew Damico, as well as the other executive officers and key employees
listed in the “Management” section of the Registration Statement. Although we
have employment agreements with Mr. Damico and Mr. Anthony Plesner, our Chief
Financial Officer, neither of them nor any of our other management personnel is
obligated to continue his or her employment with us. We have no key-man
insurance on any members of our management team. The loss of services of any key
management personnel could make it more difficult to successfully pursue our
business goals. Furthermore, recruiting and retaining qualified management
personnel are critical to our growth plans. We may be unable to attract and
retain such personnel on acceptable terms given the competition among technology
companies for experienced management personnel.
51
Our ability to use our net operating
loss carryforwards may be limited.
As of December 31, 2009, we had federal
net operating loss carryforwards, or NOLs, of $62.4 million to offset future
taxable income, which expire in various years through 2027, if not utilized. The
deferred tax asset representing the benefit of these NOLs has been offset by our
deferred tax liabilities, leaving us in a net deferred tax liability position. A
lack of future taxable income would adversely affect our ability to utilize
these NOLs. In addition, under the provisions of the Internal Revenue Code,
substantial changes in our ownership may limit the amount of NOLs that can be
utilized annually in the future to offset taxable income. Section 382 of the
Internal Revenue Code, or Section 382, imposes limitations on a company’s
ability to use NOLs if a company experiences a more-than-50-percent ownership
change over a three-year testing period. We believe that, as a result of our
initial public offering or as a result of prior or future issuances of our
capital stock, it is possible that a change in our ownership has occurred or
will occur. If such a change in our ownership has occurred or occurs, our
ability to use our NOLs in any future periods may be substantially limited. If
we are limited in our ability to use our NOLs in future years in which we have
taxable income, we will pay more taxes than if we were able to utilize our NOLs
fully. This occurrence could adversely affect the market price of our common
stock.
If we undertake business combinations
and acquisitions, they may be difficult to integrate, disrupt our business,
dilute stockholder value or divert management’s attention.
We may support our growth through
acquisitions of complementary businesses, services or technologies. Future
acquisitions involve risks, such as:
|
·
|
challenges associated with
integrating acquired technologies and operations of acquired
companies;
|
|
·
|
exposure to unforeseen
liabilities;
|
|
·
|
diversion of managerial resources
from day-to-day operations;
|
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·
|
possible loss of key employees,
customers and suppliers;
|
|
·
|
misjudgment with respect to the
value, return on investment or strategic fit of any acquired operations or
assets;
|
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·
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higher than expected transaction
costs; and
|
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·
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additional dilution to our
existing stockholders if we use our common stock as consideration for such
acquisitions.
|
As a result of these risks, we may not
be able to achieve the expected benefits of any acquisition. If we are
unsuccessful in completing or integrating acquisitions, we may be required to
reevaluate our growth strategy and we may have incurred substantial expenses and
devoted significant management time and resources in seeking to complete and
integrate the acquisitions.
Future business combinations could
involve the acquisition of significant intangible assets. We may need to record
write-downs from future impairments of identified intangible assets and
goodwill. These accounting charges would reduce any future reported earnings or
increase a reported loss. In addition, we could use substantial portions of our
available cash to pay the purchase price for acquisitions. Subject to the
provisions of our existing indebtedness, it is possible that we could incur
additional debt or issue additional equity securities as consideration for these
acquisitions, which could cause our stockholders to suffer significant
dilution.
We will incur increased costs and
demands upon management as a result of complying with the laws and regulations
affecting public companies, which could harm our operating
results.
As a public company, we will incur
significant legal, accounting and other expenses that we did not incur as a
private company, including costs associated with public company reporting
requirements. We also have incurred and will incur costs associated with current
corporate governance requirements, including requirements under Section 404 and
other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the
Securities and Exchange Commission and the New York Stock Exchange. Our
management and other personnel will need to devote a substantial amount of time
to these compliance initiatives. We expect these rules and regulations to
substantially increase our legal and financial compliance costs and to make some
activities more time-consuming and costly. We are unable to currently estimate
these costs with any degree of certainty. We also expect these new rules and
regulations may make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage previously available. As a result, it may be more
difficult for us to attract and retain qualified individuals to serve on our
board of directors or as our executive officers.
52
If we are required to collect sales and
use taxes on the services we sell, we may be subject to liability for past sales
and our future sales may decrease.
We may lose sales or incur significant
expenses should tax authorities anywhere we do business be successful in
imposing sales and use taxes, value added taxes or similar taxes on the services
we provide. A successful assertion by one or more tax authorities that we should
collect sales or other taxes on the sale of our services could result in
substantial tax liabilities for past sales and otherwise harm our business.
