Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - TRX INC/GA | Financial_Report.xls |
EX-31.1 - EX-31.1 - TRX INC/GA | d351758dex311.htm |
EX-10.5 - EX-10.5 - TRX INC/GA | d351758dex105.htm |
EX-31.2 - EX-31.2 - TRX INC/GA | d351758dex312.htm |
EX-10.4 - EX-10.4 - TRX INC/GA | d351758dex104.htm |
EX-10.2 - EX-10.2 - TRX INC/GA | d351758dex102.htm |
EX-10.1 - EX-10.1 - TRX INC/GA | d351758dex101.htm |
EX-32.1 - EX-32.1 - TRX INC/GA | d351758dex321.htm |
EX-10.3 - EX-10.3 - TRX INC/GA | d351758dex103.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
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 No. 000-51478
TRX, INC.
(Exact name of registrant as specified in charter)
Georgia | 58-2502748 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
2970 Clairmont Road, Suite 300, Atlanta, Georgia | 30329 | |
(Address of principal executive offices) | (Zip Code) |
Issuers telephone number, including area code: (404) 929-6100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a small reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrants common stock, $0.01 par value, outstanding at August 1, 2012 was 18,531,824 shares.
Table of Contents
FORM 10-Q
TABLE OF CONTENTS
PAGE NO. |
||||||
Item 1. |
||||||
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements |
5 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||||
Item 3. |
17 | |||||
Item 4. |
17 | |||||
Item 1. |
18 | |||||
Item 1A. |
18 | |||||
Item 2. |
18 | |||||
Item 3. |
18 | |||||
Item 4. |
18 | |||||
Item 5. |
18 | |||||
Item 6. |
18 | |||||
19 |
Table of Contents
PART I FINANCIAL INFORMATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, 2012 |
December 31, 2011 |
|||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 1,173 | $ | 2,153 | ||||
Trade accounts receivable, net |
5,367 | 4,876 | ||||||
Prepaids and other |
1,899 | 1,763 | ||||||
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Total current assets |
8,439 | 8,792 | ||||||
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NONCURRENT ASSETS: |
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Property and equipment, net |
3,835 | 4,003 | ||||||
Restricted cash |
| 200 | ||||||
Deferred income tax |
| 70 | ||||||
Other assets, net |
490 | 582 | ||||||
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Total noncurrent assets |
4,325 | 4,855 | ||||||
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Total assets |
$ | 12,764 | $ | 13,647 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued liabilities |
$ | 5,690 | $ | 6,649 | ||||
Deferred revenue |
2,231 | 3,857 | ||||||
Current portion of long-term debt |
1,600 | 800 | ||||||
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Total current liabilities |
9,521 | 11,306 | ||||||
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NONCURRENT LIABILITIES: |
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Long-term debtless current portion |
| | ||||||
Deferred income tax |
14 | | ||||||
Other long-term liabilities |
1,798 | 1,912 | ||||||
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Total noncurrent liabilities |
1,812 | 1,912 | ||||||
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Total liabilities |
11,333 | 13,218 | ||||||
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COMMITMENTS AND CONTINGENCIES (NOTE 1) |
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SHAREHOLDERS EQUITY: |
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Common stock, $.01 par value; 100,000,000 shares authorized; 18,711,335 and 18,693,897 shares issued; 18,523,804 and 18,506,366 shares outstanding |
186 | 186 | ||||||
Additional paid-in capital |
96,451 | 96,372 | ||||||
Treasury stock, at cost; 187,531 shares |
(2,294 | ) | (2,294 | ) | ||||
Cumulative translation adjustment |
(3 | ) | 6 | |||||
Accumulated deficit |
(92,909 | ) | (93,841 | ) | ||||
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Total shareholders equity |
1,431 | 429 | ||||||
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Total liabilities and shareholders equity |
$ | 12,764 | $ | 13,647 | ||||
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|
See notes to unaudited condensed consolidated financial statements.
1
Table of Contents
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
REVENUES: |
||||||||||||||||
Transaction and other revenues |
$ | 11,553 | $ | 12,377 | $ | 23,476 | $ | 24,802 | ||||||||
Client reimbursements |
67 | 32 | 124 | 205 | ||||||||||||
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Total revenues |
11,620 | 12,409 | 23,600 | 25,007 | ||||||||||||
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EXPENSES: |
||||||||||||||||
Operating |
7,420 | 8,034 | 15,196 | 15,836 | ||||||||||||
Selling, general, and administrative |
2,158 | 2,713 | 4,558 | 4,794 | ||||||||||||
Technology development |
711 | 856 | 1,524 | 1,675 | ||||||||||||
Client reimbursements |
67 | 32 | 124 | 205 | ||||||||||||
Impairment of goodwill |
| 88 | 6 | 152 | ||||||||||||
Gain on sale of assets |
| | (384 | ) | | |||||||||||
Depreciation and amortization |
637 | 1,002 | 1,266 | 1,997 | ||||||||||||
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Total expenses |
10,993 | 12,725 | 22,290 | 24,659 | ||||||||||||
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OPERATING INCOME (LOSS) |
627 | (316 | ) | 1,310 | 348 | |||||||||||
INTEREST (EXPENSE) INCOME: |
||||||||||||||||
Interest income |
3 | 8 | 13 | 10 | ||||||||||||
Interest expense |
(68 | ) | (119 | ) | (165 | ) | (252 | ) | ||||||||
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Total interest expense, net |
(65 | ) | (111 | ) | (152 | ) | (242 | ) | ||||||||
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INCOME (LOSS) BEFORE INCOME TAXES |
562 | (427 | ) | 1,158 | 106 | |||||||||||
INCOME TAX EXPENSE |
92 | 76 | 226 | 239 | ||||||||||||
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NET INCOME (LOSS) |
$ | 470 | $ | (503 | ) | $ | 932 | $ | (133 | ) | ||||||
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WEIGHTED AVERAGE NUMBER OF SHARES: |
||||||||||||||||
Basic |
18,523 | 18,470 | 18,519 | 18,468 | ||||||||||||
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Diluted |
18,966 | 18,470 | 18,970 | 18,468 | ||||||||||||
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BASIC NET INCOME (LOSS) PER SHARE |
$ | 0.03 | $ | (0.03 | ) | $ | 0.05 | $ | (0.01 | ) | ||||||
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DILUTED NET INCOME (LOSS) PER SHARE |
$ | 0.02 | $ | (0.03 | ) | $ | 0.05 | $ | (0.01 | ) | ||||||
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See notes to unaudited condensed consolidated financial statements.
2
Table of Contents
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income (loss) |
$ | 470 | $ | (503 | ) | $ | 932 | $ | (133 | ) | ||||||
Cumulative translation adjustment |
(115 | ) | 85 | (9 | ) | 56 | ||||||||||
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Total comprehensive income (loss) |
$ | 355 | $ | (418 | ) | $ | 923 | $ | (77 | ) | ||||||
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See notes to unaudited condensed consolidated financial statements.
