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EX-31.2 - EXHIBIT 31.2 - IntraLinks Holdings, Inc.exhibit31220150630-10q.htm
EX-32.2 - EXHIBIT 32.2 - IntraLinks Holdings, Inc.exhibit32220150630-10q.htm
EX-32.1 - EXHIBIT 32.1 - IntraLinks Holdings, Inc.exhibit32120150630-10q.htm
EX-31.1 - EXHIBIT 31.1 - IntraLinks Holdings, Inc.exhibit31120150630-10q.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 June 30, 2015
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
Incorporation or organization)
 
(I.R.S. Employer
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 þ 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 þ
 
Non-accelerated filer ¨
 
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 July 31, 2015
Common Stock, par value $0.001 per share
 
57,888,040

       





INTRALINKS HOLDINGS, INC
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended June 30, 2015

Table of Contents



CORPORATE INFORMATION AND FORWARD-LOOKING STATEMENTS
Our Corporate Information
Our business was incorporated in Delaware as “Intralinks, Inc.” in June 1996. In June 2007, we completed a merger, or the Merger, pursuant to which Intralinks, Inc. became a wholly-owned subsidiary of TA Indigo Holding Corporation, a newly-formed Delaware corporation owned by TA Associates, Inc., which is now part of TA Associates Management, L.P., and certain other stockholders of Intralinks, Inc., including Rho Capital Partners, Inc. and former and current officers and employees of Intralinks, Inc. The Merger was accounted for under the purchase accounting method in accordance with accounting principles generally accepted in the United States of America, or GAAP. In 2010, we changed the name of TA Indigo Holding Corporation to “Intralinks Holdings, Inc.” Unless otherwise stated in this Quarterly Report on Form 10-Q (also referred to as this Quarterly Report or this Form 10-Q) or the context otherwise requires, references to “Intralinks,” “we,” “us,” “our,” the “Company” and similar references refer to Intralinks Holdings, Inc. and its subsidiaries.
Intralinks®, Intralinks Dealmanager™, Intralinks Dealnexus®, Intralinks Dealspace®, Intralinks Debtspace™, Intralinks Fundspace™, Intralinks Studyspace™, Intralinks VIA® and other trademarks and registered trademarks of Intralinks appearing in this Quarterly Report are the property of Intralinks. Other trademarks or service marks that may appear in this Quarterly Report are the property of their respective holders. Solely for convenience, the trademarks and trade names in this Quarterly Report are referred to without the ®, ™ and SM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Forward-Looking Statement Safe Harbor
Some of the statements in this Quarterly Report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our operations and are based on our current expectations, estimates and projections. Words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “predict,” “potential,” “continue,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “goals,” “in our view” and similar expressions are used to identify these forward-looking statements. The forward-looking statements included in this Quarterly Report include, but are not limited to, statements about our internal control over financial reporting, our results of operations and financial condition and our plans, strategies and developments. Forward-looking statements are only predictions and, as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events or our future financial performance that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Many of the reasons for these differences include changes that occur in our continually changing business environment and other important factors. These risks, uncertainties and other factors are more fully described under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this Form 10-Q and under the heading "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange Commission, or the SEC, on March 13, 2015. You are strongly encouraged to read those sections carefully as the occurrence of the events described therein and elsewhere in this report could materially harm our business. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these statements speak only as of the date they were made and, except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
INTRALINKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
 
 
June 30,
 
December 31,
 
 
2015
 
2014
ASSETS
 
  

 
  

Current assets:
 
  

 
  

Cash and cash equivalents
 
$
38,044

 
$
40,682

Investments
 
17,647

 
11,825

Accounts receivable, net of allowances of $3,678 and $3,158, respectively
 
53,750

 
47,338

Deferred taxes
 
6,889

 
9,578

Prepaid expenses
 
5,126

 
6,602

Other current assets
 
17,368

 
3,626

Total current assets
 
138,824

 
119,651

Investments
 
1,106

 
12,630

Fixed assets, net
 
14,628

 
16,245

Capitalized software, net
 
42,617

 
39,798

Goodwill
 
224,383

 
224,383

Other intangibles, net
 
50,080

 
62,055

Other assets
 
7,735

 
6,676

Total assets
 
$
479,373

 
$
481,438

LIABILITIES AND STOCKHOLDERS' EQUITY
 
  

 
  

Current liabilities:
 
  

 
  

Accounts Payable
 
$
12,440

 
$
10,624

Current portion of long-term debt
 
837

 
906

Deferred revenue
 
51,581

 
49,193

Accrued expenses and other current liabilities
 
36,863

 
26,974

Total current liabilities
 
101,721

 
87,697

Long-term debt
 
77,613

 
77,933

Deferred taxes
 
6,889

 
9,578

Other long-term liabilities
 
4,757

 
5,291

Commitments and contingencies
 


 


Stockholders' equity:
 
  

 
  

Undesignated Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding
 

 

Common Stock, $0.001 par value; 300,000,000 shares authorized; 57,575,569 and 57,084,340 shares issued and outstanding, respectively
 
58

 
57

Additional paid-in capital
 
447,904

 
441,596

Accumulated deficit
 
(157,053
)
 
(139,210
)
Accumulated other comprehensive loss
 
(2,516
)
 
(1,504
)
Total stockholders' equity
 
288,393

 
300,939

Total liabilities and stockholders' equity
 
$
479,373

 
$
481,438

 The accompanying notes are an integral part of these Consolidated Financial Statements.