States and certain municipalities in the United States, as well as countries
outside the United States, have different rules and regulations governing sales
and use taxes and these rules and regulations are subject to varying
interpretations that may change over time. Certain of these rules and
regulations may be interpreted to apply to us depending on the characterization
of our services. We currently do not collect sales or use tax on our services in
any state in the United States other than Ohio and Texas. We have not
historically charged or collected value added tax on our services anywhere in
the world.
Vendors of services, like us, are
typically held responsible by taxing authorities for the collection and payment
of any applicable sales and similar taxes. If one or more taxing authorities
determines that taxes should have, but have not, been paid with respect to our
services, we may be liable for past taxes in addition to taxes going forward.
Liability for past taxes may also include very substantial interest and penalty
charges. Although our customer contracts typically provide that our customers
are responsible for the payment of all taxes associated with the provision and
use of our services, customers may decline to pay back taxes and may refuse
responsibility for interest or penalties associated with those taxes. In certain
cases, we may elect not to request customers to pay back taxes. If we are
required to collect and pay back taxes and the associated interest and penalties
and if our customers fail or refuse to reimburse us for all or a portion of
these amounts, or if we elect not to seek payment of these amounts, we will have
incurred unplanned expenses that may be substantial. Moreover, imposition of
such taxes on our services going forward will effectively increase the cost of
such services to our customers and may adversely affect our ability to retain
existing customers or to gain new customers in the areas in which such taxes are
imposed. Any of the foregoing could have a material adverse effect on our
business, results of operation or financial condition.
Risks Related to Our Common
Stock
Our stock price may fluctuate
significantly.
The stock market, particularly in recent
years, has experienced significant volatility, particularly with respect to
technology stocks. The volatility of technology stocks often does not relate to
the operating performance of the companies represented by the stock. Factors
that could cause volatility in the market price of our common stock
include:
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·
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market conditions affecting our
customers’ businesses, including the level of activity in the mergers and
acquisitions and syndicated loan
markets;
|
|
·
|
the loss of any major customers or
the acquisition of new customers for our
services;
|
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·
|
announcements of new services or
functions by us or our
competitors;
|
|
·
|
developments concerning
intellectual property
rights;
|
|
·
|
comments by securities analysts,
including the publication of their estimates of our operating
results;
|
|
·
|
actual and anticipated
fluctuations in our quarterly operating
results;
|
|
·
|
rumors relating to us or our
competitors;
|
53
|
·
|
actions of stockholders, including
sales of shares by our directors and executive
officers;
|
|
·
|
additions or departures of key
personnel; and
|
|
·
|
developments concerning current or
future strategic alliances or
acquisitions.
|
These and other factors may cause the
market price and demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares of common stock
and may otherwise negatively affect the liquidity of our common stock. In
addition, in the past, when the market price of a stock has been volatile,
holders of that stock have instituted securities class action litigation against
the company that issued the stock. If any of our stockholders brought a lawsuit
against us, we could incur substantial costs defending the lawsuit. Such a
lawsuit could also divert the time and attention of our
management.
Our principal stockholders could
exercise significant control over our company.
As of October 31, 2010, our two largest
stockholders beneficially owned, in the aggregate, shares representing
approximately 67.1% of our outstanding capital stock. Although we are not aware
of any voting arrangements in place among these stockholders, if these
stockholders were to choose to act together, as a result of their stock
ownership, they would be able to influence our management and affairs and
control all matters submitted to our stockholders for approval, including the
election of directors and approval of any merger, consolidation or sale of all
or substantially all of our assets. This concentration of ownership may have the
effect of delaying or preventing a change in control of our company and might
affect the market price of our common stock.
Future sales of shares by existing
stockholders could cause our stock price to decline.
If our existing stockholders sell, or
indicate an intent to sell, substantial amounts of our common stock in the
public market after the 180-day contractual lock-up and other legal restrictions
on resale discussed in the Registration Statement lapse, the trading price of
our common stock could decline significantly. Morgan Stanley & Co.
Incorporated, the lead underwriter for our initial public offering, may, in its
sole discretion, permit our officers, directors, employees and current
stockholders to sell shares prior to the expiration of the lock-up agreements.
Moreover, a relatively small number of our shareholders own large blocks of
shares. We cannot predict the effect, if any, that public sales of these shares
or the availability of these shares for sale will have on the market price of
our common stock.
After the lock-up agreements pertaining
to our initial public offering expire and based on shares outstanding as of
September 30, 2010, an additional 38,276,662 shares will be eligible for sale in
the public market, subject to any applicable volume limitations under federal
securities laws. In addition, shares subject to outstanding options under our
equity incentive plans and shares reserved for future issuance under our equity
incentive plans will become eligible for sale in the public market in the
future, subject to certain legal and contractual limitations. Moreover, 180 days
after the completion of our initial public offering, holders of approximately
33,966,680 shares of our common stock will have the right to require us to
register these shares under the Securities Act of 1933, as amended, pursuant to
a registration rights agreement. If our existing stockholders sell substantial
amounts of our common stock in the public market, or if the public perceives
that such sales could occur, this could have an adverse impact on the market
price of our common stock, even if there is no relationship between such sales
and the performance of our business.