3
Table of Contents
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30, |
||||||||
2012 | 2011 | |||||||
(As Restated) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 932 | $ | (133 | ) | |||
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Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
1,266 | 1,997 | ||||||
Gain on sale of assets |
(384 | ) | | |||||
Impairment of goodwill |
6 | 152 | ||||||
Provision for bad debts |
120 | (162 | ) | |||||
Stock compensation expense |
60 | 47 | ||||||
Debt issuance cost amortization |
29 | 10 | ||||||
Changes in operating assets and liabilities: |
||||||||
Trade accounts receivable |
(619 | ) | 1,792 | |||||
Prepaids and other assets |
(149 | ) | 1,132 | |||||
Deferred taxes |
84 | (6 | ) | |||||
Accounts payable and accrued liabilities |
(998 | ) | (1,750 | ) | ||||
Customer deposits and deferred revenue |
(1,629 | ) | (630 | ) | ||||
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Net cash (used in) provided by operating activities |
(1,282 | ) | 2,449 | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
(801 | ) | (889 | ) | ||||
Sale of assets, net of costs to sell |
77 | | ||||||
Change in restricted cash |
200 | | ||||||
Payment of contingent consideration |
(6 | ) | (152 | ) | ||||
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Net cash used in investing activities |
(530 | ) | (1,041 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments of long-term debt |
| (583 | ) | |||||
Borrowings from credit facility |
3,000 | 5,500 | ||||||
Payments on credit facility |
(2,200 | ) | (6,900 | ) | ||||
Proceeds from exercise of stock options |
1 | | ||||||
Proceeds from employee stock purchase plans |
15 | 3 | ||||||
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Net cash provided by (used in) financing activities |
816 | (1,980 | ) | |||||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
16 | 137 | ||||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
(980 | ) | (435 | ) | ||||
CASH AND CASH EQUIVALENTSBeginning of period |
2,153 | 2,565 | ||||||
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CASH AND CASH EQUIVALENTSEnd of period |
$ | 1,173 | $ | 2,130 | ||||
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See notes to unaudited condensed consolidated financial statements.
4
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In thousands, except share and per share data)
1. ACCOUNTING AND REPORTING POLICIES
TRX is a travel technology and data services provider, offering more than 20 software-as-a-service utilities for reservation processing, data intelligence, expense reporting, and process automation. We provide patented savings maximization solutions, extending spend management services to travel buyers all over the world. We complement all of this with a global workforce focused on travel process automation and reengineering expertise. For the foreseeable future, we intend to focus our efforts primarily on the opportunities within the travel industry. We deliver our technology applications as a service over the Internet to travel agencies, corporations, travel suppliers, government agencies, credit card associations, credit card issuing banks, and third-party administrators. TRX is headquartered in Atlanta, Georgia with operations and associates in North America, Europe, and Asia. We are majority-owned by BCD Technology, S.A. (BCD).
Basis of PresentationThe accompanying unaudited condensed consolidated financial statements of TRX and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. As a result, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2011. Due to the seasonal fluctuations for the purchase of air travel by leisure and corporate travelers, as well as credit card volume related to corporate travel, interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary for a fair statement of results for the interim periods presented.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Correction of an ErrorAs disclosed in our Form 10-K for the year ended December 31, 2011, filed on March 6, 2012, during the process of preparing our financial statements for the year ended December 31, 2011, we determined that our calculation of stock compensation expense related to stock options in previously issued financial statements was incorrect for reporting periods within the year ended December 31, 2011, including the three and six months ended June 30, 2011. Our calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense. As a result of this error, certain previously reported amounts in the condensed consolidated statement of operations, and condensed consolidated statement of cash flows for the three and six months ended June 30, 2011 were materially misstated; accordingly we have restated the prior period financial statements.
The restated condensed consolidated statement of operations for the three and six months ended June 30, 2011 and cash flow from operating activities section of the condensed consolidated statement of cash flows for the six months ended June 30, 2011 are as follows:
Three Months Ended June 30, 2011 | ||||||||||||
As Previously Presented |
Stock
Option Correction |
As Restated | ||||||||||
Operating |
$ | 8,033 | $ | 1 | $ | 8,034 | ||||||
Selling, general, and administrative |
2,690 | 23 | 2,713 | |||||||||
Technology development |
855 | 1 | 856 | |||||||||
Total expenses |
12,700 | 25 | 12,725 | |||||||||
OPERATING LOSS |
(291 | ) | (25 | ) | (316 | ) | ||||||
LOSS BEFORE INCOME TAXES |
(402 | ) | (25 | ) | (427 | ) | ||||||
NET LOSS |
(478 | ) | (25 | ) | (503 | ) |
5
Table of Contents
Six Months Ended June 30, 2011 | ||||||||||||
As Previously Presented |
Stock
Option Correction |
As Restated | ||||||||||
Operating |
$ | 15,834 | $ | 2 | $ | 15,836 | ||||||
Selling, general, and administrative |
4,740 | 54 | 4,794 | |||||||||
Technology development |
1,673 | 2 | 1,675 | |||||||||
Total expenses |
24,601 | 58 | 24,659 | |||||||||
OPERATING INCOME |
406 | (58 | ) | 348 | ||||||||
INCOME BEFORE INCOME TAXES |
164 | (58 | ) | 106 | ||||||||
NET LOSS |
(75 | ) | (58 | ) | (133 | ) |
As Previously Presented |
Stock
Option Correction |
As Restated | ||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net loss |
$ | (75 | ) | $ | (58 | ) | $ | (133 | ) | |||
Stock compensation (credit) expense |
(11 | ) | 58 | 47 |
Allowance for Doubtful AccountsWe maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. The balance was $403 and $290 as of June 30, 2012 and December 31, 2011, respectively.
GoodwillWe recorded an impairment charge to all previously recorded goodwill in 2009. We recorded additional goodwill through December 31, 2011 related to earnout payments on a previous business combination transaction. The earnout obligation related to this acquisition ended on December 31, 2011, and during the six months ended June 30, 2012, we recorded the final adjustment related to the final earnout payment. Since there was no material change in our financial outlook from the time of the initial goodwill impairment, we determined that such goodwill recorded in connection with the earnout payments were also impaired in that same period.