4


INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(unaudited)

 
 
Three months ended June 30,
 
Six months ended June 30,
  
 
2015
 
2014
 
2015
 
2014
Revenue
 
$
68,975

 
$
63,557

 
$
135,281

 
$
122,798

Cost of revenue
 
19,332

 
17,083

 
37,885

 
34,085

Gross profit
 
49,643

 
46,474

 
97,396

 
88,713

Operating expenses:
 
 
 
 
 
  

 
  

Sales and marketing
 
32,198

 
29,872

 
62,170

 
55,991

General and administrative
 
18,605

 
18,105

 
36,754

 
34,953

Product development
 
6,215

 
5,460

 
12,248

 
10,925

Total operating expenses
 
57,018

 
53,437

 
111,172

 
101,869

Loss from operations
 
(7,375
)
 
(6,963
)
 
(13,776
)
 
(13,156
)
Interest expense
 
1,069

 
1,005

 
2,199

 
1,965

Amortization of debt issuance costs
 
143

 
177

 
286

 
293

Other (income) expense, net
 
(658
)
 
(18
)
 
838

 
(209
)
Net loss before income tax
 
(7,929
)
 
(8,127
)
 
(17,099
)
 
(15,205
)
Income tax expense (benefit)
 
562

 
(2,454
)
 
744

 
(4,153
)
Net loss
 
$
(8,491
)
 
$
(5,673
)
 
$
(17,843
)
 
$
(11,052
)
Net loss per common share:
 
 
 
 
 
  

 
  

Basic
 
$
(0.15
)
 
$
(0.10
)
 
$
(0.31
)
 
$
(0.20
)
Diluted
 
$
(0.15
)
 
$
(0.10
)
 
$
(0.31
)
 
$
(0.20
)
Weighted average number of shares:
 
 
 
 
 
  

 
  

Basic
 
56,862,896

 
55,812,187

 
56,728,439

 
55,696,792

Diluted
 
56,862,896

 
55,812,187

 
56,728,439

 
55,696,792

 
The accompanying notes are an integral part of these Consolidated Financial Statements.

5


INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net loss
 
$
(8,491
)
 
$
(5,673
)
 
$
(17,843
)
 
$
(11,052
)
Change in foreign currency translation adjustment, net of tax
 
476

 
246

 
(1,012
)
 
472

Total other comprehensive income (loss), net of tax
 
476

 
246

 
(1,012
)
 
472

Comprehensive loss
 
$
(8,015
)
 
$
(5,427
)
 
$
(18,855
)
 
$
(10,580
)
 
The accompanying notes are an integral part of these Consolidated Financial Statements.

6


INTRALINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
 
Six months ended June 30,
  
 
2015
 
2014
Net loss
 
$
(17,843
)
 
$
(11,052
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
  

Depreciation and amortization
 
13,561

 
12,234

Amortization of intangible assets
 
11,975

 
11,814

Stock-based compensation expense
 
5,864

 
4,897

Deferred income tax benefit
 

 
(6,262
)
Other, net
 
1,664

 
1,951

Changes in operating assets and liabilities:
 
 
 
  

Accounts receivable
 
(7,630
)
 
(3,974
)
Prepaid expenses and other assets
 
1,168

 
703

Accounts payable
 
502

 
1,378

Accrued expenses and other liabilities
 
(3,495
)
 
(2,014
)
Deferred revenue
 
2,184

 
1,212

Net cash provided by operating activities
 
7,950

 
10,887

Cash flows from investing activities:
 
 
 
  

Capitalized software development costs
 
(11,212
)
 
(13,102
)
Capital expenditures
 
(2,780
)
 
(4,443
)
Purchases of investments
 

 
(24,866
)
Maturities of investments
 
5,550

 
24,490

Purchase of a cost method investment
 
(1,000
)
 
(1,499
)
Acquisitions, net of cash acquired
 

 
(8,632
)
Restricted cash
 

 
2,443

Net cash used in investing activities
 
(9,442
)
 
(25,609
)
Cash flows from financing activities:
 
 
 
  

Proceeds from issuance of long-term debt
 

 
79,200

Payments on long-term debt
 
(400
)
 