Provisions of Delaware law, our charter
documents and our loan agreements could delay or prevent an acquisition of our
company, even if the acquisition would be beneficial to our stockholders, and
could make it more difficult for you to change management.
Provisions of Delaware law, our amended
and restated certificate of incorporation and amended and restated by-laws and
our loan agreements, may discourage, delay or prevent a merger, acquisition or
other change in control that stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a premium for their
shares. These provisions may also prevent or delay attempts by stockholders to
replace or remove our current management or members of our board of directors.
These provisions include:
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·
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a classified board of
directors;
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·
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limitations on the removal of
directors;
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54
|
·
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advance notice requirements for
stockholder proposals and
nominations;
|
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·
|
the inability of stockholders to
act by written consent or to call special
meetings;
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·
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the ability of our board of
directors to make, alter or repeal our amended and restated
by-laws;
|
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·
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the authority of our board of
directors to issue preferred stock with such terms as our board of
directors may determine; and
|
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·
|
provisions in our loan agreements
that may accelerate payment of our debt in a change in
control.
|
The affirmative vote of the holders of
at least 75% of our shares of capital stock entitled to vote, and not less than
75% of the outstanding shares of each class entitled to vote thereon as a class,
is generally necessary to amend or repeal the above provisions that are
contained in our amended and restated certificate of incorporation. Also, absent
approval of our board of directors, our amended and restated by-laws may only be
amended or repealed by the affirmative vote of the holders of at least 75% of
our shares of capital stock entitled to vote.
In addition, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law, which limits
business combination transactions with stockholders of 15% or more of our
outstanding voting stock that our board of directors has not approved. These
provisions and other similar provisions make it more difficult for stockholders
or potential acquirers to acquire us without negotiation. These provisions may
apply even if some stockholders may consider the transaction beneficial to
them.
As a result, these provisions could
limit the price that investors are willing to pay in the future for shares of
our common stock. These provisions might also discourage a potential acquisition
proposal or tender offer, even if the acquisition proposal or tender offer is at
a premium over the then current market price for our common
stock.
We
have never paid dividends on our capital stock and we do not anticipate paying
any dividends in the foreseeable future. Consequently, any gains from an
investment in our common stock will likely depend on whether the price of our
common stock increases.
We have not paid dividends on any of our
classes of capital stock to date and we currently intend to retain our future
earnings, if any, to fund the development and growth of our business. In
addition, the terms of our outstanding indebtedness restrict our ability to pay
dividends, and any future indebtedness that we may incur could preclude us from
paying dividends. As a result, capital appreciation, if any, of our common stock
will be your sole source of gain for the foreseeable future. Consequently, in
the foreseeable future, you will likely only experience a gain from your
investment in our common stock if the price of our common stock
increases.
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
will rely in part on the research and reports that equity research analysts
publish about us and our business. We do not control these analysts. The price
of our common stock could decline if one or more equity analysts downgrade our
common stock or if analysts issue other unfavorable commentary or cease
publishing reports about us or our business.
ITEM 2: UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity
Securities
From July 1, through effective date of
our initial public offering, we issued and sold an aggregate of 23,144 shares of
our common stock to our employees, at an exercise price of $1.59 per share for
an aggregate of $36,799 pursuant to exercises of options granted. The issuance
of common stock upon exercise of the options was exempt either pursuant to Rule
701, as a transaction pursuant to a compensatory benefit plan, or pursuant to
Section 4(2), as a transaction by an issuer not involving a public offering. The
common stock issued upon exercise of options is deemed restricted securities for
the purposes of the Securities Act.
Use of Proceeds
On August 5, 2010, the SEC declared
effective our registration statement on Form S-1 (File No. 333-165991) in
connection with our initial public offering, pursuant to which we registered an
aggregate of 12,650,000 shares of Common Stock, which includes 1,650,000 shares
of Common Stock pursuant to the underwriters’ over-allotment
option. On August 11, 2010, we sold 11,000,000 shares of Common Stock
at a public offering price of $13.00 per share. On September 9, 2010,
the underwriters exercised their over-allotment option to purchase an additional
980,000 shares of Common Stock at the public offering price. The
underwriters of the offering were Morgan Stanley & Co. Incorporated,
Deutsche Bank Securities Inc., Credit Suisse Securities (USA) LLC, Jefferies
& Company, Inc., Lazard Capital Markets LLC, Pacific Crest Securities LLC
and Stifel Nicolaus Weisel.