The following table discloses the changes in the carrying amount of goodwill during the six months ended June 30, 2012:
Balance, January 1 |
$ | 38,291 | ||
Accumulated impairment losses |
(38,291 | ) | ||
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Earnout on previous business acquisition transaction |
6 | |||
Impairment charge |
(6 | ) | ||
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Balance, June 30 |
38,297 | |||
Accumulated impairment losses |
(38,297 | ) | ||
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$ | | |||
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Other Intangible AssetsOur intangible assets are included in other assets, net in the accompanying condensed consolidated balance sheets. A summary of our intangible assets as of June 30, 2012 and December 31, 2011 is as follows:
June 30, 2012 | December 31, 2011 | |||||||||||||||||||
Useful Lives |
Gross Carrying Value |
Accumulated Amortization |
Gross Carrying Value |
Accumulated Amortization |
||||||||||||||||
Trademarks and patents |
10 years | $ | 866 | $ | (563 | ) | $ | 866 | $ | (476 | ) |
We expect to record amortization expense related to these intangible assets of approximately $87 during the remainder of 2012, $173 in 2013 and $43 in 2014. We recorded related amortization expense of $43 and $86 during the three and six months ended June 30, 2012, respectively, and $43 and $87 during the three and six months ended June 30, 2011, respectively.
Impairment of Long-Lived AssetsWe regularly evaluate whether events and circumstances have occurred that indicate whether the carrying amount of property and equipment and other intangible assets may warrant revision or may not be recoverable. When factors indicate that these long-lived assets should be evaluated for recoverability, we assess the recoverability by determining whether the carrying value of such long-lived assets will be recovered through the future undiscounted cash flows expected from the use of the asset and its eventual disposition. We assessed indicators to determine whether the carrying values of long-lived assets, including property and equipment and other intangible assets, should be impaired and determined no impairment was required at June 30, 2012.
6
Table of Contents
Fair Value MeasurementsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures.
The carrying values of our cash and cash equivalents, restricted cash, accounts receivable, current maturities of long-term debt, trade payables and other accrued expenses approximate their fair value because of the short-term nature of these instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
Revenue Recognition and Cost DeferralWe recognize revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists; (2) services have been performed; (3) the fee for services is fixed or determinable; and (4) collectability is reasonably assured. Generally, these criteria are considered to have been met as follows:
| For transaction revenue, in which we perform ticketing, file-finishing, data consolidation and reporting, and customer care services, when the services are provided; |
| For short-term client-specific customizations, which do not generate direct on-going incremental transaction revenue, when the customization has been delivered to our customer; and |
| For implementation and set-up fees, which generate direct on-going incremental transaction revenue, over the life of the underlying transaction service agreement. Related costs are deferred and recognized as expenses over the life of the underlying transaction service agreement. |
Client reimbursements received for direct costs paid to third parties and related expenses are characterized as revenue. Client reimbursements represent direct costs paid to third parties primarily for voice and data and items such as paper tickets.
Concentration of Credit RiskA significant portion of our revenues is derived from a limited number of clients. Our top five clients accounted for approximately 61% and 63% of our total revenues in the three months ended June 30, 2012 and 2011, respectively, and 60% and 64% of our total revenues in the six months ended June 30, 2012 and 2011, respectively. Contracts with the major clients may be terminated by the client if we fail to meet certain performance criteria. Expedia, Inc. and its affiliates accounted for 34% and 37% of our total revenues in the three months ended June 30, 2012 and 2011, respectively, and 34% and 40% of our total revenues in the six months ended June 30, 2012 and 2011, respectively. Our Master Service Agreement with Expedia is amended from time to time and now continues through December 31, 2012. We can give no assurance that we will retain any business from Expedia during the current contract period or beyond. American Express Travel Related Services Company, Inc. (American Express) accounted for 17% and 13% of our total revenues in the three months ended June 30, 2012 and 2011, respectively, and 16% and 14% of our total revenues in the six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December 31, 2011, 2% and 6%, respectively, of our accounts receivable related to American Express.
Earnings per ShareBasic earnings per share is computed by dividing reported income or loss available to common shareholders by weighted average shares outstanding during the period. Income or loss available to common shareholders is the same as reported net income or loss for all periods presented.
Diluted earnings per share is computed by dividing reported earnings available to common shareholders, adjusted for the earnings effect of potentially dilutive securities, by weighted average shares outstanding during the period and the impact of securities that, if exercised, would have a dilutive effect on earnings per share.
All common stock equivalents with an exercise price less than the average market share price for the period are assumed to have a dilutive effect on earnings per share. The following table sets forth the computation of basic and diluted net income (loss) per share:
Three Months Ended June 30, 2012 |
Three Months Ended June 30, 2011 |
|||||||||||||||||||||||
Net Income |
Weighted Average Shares |
Per Share |
Net Loss |
Weighted Average Shares |
Per Share |
|||||||||||||||||||
Basic net income (loss) per share |
$ | 470 | 18,523 | $ | 0.03 | $ | (503 | ) | 18,470 | $ | (0.03 | ) | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Options to acquire common stock |
| 443 | | | | | ||||||||||||||||||
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Diluted net income (loss) per share |
$ | 470 | 18,966 | $ | 0.02 | $ | (503 | ) | 18,470 | $ | (0.03 | ) | ||||||||||||
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7
Table of Contents
Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
|||||||||||||||||||||||
Net Income |
Weighted Average Shares |
Per Share |
Net Loss |
Weighted Average Shares |
Per Share |
|||||||||||||||||||
Basic net income (loss) per share |
$ | 932 | 18,519 | $ | 0.05 | $ | (133 | ) | 18,468 | $ | (0.01 | ) | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Options to acquire common stock |
| 451 | | | | | ||||||||||||||||||
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|||||||||||||
Diluted net income (loss) per share |
$ | 932 | 18,970 | $ | 0.05 | $ | (133 | ) | 18,468 | $ | (0.01 | ) | ||||||||||||
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Because of their anti-dilutive effect on the income per share recorded in each of the periods presented, the diluted share base excludes shares related to employee stock options of 630 for both the three and six months ended June 30, 2012, respectively, and all employee stock options for the three and six months ended June 30, 2011, respectively.
Stock-Based Employee CompensationWe account for stock-based employee compensation under the CompensationStock Compensation Topic of the Financial Accounting Standards Board (FASB) Standards Codification. There were no options granted during the six months ended June 30, 2012 and no stock options granted during the three months ended June 30, 2011. The grant-date fair value of the options granted during the six months ended June 30, 2011, calculated using the Black-Scholes model, ranged from $0.47 to $0.58.