(75,098
)
Payments of outstanding financing arrangements
 
(152
)
 
(224
)
Debt issuance costs
 

 
(2,704
)
Exercise of stock options and issuance of common stock, net of withholding taxes
 
443

 
240

Other
 
(562
)
 
(188
)
Net cash (used in) provided by financing activities
 
(671
)
 
1,226

Effect of foreign exchange rate changes on cash and cash equivalents
 
(475
)
 
537

Net decrease in cash and cash equivalents
 
(2,638
)
 
(12,959
)
Cash and cash equivalents at beginning of period
 
40,682

 
50,540

Cash and cash equivalents at end of period
 
$
38,044

 
$
37,581


The accompanying notes are an integral part of these Consolidated Financial Statements.

7


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Intralinks Holdings, Inc. and Summary of Significant Accounting Policies
Intralinks Holdings, Inc. is a leading, global technology provider of Software-as-a-Service solutions for secure enterprise content collaboration within and among organizations. Its cloud-based solutions enable organizations to securely manage, control, track, search and exchange sensitive information, inside and outside of the firewall, all within a secure and easy-to-use environment.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements include the accounts of Intralinks Holdings, Inc. and its subsidiaries (collectively, the "Company"). All intercompany balances and transactions have been eliminated. The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations.
In the opinion of management, the accompanying unaudited Consolidated Financial Statements contain all normal and recurring adjustments necessary for the fair statement of the Company's consolidated financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results to be expected for a full year. The financial statements contained herein are unaudited and should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Use of Estimates
The preparation of the Company's Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
On an ongoing basis, the Company evaluates its estimates and assumptions including those related to the determination of the fair value of stock-based awards including estimated forfeitures of such awards, the fair value of the Company's single reporting unit, the recoverability of its definite-lived intangible assets, capitalized software and fixed assets (and their related useful lives), certain components of the income tax provision, including the valuation allowance on deferred tax assets, allowances for doubtful accounts and reserves for customer credits and accruals for certain compensation expenses. The Company bases its estimates, judgments and assumptions on historical experience, its forecasts and budgets and on various other factors that it believes to be reasonable under the circumstances.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which outlines a single comprehensive model for entities to use in accounting for revenue. ASU 2014-09 supersedes current revenue recognition guidance and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As currently issued, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is not permitted. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12, Stock Compensation ("ASU 2014-12"), which provides guidance on accounting for share-based payment awards when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 clarifies that performance targets that can be achieved after the requisite service period of a share-based payment award be treated as performance conditions that affect vesting. These awards should be accounted for under Accounting Standards Codification Topic 718, Compensation - Stock Compensation, and existing guidance should be applied as it relates to awards with performance conditions that affect vesting. ASU 2014-12 is effective for annual and interim reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its Consolidated Financial Statements.

8


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which requires an entity to present debt issuance costs on the balance sheet as a direct deduction from the related liability rather than as an asset. ASU 2015-03 is effective for annual and interim reporting periods beginning after December 15, 2015. ASU 2015-03 will be applied on a retrospective basis and will not have a material impact on the Company's Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"), which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement does not include a software license, the Company should account for the arrangement as a service contract. ASU 2015-05 is effective for annual and interim reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its Consolidated Financial Statements.
2. Investments and Fair Value Measurements
The Company has classified its investments in corporate securities as held-to-maturity and as such, has recorded them at amortized cost. Interest earned on these debt securities is included in “Other expense (income), net” within the Consolidated Statements of Operations. The gross unrecognized holding gains and losses for the three and six months ended June 30, 2015 and 2014 were not material.
The following tables summarize these investments:
 
 
 
 
 
 
June 30, 2015
Security Type
 
Remaining Maturity
 
Consolidated Balance Sheet Classification
 
Amortized Cost
 
 
 
 
 
 
(In thousands)
Corporate Securities
 
15 to 321 Days
 
Investments (current)
 
$
17,647

Corporate Securities
 
386 Days
 
Investments (non-current)
 
1,106

Total
 
 
 
 
 
$
18,753

 
 
 
 
 
 
December 31, 2014
Security Type
 
Remaining Maturity
 
Consolidated Balance Sheet Classification
 
Amortized Cost
 
 
 
 
 
 
(In thousands)
Corporate Securities
 
9 to 349 Days
 
Investments (current)
 
$
11,825

Corporate Securities
 
380 to 567 Days
 
Investments (non-current)
 
12,630

Total
 
 
 
 
 
$
24,455

The Company categorizes its financial instruments measured at fair value into a three-level fair value hierarchy that prioritizes the inputs used in determining the fair value of the asset or liability. The three levels of the fair value hierarchy are as follows:
Level 1:  Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2:  Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
Level 3:  Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.