55
As a result of the offering, including
the underwriters’ exercise of their over-allotment option, we received net
proceeds of approximately $144.8 million, after deducting underwriting discounts
and commissions of $10.9 million. No offering expenses were paid directly or
indirectly to any of our directors or officers (or their associates) or persons
owning ten percent or more of any class of our equity securities or to any other
affiliates, other than reimbursement of legal expenses for selling stockholders.
We used $139.6 million of the net proceeds to prepay in full $103.9 million
outstanding under the PIK Loan under the Holdings Senior PIK Credit Agreement,
plus an additional $4.1 million in prepayment fees, as well as $14.6 million of
Tranche B of the Second Lien Credit Facility and $17.0 million of Tranche C of
the Second Lien Credit Facility. Funds affiliated with TA Associates,
Inc., which own ten percent or more of our Common Stock, were lenders under our
Tranche B term loan issued pursuant to our Second Lien Credit Facility, and two
of our directors, Brian J. Conway and Harry D. Taylor, are affiliated with TA
Associates, Inc. As a result, $14.6 million of the offering proceeds were
indirectly paid to TA Associates, Inc. and its affiliates, of which Messrs.
Conway and Taylor are also affiliated. We anticipate that we will use
the remaining net proceeds from our initial public offering for working capital
and other general corporate purposes. There has been no material
change in the planned use of proceeds from our initial public offering from that
described in our final prospectus filed with the SEC pursuant to Rule
424(b).
ITEM 3: DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4: (REMOVED AND
RESERVED)
ITEM 5: OTHER
INFORMATION
Our
policy governing transactions in our securities by directors, officers and
employees permits our officers, directors and certain other persons to enter
into trading plans complying with Rule 10b5-1 under the Securities Exchange Act
of 1934, as amended. Generally, under these trading plans, the individual
relinquishes control over the transactions once the trading plan is put into
place. Accordingly, sales under these plans may occur at any time, including
possibly before, simultaneously with, or immediately after significant events
involving our company. As of the date of this filing J. Andrew Damico, our Chief
Executive Officer; Anthony Plesner, our Chief Financial Officer; and Fahim
Siddiqui, our Executive Vice President, Product and Operations, have trading
plans in effect beginning after the expiration of the lock-up
agreements with the managing underwriter of our recent initial
public offering.
We
anticipate that, as permitted by Rule 10b5-1 and our policy governing
transactions in our securities, some or all of our other officers,
directors and employees may establish trading plans in the future. We intend to
disclose the names of executive officers and directors who establish a trading
plan in compliance with Rule 10b5-1 and the requirements of our policy governing
transactions in our securities in our future quarterly and annual reports on
Form 10-Q and 10-K filed with the Securities and Exchange Commission. However,
we undertake no obligation to update or revise the information provided herein,
including for revision or termination of an established trading plan, other than
in such quarterly and annual reports.
56
ITEM 6: EXHIBITS
(a) Exhibits required by Item 601 of
Regulation S-K.
Exhibit
Number
|
Description
|
||
3.1
|
Form of Fourth Amended and
Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.2 in the Company’s Registration Statement on Form
S-1, as amended (File No. 333-165991)).
|
||
3.2
|
Form of Amended and Restated
By-Laws of the Company (Incorporated by reference to Exhibit 3.3 in the
Company’s Registration Statement on Form S-1, as amended (File No.
333-165991)).
|
||
4.1
|
Form of Specimen Common Stock
Certificate (Incorporated by reference to Exhibit 4.1 in the Company’s
Registration Statement on Form S-1, as amended (File No.
333-165991)).
|
||
10.1
|
2010 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.6 in the Company’s Registration
Statement on Form S-1, as amended (File No.
333-165991)).
|
||
10.2
|
2010 Equity Incentive Plan and
forms of award agreements (Incorporated by reference to Exhibit 10.7 in
the Company’s Registration Statement on Form S-1, as amended (File No.
333-165991)).
|
||
31.1
|
*
|
Certification of Principal
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
*
|
Certification of Principal
Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
*
|
Certification of Principal
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
*
|
Certification of Principal
Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*Filed herewith.
57
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
INTRALINKS HOLDINGS,
INC.
|
||||
Date: November 12,
2010
|
By:
|
/s/ J. Andrew
Damico
|
||
J. Andrew
Damico
President and Chief Executive
Officer (Principal Executive Officer)
|
||||
Date: November 12,
2010
|
By:
|
/s/ Anthony
Plesner
|
||
Anthony
Plesner
Chief Financial Officer and Chief
Administrative Officer (Principal Financial and Accounting
Officer)
|
58