The following assumptions were used for grants in the three and six months ended June 30, 2011: dividend yield of zero, volatility of 153.2% to 192.6%, risk-free interest rate of 0.59% to 3.39%, and an expected term of 2.00 to 4.25 years. Volatility is based on the volatility of our stock. We use an estimate for the expected term and historical data to estimate the employee termination and volatility assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant over the expected term of the grant. The following table summarizes information about stock options outstanding and exercisable at June 30, 2012:
Range of Exercise Prices |
Options Outstanding | Options Exercisable | ||||||||||||||||||
Number of Shares |
Weighted Average Remaining Life |
Weighted Average Exercise Price |
Number of Shares |
Weighted Average Exercise Price |
||||||||||||||||
$0.29 $2.41 |
1,818,500 | 6.8 | $ | 0.86 | 1,322,750 | $ | 0.91 | |||||||||||||
$6.20 $11.40 |
596,000 | 3.7 | $ | 7.89 | 596,000 | $ | 7.89 | |||||||||||||
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2,414,500 | 6.1 | $ | 2.60 | 1,918,750 | $ | 3.07 | ||||||||||||||
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Information regarding activity under our stock plan during the six months ended June 30, 2012 is summarized as follows:
Options | Weighted Average Exercise Price |
|||||||
Outstanding at January 1, 2012 |
2,434,500 | $ | 2.60 | |||||
Granted |
| | ||||||
Cancelled/Forfeited |
(18,750 | ) | 2.72 | |||||
Exercised |
(1,250 | ) | 0.65 | |||||
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Outstanding at June 30, 2012 |
2,414,500 | $ | 2.60 | |||||
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The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. At June 30, 2012, the aggregate intrinsic value of options outstanding was $1,022 with a weighted average exercise price of $2.60 and a weighted average remaining contractual term of 6.1 years; the aggregate intrinsic value of the 1,918,750 options exercisable was $694 with a weighted average exercise price of $3.07 and a weighted average remaining contractual term of 5.4 years; and the aggregate intrinsic value of the 2,361,951 options vested or expected to vest was $987 with a weighted average exercise price of $2.58 and a weighted average remaining contractual term of 6.0 years.
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Table of Contents
The following table summarizes unvested stock options outstanding as of June 30, 2012 as well as activity during the six months then ended:
Unvested Options | ||||||||
Options | Weighted Average Grant-Date Fair Value |
|||||||
Outstanding at January 1, 2012 |
675,751 | $ | 0.83 | |||||
Granted |
| | ||||||
Forfeited |
(6,250 | ) | 0.53 | |||||
Vested |
(173,750 | ) | 0.78 | |||||
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Outstanding at June 30, 2012 |
495,751 | $ | 0.85 | |||||
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Compensation cost from nonvested stock granted to employees is recognized as expense using the straight-line method over the vesting period. As of June 30, 2012, total unrecognized compensation cost related to nonvested stock options was approximately $125. Approximately half of this cost is expected to be recognized over the next year, with the remainder primarily over the subsequent two years. For the three and six months ended June 30, 2012, our total stock-based compensation expense was approximately $30 and $63, respectively. For the three and six months ended June 30, 2011, our total stock-based compensation expense was approximately $27 and $47, respectively.
Statement of Cash FlowsCash paid for interest was $168 and $268 for the six months ended June 30, 2012 and 2011, respectively. Cash paid for income taxes was $185 and $237 for the six months ended June 30, 2012 and 2011, respectively. We had accrued capital expenditures of $17 and $0 at June 30, 2012 and December 31, 2011, respectively.
Segment ReportingOperating segments are defined by the Segment Reporting Topic of the FASB Accounting Standards Codification. The Chief Executive Officer is our chief operating decision maker. The expense structure of the business is managed functionally, and resource allocation decisions are made as one operating segment. Our measure of segment profit is consolidated operating income.
Our revenue, aggregated by service offering, is as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Transaction processing |
$ | 8,286 | $ | 9,179 | $ | 16,914 | $ | 19,174 | ||||||||
Data intelligence |
3,267 | 3,198 | 6,562 | 5,628 | ||||||||||||
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Transaction and other revenues |
11,553 | 12,377 | 23,476 | 24,802 | ||||||||||||
Client reimbursements |
67 | 32 | 124 | 205 | ||||||||||||
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Total |
$ | 11,620 | $ | 12,409 | $ | 23,600 | $ | 25,007 | ||||||||
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The following is a geographic breakdown of revenues for the three and six months ended June 30, 2012 and 2011, and a geographic breakdown of property and equipment, net as of June 30, 2012 and December 31, 2012:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues: |
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United States |
$ | 8,131 | $ | 8,299 | $ | 16,342 | $ | 16,787 | ||||||||
Germany |
2,592 | 3,131 | 5,359 | 6,217 | ||||||||||||
Other International |
897 | 979 | 1,899 | 2,003 | ||||||||||||
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Total |
$ | 11,620 | $ | 12,409 | $ | 23,600 | $ | 25,007 | ||||||||
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At June 30, 2012 |
At December 31, 2011 |
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Property and equipment, net: |
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United States |
$ | 3,315 | $ | 3,420 | ||||
Germany |
353 | 384 | ||||||
Other International |
167 | 199 | ||||||
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$ | 3,835 | $ | 4,003 | |||||
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9
Table of Contents
LitigationWe are involved in a few claims incidental to our business. In the opinion of management, the ultimate resolution of such claims will not have a material effect on our financial position, liquidity, or results of operations.
2. DEBT
Debt consists of the following as of June 30, 2012 and December 31, 2011:
Maturity Date |
June 30, 2012 |
December 31, 2011 |
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Revolver |
June 2013 | $ | 1,600 | $ | 800 | |||||||
Less current maturities |
1,600 | 800 | ||||||||||
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Long-term debt |
$ | | $ | | ||||||||
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On May 9, 2012, we entered into the Fourth Amendment to Credit Agreement effective May 1, 2012, by and between TRX and Atlantic Capital Bank (ACB) (the Amendment), further amending the Credit Agreement between TRX and ACB, dated May 30, 2008 and amended on December 3, 2008, October 19, 2009 and November 9, 2010 (the Credit Agreement). The Amendment reduces the aggregate principal commitments not to exceed $5,000 and extends the maturity date to June 30, 2013. Our interest rate on borrowings remains the same, although the minimum interest rate of 4.25% will no longer apply.
Our credit agreement with ACB provides for a senior secured revolving credit facility with aggregate principal commitments not to exceed $5,000, which includes a $2,000 letter of credit subfacility limit. Any outstanding letters of credit on this subfacility reduce the borrowing capacity of the credit agreement. A loan under the credit agreement may be a Base Rate loan or a LIBOR loan, at the option of TRX. Interest under the credit agreement accrues at an interest rate indexed to the prime rate as announced publicly by ACB from time to time (the Base Rate) or LIBOR (plus 1.75% for Base Rate loans and 3.00% for LIBOR loans) for the revolving credit facility. In addition, the credit agreement contains an unused commitment fee of 0.5%. For letters of credit, the letter of credit fee is equal to the Applicable Rate (as defined in the credit agreement) times the daily amount available to be drawn under the letter of credit. Overdue amounts bear a fee of 2% per annum above the rate applicable to these amounts. We capitalized $215 of issuance cost related to this facility and our letter of credit, which is amortized as interest expense over the specific terms of the facility and letter of credit.
The Credit Agreement requires us to maintain (i) a ratio of consolidated funded indebtedness to consolidated EBITDA (as defined in the credit agreement, which may not be comparable to consolidated total debt or measures of GAAP profitability presented elsewhere in this document) of not more than 1.25 to 1.00 (this was reduced from a maximum of 1.75x to a maximum of 1.25xin the Amendment) and (ii) a ratio of the remainder of consolidated EBITDA minus capital expenditures to the sum of interest expense for the period and debt principal payments required to be made in the next twelve months of not more than 1.40 to 1.00. The credit agreement also contains additional covenants which, among other things, require us to deliver to ACB specified financial information, including annual and quarterly financial information, and limit our ability to (or to permit any subsidiaries to), subject to various exceptions and limitations, (i) merge with other companies, (ii) create liens on our property, (iii) incur debt obligations, (iv) enter into transactions with affiliates, except on an arms-length basis, (v) dispose of property, or (vi) pay dividends. As of June 30, 2012, we were in compliance with all financial covenants in the credit agreement.
BCD Holdings N.V. (BCD Holdings), the parent of our majority shareholder, BCD, is the guarantor to our credit agreement. We pay BCD Holdings an annual guarantee fee of $100 per year plus 100 basis points, depending on borrowing levels under the credit agreement.
Our financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our ability to continue as a going concern is dependent on having sufficient liquidity for our operations. We are currently in compliance with all financial covenants in the Credit Agreement. As of June 30, 2012, we have borrowed $1,600 against the facility and there was a $1,500 letter of credit against this facility relating to the lease of our Atlanta office, leaving $1,900 that is currently available for borrowing. As of June 30, 2012 and December 31, 2011, respectively, the interest rate on our outstanding borrowings was 3.25% and 4.25%. We expect to remain in compliance with all financial covenants over the remaining term of our revolving credit facility with ACB, however, we acknowledge that market conditions remain uncertain, and, as such, can provide no assurances that we will remain in compliance. We monitor our expected debt compliance and believe we would have time to further reduce our expenses and/or capital expenditures if needed to remain in compliance. If we are not successful in maintaining our debt compliance, ACB as lender is entitled to enforce the guarantee under our credit facility.
Our Credit Agreement with ACB matures June 30, 2013. Based on our favorable history of renewals and expected capital needs, we expect to renew the facility prior to its maturity. If we are unable to renew the facility prior to maturity or secure additional financing, management believes that the existing cash on hand, excluding cash held by foreign subsidiaries, cash flow from operations, as well as our ability to implement cost containment strategies would provide the needed liquidity to fund operations sufficient to continue as a going concern.
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Table of Contents
3. RELATED-PARTY TRANSACTIONS
BCD Travel USA, LLC (BCD Travel) is majority-owned by the parent of our majority shareholder, BCD Holdings. Effective January 1, 2011, the existing online booking services agreement between TRX Technology Services, L.P. (TRX Technology) and BCD Travel was extended to January 1, 2015 and updated certain pricing and other terms under agreement. Effective November 1, 2011, the online booking services agreement was assigned by us to nuTravel Technology Solutions, LLC (nuTravel) as part of the sale transaction further described below. During the three and six months ended June 30, 2012, we recognized transaction and other revenues from BCD Travel, totaling $207 and $418, respectively. During the three and six months ended June 30, 2011, we recognized transaction and other revenues from BCD Travel, totaling $299 and $608, respectively. As of June 30, 2012, we continue to provide data intelligence services to BCD Travel. At June 30, 2012 and December 31, 2011, respectively, $138 and $188 was receivable from BCD Travel.
Airtrade International, Inc. (Vayama) is majority-owned by the parent of our majority shareholder, BCD Holdings. The agreement between TRX and Vayama, dated June 29, 2009 and amended on December 15, 2009, was entered into between the parties for travel services and was effective through May 31, 2012. Effective June 1, 2012 the existing services agreement between TRX Technology and Vayama automatically renewed for one year to May 31, 2013. During the three and six months ended June 30, 2012, we recognized transaction and other revenues from Vayama totaling $7 and $18, respectively. During the three and six months ended June 30, 2011, we recognized transaction and other revenues from Vayama totaling $16 and $31, respectively. At June 30, 2012 and December 31, 2011, respectively, $2 and $0 was receivable from Vayama.
4. SALE OF ASSETS
On November 3, 2011, TRX, its subsidiary TRX Technology and nuTravel executed and closed an Asset Purchase Agreement effective October 31, 2011 (the Agreement) in which nuTravel acquired software, websites, certain customer agreements and intellectual property related to TRXs corporate online booking technology, RESX.
During the first quarter of 2012, TRX received additional cash consideration of $333 for the conversion of a nonassignable contract to nuTravel as provided for in the Agreement. We paid $205 in costs related to the sale that were previously accrued as of December 31, 2011, during the first quarter of 2012. Additionally, TRX has the ability to earn up to an additional $184 on or before December 31, 2012, subject to the conversion of one additional nonassignable contract to nuTravel as provided for in the Agreement. We currently do not expect to earn any of the remaining $184. TRX recorded a gain of $384 during the six months ended June 30, 2012, primarily related to the conversion of a nonassignable contract to nuTravel, which is included in Gain on sale of assets in our consolidated statements of operations.
In conjunction with the execution of the Agreement, TRX and nuTravel also entered into a Transition Services Agreement (the Services Agreement). Under the terms of the Services Agreement, for a period not to exceed December 31, 2012, TRX will provide certain transition and technical services at an annualized rate of $1,800 to support the continued operation of the RESX services and to facilitate the orderly and effective transition of the RESX services from TRX to nuTravel. Effective April 30, 2012, this Services Agreement was terminated.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis presents the factors that had a material effect on our results of operations during the three and six months ended June 30, 2012 and 2011. Also discussed is our financial position as of June 30, 2012. You should read this discussion in conjunction with our unaudited condensed consolidated financial statements and the notes to those unaudited condensed consolidated financial statements included elsewhere in this report and the audited consolidated financial statements in our Annual Report on Form 10-K. This Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See Cautionary Notice Regarding Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
TRX is a travel technology and data services provider, offering more than 20 software-as-a-service utilities for online booking, reservation processing, data intelligence, and process automation. We provide patented savings maximization solutions, extending spend management services to travel buyers all over the world. We complement all of this with a global workforce focused on travel process automation and reengineering. For the foreseeable future, we intend to primarily focus our efforts on the large opportunities within the travel industry. We deliver our technology applications as a service over the Internet to travel agencies, corporations, travel suppliers, government agencies, credit card associations, credit card issuing banks, and third-party administrators. TRX is headquartered in Atlanta, Georgia with operations and associates in North America, Europe, and Asia.
We are focused on transaction-based revenue from data intelligence and reservation processing technologies that provide economies of scale to our clients and to us. These transactions are an integral part of our clients daily operations. Transaction levels, and thus revenues, fluctuate with our clients business levels, which are impacted by market changes and seasonality. We supplement our transaction-based revenue with short-term projects to implement, customize or enhance our service delivery.
A significant portion of our revenue is derived from long-term contracts with several large clients. Our largest client, Expedia and its affiliates, accounted for 34% and 37% of our total revenues in the three months ended June 30, 2012 and 2011, respectively, and for 34% and 40% of our total revenues in the six months ended June 30, 2012 and 2011, respectively.
Expedia has been a client since its launch in 1996. Our Master Service Agreement with Expedia is amended from time to time and now continues through December 31, 2013. We expect that 2012 revenues from Expedia will be approximately $4 million less than their 2011 level. We can give no assurance that we will retain any business from Expedia during the current contract term or beyond. On August 7, 2012, Expedia notified us that it will not be renewing the statements of work under the Master Services Agreement related to air fulfillment services that expire December 31, 2012. We currently expect that 2013 transaction processing revenues from Expedia will be approximately $3 million less than 2012 transaction processing revenues.
Our scale and process-reengineering expertise has allowed us to reduce our costs in several areas when measured on a per transaction basis, and we continue to take steps to reduce our cost structure in the normal course of business. We have established pricing models that provide volume-based discounts to share scale efficiencies with our clients to ensure long-term, mutually-beneficial relationships. As a result, our average revenue per transaction has generally declined over the last few years. We expect it to continue to decline in the future because of scale efficiencies, as well as trends in the travel processing supply chain that are putting negative pressure on our revenue per transaction.
On November 3, 2011, TRX, its subsidiary TRX Technology Services, L.P., and nuTravel executed and closed an Asset Purchase Agreement effective October 31, 2011 (the Agreement) in which nuTravel acquired software, websites, certain customer agreements and intellectual property related to TRXs corporate online booking technology, RESX. TRX received cash consideration during 2011 of $2,804, of which $200 was placed with a third party escrow agent to be held for up to two years and distributed in accordance with the Agreement. In 2011, TRX recorded a gain of $1,468 related to the sale of RESX assets.
During the first quarter of 2012, TRX paid $205 in costs that were previously accrued as of December 31, 2011, related to the sale. We received cash consideration of $333 for the conversion of a nonassignable contract to nuTravel as provided for in the Agreement, and we have the ability to earn up to an additional $184 on or before December 31, 2012, subject to the conversion of one additional nonassignable contract to nuTravel as provided for in the Agreement. We currently do not expect to earn any of the remaining $184. TRX recorded a gain of $384 during the six months ended June 30, 2012, primarily related to the conversion of a nonassignable contract to nuTravel, which is included in Gain on sale of assets in our consolidated statements of operations.
Industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution, cost compression in the travel processing supply chain, use of corporate credit cards, reduction in airline seat capacity, changing and increasing access methods to reach supplier inventory, reduction in supplier commission rates, global distribution system incentive levels, and overall economic conditions. Our estimates of future results are primarily affected by assumptions of transaction volumes, pricing levels, our ability to efficiently scale with our clients, and client retention and acquisition. These anticipated results may be impacted by seasonality of the travel industry and credit card volumes related to travel.
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Table of Contents
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from those described in our Form 10-K for the year ended December 31, 2011.
Results of Operations
As disclosed in Note 1 to the unaudited condensed consolidated financial statements in Item 1, during the process of preparing our financial statements for the year ended December 31, 2011, we determined that our calculation of stock compensation expense in previously issued financial statements was incorrect. Our calculation applied forfeiture adjustments to both vested and unvested options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation during the three and six months ended June 30, 2011. As a result, our previously issued financial statements have been restated.
Comparison of Three and Six Months Ended June 30, 2012 and June 30, 2011
The following tables set forth comparative revenue and expense items by type, in dollars and as a percentage of transaction and other revenue, for the three and six months ended June 30, 2012 and 2011, respectively:
Three Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 (As restated) |
Change | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Transaction processing |
$ | 8,286 | 72 | % | $ | 9,179 | 74 | % | $ | (893 | ) | (10 | )% | |||||||||||
Data intelligence |
3,267 | 28 | 3,198 | 26 | 69 | 2 | ||||||||||||||||||
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Transaction and other revenues |
11,553 | 100 | % | 12,377 | 100 | % | (824 | ) | (7 | )% | ||||||||||||||
Client reimbursements |
67 | 32 | ||||||||||||||||||||||
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Total revenues |
11,620 | 12,409 | ||||||||||||||||||||||
Expenses: |
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Operating |
7,420 | 8,034 | (614 | ) | (8 | ) | ||||||||||||||||||
Selling, general, and administrative |
2,158 | 2,713 | (555 | ) | (20 | ) | ||||||||||||||||||
Technology development |
711 | 856 | (145 | ) | (17 | ) | ||||||||||||||||||
Client reimbursements |
67 | 32 | 35 | 109 | ||||||||||||||||||||
Impairment of goodwill |
| 88 | (88 | ) | (100 | ) | ||||||||||||||||||
Depreciation and amortization |
637 | 1,002 | (365 | ) | (36 | ) | ||||||||||||||||||
Interest (expense) income: |
||||||||||||||||||||||||
Interest income |
3 | 8 | (5 | ) | (62 | ) | ||||||||||||||||||
Interest expense |
(68 | ) | (119 | ) | (51 | ) | (43 | ) | ||||||||||||||||
Income tax provision |
(92 | ) | (76 | ) | 16 | 21 | ||||||||||||||||||
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Net income (loss) |
$ | 470 | $ | (503 | ) | |||||||||||||||||||
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Table of Contents
Six Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 (As restated) |
Change | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue: |
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Transaction processing |
$ | 16,914 | 72 | % | $ | 19,174 | 77 | % | $ | (2,260 | ) | (12 | )% | |||||||||||
Data intelligence |
6,562 | 28 | 5,628 | 23 | 934 | 17 | ||||||||||||||||||
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Transaction and other revenues |
23,476 | 100 | % | 24,802 | 100 | % | (1,326 | ) | (5 | )% | ||||||||||||||
Client reimbursements |
124 | 205 | ||||||||||||||||||||||
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Total revenues |
23,600 | 25,007 | ||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||
Operating |
15,196 | 15,836 | (640 | ) | (4 | ) | ||||||||||||||||||
Selling, general, and administrative |
4,558 | 4,794 | (236 | ) | (5 | ) | ||||||||||||||||||
Technology development |
1,524 | 1,675 | (151 | ) | (9 | ) | ||||||||||||||||||
Client reimbursements |
124 | 205 | (81 | ) | (40 | ) | ||||||||||||||||||
Impairment of goodwill |
6 | 152 | (146 | ) | (96 | ) | ||||||||||||||||||
Gain on sale of assets |
(384 | ) | | 384 | | |||||||||||||||||||
Depreciation and amortization |
1,266 | 1,997 | (731 | ) | (37 | ) | ||||||||||||||||||
Interest (expense) income: |
||||||||||||||||||||||||
Interest income |
13 | 10 | 3 | 30 | ||||||||||||||||||||
Interest expense |
(165 | ) | (252 | ) | (87 | ) | (35 | ) | ||||||||||||||||
Income tax provision |
(226 | ) | (239 | ) | (13 | ) | (5 | ) | ||||||||||||||||
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Net income (loss) |
$ | 932 | $ | (133 | ) | |||||||||||||||||||
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Transaction processing revenues. The decrease for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to the sale of our RESX assets completed in the fourth quarter of 2011 and the decreased scope of services and/or pricing provided to Expedia. Overall we expect the rate of decline in our transaction processing revenues to slow when compared to the past few years, and we expect our revenues per transaction to continue to decline because of trends in the travel processing supply chain that are putting negative pressure on our revenue per transaction.
Data intelligence revenues. The increase in data intelligence revenues for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to new clients as well as increased services with ongoing clients. We expect continued growth in data intelligence revenues based on recent sales activity and market interest in these products and services.
Operating expenses. The decrease in operating expenses for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to reduced facilities and personnel-related costs.
Selling, general and administrative expenses. The decrease in selling, general and administrative expenses for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to reduced personnel-related costs.
Technology development expenses. The decrease in technology development expenses for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to reduced personnel-related costs.
Gain on sale of assets. During the first quarter of 2012, we recorded a gain primarily related to the conversion of a nonassignable contract to nuTravel related to the sale of our RESX corporate online booking technology and related customer contracts.
Depreciation and amortization. The decrease in expenses for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to the sale of our RESX assets completed in the fourth quarter of 2011 and a decrease in our capital spending during the past several years.
Interest expense. The decrease for interest expense for the three and six months ended June 30, 2012 compared to the same period in the prior year was primarily due to a lower outstanding principal balance related to our revolving credit facility. In addition, our note payable to Hi-Mark matured and was paid in April 2011.
14
Table of Contents
Income tax provision. The decrease for the six months ended June 30, 2012 compared to the same period in the prior year was primarily related to lower foreign earnings for the six months ended June 30, 2012. Additionally, we released valuation allowance on the UK and India of approximately $41 for the six months ended June 30, 2012, as opposed to approximately $24 for the six months ended June 30, 2011. However, these two reduction factors were offset by the accrual of withholding tax expense in 2012 for the potential repatriation of German earnings. Also, the Indian tax rate holiday ended on March 31, 2011. Therefore, the Indian earnings in 2012 were subject to the regular Indian tax rate of 30% for the entire six months ended June 30, 2012, as opposed to only three months at that rate for the six months ended June 30, 2011.
Liquidity and Capital Resources
We fund our ongoing operations primarily with cash from operating activities. The underlying drivers of cash from operating activities include cash receipts from the sale of our services and cash payments to our employees and service providers. Most of our larger clients remit payment for our services 30 to 90 days in advance of our service delivery. Advance payments from clients are recorded as customer deposits and deferred revenue until the service is performed.
At June 30, 2012, our principal sources of liquidity were cash and cash equivalents of $1.2 million and $1.9 million of availability under our revolving credit facility with ACB. Our available cash includes $0.6 million of cash held by foreign subsidiaries whose earnings are considered permanently reinvested for income tax purposes. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the cash held by these foreign subsidiaries. We had $1.6 million of borrowings outstanding under our credit facility at June 30, 2012. Although we have been prudent in our strategy for our anticipated near-term liquidity needs, it is not possible to accurately predict how macroeconomic conditions may affect our financial position, results of operations or cash flows. Additional failures of financial and other institutions could impact our customers ability to pay us, reduce amounts available under our credit facility, cause losses to the extent cash amounts or the value of securities exceed government deposit insurance limits, and restrict our access to the equity and debt markets. A continuation of the turmoil in the capital and credit markets and the general economic downturn could adversely impact the availability, terms and/or pricing of financing if we need additional liquidity. We will experience liquidity problems if we are unable to obtain sufficient additional financing as our debt becomes due. Adverse economic conditions, increased competition, or other unfavorable events also could affect our liquidity.
Net cash used in operating activities was $1.3 during the six months ended June 30, 2012, compared to net cash provided by operating activities of $2.4 million during the six months ended June 30, 2011. A customer payment in excess of $1.0 million was due prior to June 30, 2012 and was received in July 2012. Cash provided during 2011 was higher primarily due to improved collections and the return of a deposit related to the relocation of our India operations center.
Net cash used in investing activities was $0.5 million during the six months ended June 30, 2012, compared to $1.0 million during the six months ended June 30, 2011. The decrease in net cash used in investing activities was primarily due to the sale of our software, websites, certain customer agreements and intellectual property related to our corporate online booking technology, RESX. Additionally, another driver of our investing activities is our capital expenditures, which include costs associated with internally developed software, as well as infrastructure required to support and maintain our existing systems and opportunities to reduce costs. As of June 30, 2012, we had no material commitments related to capital expenditures. We expect our 2012 capital expenditures will be consistent with recent years.
Net cash provided by financing activities was $0.8 million during the six months ended June 30, 2012, compared to net cash used in financing activities of $2.0 million during the six months ended June 30, 2011. The primary driver for 2012 was the borrowings from our credit facility, which exceeded payments on the credit facility.
On May 9, 2012, we entered into the Fourth Amendment to Credit Agreement effective May 1, 2012, by and between TRX and ACB (the Amendment), further amending the Credit Agreement between TRX and ACB, dated May 30, 2008 and amended on December 3, 2008, October 19, 2009 and November 9, 2010 (the Credit Agreement).
The Amendment reduces the aggregate principal commitments not to exceed $5.0 million and extends the maturity date to June 30, 2013. The Amendment also maintains BCD, the parent of our majority shareholder, as a guarantor to the Credit Agreement. The Consolidated Senior Leverage Ratio (as defined) covenant was reduced from a maximum of 1.75x to a maximum of 1.25x. Otherwise, there were no changes to financial or other covenants from the existing Credit Agreement. Our interest rate on borrowings remains the same, although the minimum interest rate of 4.25% will no longer apply. We will pay BCD a reduced guarantee fee of $100 per year plus 100 basis points on actual drawn amounts under the Amendment.
We believe that we will be able to meet our current and long-term liquidity and capital requirements, including fixed charges, through our cash flow from operations and other available sources of liquidity, including borrowings under the credit agreement and through our ability to obtain future external financing. We expect to continue to use a portion of our cash flows to fund our strategic
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capital expenditures, to invest in business opportunities and to meet our debt repayment obligations. Our financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our ability to continue as a going concern is dependent on having sufficient liquidity for our operations. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the cash held by our foreign subsidiaries. We are currently in compliance with all financial covenants in the credit agreement. As of June 30, 2012, the interest rate on our outstanding borrowings was 3.25%. We expect to remain in compliance with all financial covenants over the remaining term of our revolving credit facility with ACB, however, we acknowledge that market conditions remain uncertain, and, as such, can provide no assurances that we will remain in compliance. We monitor our expected debt compliance and believe we would have time to further reduce our expenses and/or capital expenditures if needed to remain in compliance. If we are not successful in maintaining our debt compliance, ACB as lender is entitled to enforce the guarantee under our credit facility. Management believes that the existing cash on hand, availability under the credit agreement and cash flow from operations will provide the needed liquidity to fund operations sufficient to continue as a going concern. The credit agreement requires us to maintain (1) a ratio of consolidated funded indebtedness to consolidated EBITDA (as defined in the credit agreement, which may not be comparable to consolidated total debt or measures of GAAP profitability presented elsewhere in this document) of not more than 1.25x to 1.00 and (2) a ratio of the remainder of consolidated EBITDA minus capital expenditures to the sum of interest expense for the period and debt principal payments required to be made in the next twelve months of not more than 1.40 to 1.00. The credit agreement also contains additional covenants which, among other things, require us to deliver to ACB specified financial information, including annual and quarterly financial information, and limit our ability to (or to permit any subsidiaries to), subject to various exceptions and limitations, (1) merge with other companies, (2) create liens on our property, (3) incur debt obligations, (4) enter into transactions with affiliates, except on an arms-length basis, (5) dispose of property, or (6) pay dividends.
Our credit agreement with ACB matures June 30, 2013. Based on our favorable history of renewals and expected capital needs, we expect to renew the facility prior to its maturity. If we are unable to renew the facility prior to maturity or secure additional financing, management believes that the existing cash on hand, excluding cash held by foreign subsidiaries, cash flow from operations, as well as our ability to implement cost containment strategies would provide the needed liquidity to fund operations sufficient to continue as a going concern.
Seasonality
Our business experiences seasonal fluctuations, reflecting seasonal trends for the purchase of air travel by both leisure and corporate travelers as well as credit card volume related to corporate travel. For example, traditional leisure air travel bookings are higher in the first two calendar quarters of the year in anticipation of spring and summer vacations and holiday periods. Corporate travel air bookings and credit card spending levels are generally higher in the first and third calendar quarters of the year. Business and consumer travel bookings typically decline during the fourth quarter of each calendar year. Accordingly, our fourth calendar quarter generally reflects lower revenues as compared to the first three calendar quarters.
Inflation and Changing Prices
We do not believe that inflation and changing prices have materially impacted our results of operations during the past two years.
Cautionary Notice Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements as defined in Section 27A of the Securities Act of 1933 (the Securities Act), Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), the Private Securities Litigation Reform Act of 1995 (the PSLRA), or in releases made by the Securities and Exchange Commission (the SEC), all as may be amended from time to time. Statements contained in this quarterly report that are not historical facts may be forward-looking statements within the meaning of the PSLRA. You can identify forward-looking statements as those that are not historical in nature, particularly those that use terminology such as may, should, expect, anticipate, contemplate, estimate, believe, plan, project, predict, potential or continue, or the negative of these, or similar terms.
Any such forward-looking statements reflect our beliefs and assumptions and are based on information currently available to us. Forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the safe harbor provisions of such laws. We caution investors that any forward-looking statements we make are not guarantees or indicative of future performance.
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In evaluating these forward-looking statements, you should consider the following factors, as well as others set forth in Item 1A under the caption Risk Factors included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC and as are detailed from time to time in other reports we file with the SEC, any or all of which may cause our actual results to differ materially from any forward-looking statement:
| the loss of current key clients or the inability to obtain new clients; |
| volatility in the number of transactions we service; |
| failure or interruptions of our software, hardware or other systems; |
| industry declines and other competitive pressures; and |
| our ability to control costs and implement measures designed to enhance operating efficiencies. |
Any subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth or referred to above, as well as the risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. Except as required by law, we disclaim any obligation to update such statements or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934 as of June 30, 2012. Our evaluation tested controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, as of June 30, 2012, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Other than as described below, there were no changes to internal controls in the second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the six months ended June 30, 2012, the Company has completed the following steps to remediate the stock compensation deficiency identified in its Form 10-K filed on March 6, 2012:
| developed and implemented additional procedures to increase the level of review, evaluation and validation of the Companys stock compensation expense; |
| increased the level of knowledge among Company employees in the area of stock compensation; and |
| corrected and tested the template used to calculate stock compensation expense. |
Management evaluated the operating effectiveness of the remediation procedures through June 30, 2012 and concluded that as of June 30, 2012, the Company has remediated the previously reported material weakness in internal control over financial reporting with respect to the accounting for stock compensation.
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Item 1. | Legal Proceedings |
Not applicable.
Item 1A. | Risk Factors |
There have been no material changes to the risk factors as presented in our annual report on Form 10-K, filed on March 30, 2012, under Item 1A, Risk Factors.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
On August 7, 2012, TRX Inc., (TRX) was notified by Expedia, Inc. (Expedia) that Expedia does not intend to renew certain statements of work for services performed by TRX in the current year which will expire on December 31, 2012 under a Master Services Agreement between TRX and Expedia, dated January 1, 2007 and amended on March 30, 2007, February 19, 2009, December 23, 2009, October 29, 2010, December 29, 2010, December 22, 2011 and January 26, 2012 (the Agreement). TRX currently expects that 2013 transaction processing revenues from Expedia will be approximately $3 million less than 2012 transaction processing revenues.
Item 6. | Exhibits |
Exhibit No. |
Description | |
10.1 | Fourth Amendment to the CORREX Services Agreement between Hogg Robinson Plc. and TRX Europe LTD., effective May 1, 2012. * | |
10.2 | Amendment #6 to the Services Agreement between TRX Fulfillment Services, LLC and American Airlines, Inc., dated August 1, 2012. * | |
10.3 | Termination Agreement between TRX, Inc., TRX Technology Services, L.P. and nuTravel Technology Solutions, LLC, effective April 30, 2012. * | |
10.4 | PS02 Modification to the Data Services Contract between TRX, Inc. and the General Services Administration, executed on August 1, 2012. | |
10.5 | Fourth Amendment to Credit Agreement between TRX, Inc. and Atlantic Capital Bank, effective May 1, 2012. | |
31.1 | Certification of H. Shane Hammond, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of David D. Cathcart, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following financial information from TRX, Incs Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2012 and 2011, (iii) Condensed Consolidated Cash Flows Statements (Unaudited) for the six months ended June 30, 2012 and 2011, and (iv) the Notes to Condensed Consolidated Financial Statements. |
| Filed herewith. |
* | Confidential treatment requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
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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.
TRX, INC. | ||||||
Dated: August 13, 2012 | By: | /s/ David D. Cathcart | ||||
David D. Cathcart | ||||||
Chief Financial Officer (principal financial and accounting officer) |
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