9


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
 
 
June 30, 2015
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(In thousands)
Asset:
 
  

 
  

 
  

 
  

Money market funds as cash equivalents
 
$
10,753

 
$
10,753

 
$

 
$

 
 
December 31, 2014
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(In thousands)
Asset:
 
  

 
  

 
  

 
  

Money market funds as cash equivalents
 
$
13,851

 
$
13,851

 
$

 
$

The Company's non-financial assets, which include goodwill, intangible assets, fixed assets, capitalized software and cost method investments, are adjusted to fair value only when an impairment charge is recognized. These fair value measurements are based predominantly on Level 3 inputs.
At June 30, 2015 and December 31, 2014, the carrying values of the Company's investments accounted for under the cost method totaled $4.5 million and $3.5 million, respectively, and are included in "Other assets" on the Company's Consolidated Balance Sheets.
3. Goodwill and Other Intangibles
At June 30, 2015 and December 31, 2014, the Company had $224.4 million of goodwill.
At June 30, 2015, other intangibles consisted of the following:
 
 
Definite–Lived Intangible Assets
 
 
Gross
Carrying Value
 
Accumulated Amortization
 
Net
Carrying Value
 
 
(In thousands)
Customer relationships
 
$
141,973

 
$
(114,043
)
 
$
27,930

Developed technology
 
134,542

 
(117,468
)
 
17,074

Trade name
 
14,629

 
(9,807
)
 
4,822

Non-compete agreements
 
1,337

 
(1,083
)
 
254

Total
 
$
292,481

 
$
(242,401
)
 
$
50,080

At December 31, 2014, other intangibles consisted of the following:
 
 
Definite–Lived Intangible Assets
 
 
Gross
Carrying Value
 
Accumulated Amortization
 
Net
Carrying Value
 
 
(In thousands)
Customer relationships
 
$
141,973

 
$
(106,944
)
 
$
35,029

Developed technology
 
134,542

 
(113,303
)
 
21,239

Trade name
 
14,629

 
(9,198
)
 
5,431

Non-compete agreements
 
1,337

 
(981
)
 
356

Total
 
$
292,481

 
$
(230,426
)
 
$
62,055



10


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Intangible amortization expense is classified in each of the operating expense categories as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Cost of revenue
 
$
2,082

 
$
2,045

 
$
4,165

 
$
4,034

Sales and marketing
 
3,550

 
3,553

 
7,099

 
7,101

General and administrative
 
356

 
347

 
711

 
679

Total
 
$
5,988

 
$
5,945

 
$
11,975

 
$
11,814

At June 30, 2015, amortization expense on an annual basis for the succeeding five years and thereafter is estimated to be as follows:
 
 
Amount
 
 
(In thousands)
2015 remaining
 
$
11,974

2016
 
23,866

2017
 
11,799

2018
 
1,629

2019
 
716

Thereafter
 
96

Total
 
$
50,080

4. Fixed Assets
Fixed assets consisted of the following:
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Computer equipment and software
 
$
29,041

 
$
29,029

Furniture, fixtures and office equipment
 
3,020

 
3,683

Leasehold improvements
 
6,344

 
6,948

Total fixed assets
 
38,405

 
39,660

Less: Accumulated depreciation and amortization
 
(23,777
)
 
(23,415
)
Fixed assets, net
 
$
14,628

 
$
16,245

Depreciation expense is classified in each of the operating expense categories as follows:

11


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Cost of revenue
 
$
1,146

 
$
836

 
$
2,235

 
$
1,660

Sales and marketing
 
341

 
259

 
614

 
535

General and administrative
 
262

 
238

 
505

 
511

Product development
 
163

 
180

 
297

 
391

Total
 
$
1,912

 
$
1,513

 
$
3,651

 
$
3,097


5. Capitalized Software
Capitalized software consisted of the following:
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Capitalized internal-use software development costs
 
$
132,997

 
$
120,268

Less: Accumulated amortization
 
(90,380
)
 
(80,470
)
Capitalized software, net
 
$
42,617

 
$
39,798

Amortization expense is classified in each of the operating expense categories as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Cost of revenue
 
$
4,801

 
$
4,347

 
$
9,599

 
$
8,726

Sales and marketing
 
33

 
49

 
66

 
97

General and administrative
 
122

 
173

 
245

 
314

Total
 
$
4,956

 
$
4,569

 
$
9,910

 
$
9,137

6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Accrued legal settlement (Note 11)
 
$
14,000

 
$

Accrued employee compensation and related expenses
 
$
11,747

 
$
15,687

Other accrued expenses
 
11,116

 
11,287

Total accrued expenses and other current liabilities
 
$
36,863

 
$
26,974


12


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


7. Income Tax
The Company recorded an income tax expense of $0.6 million and $0.7 million for the three and six months ended June 30, 2015 despite a pre-tax loss of $7.9 million and $17.1 million, respectively, for the primarily because the income tax benefit related to the U.S. pre-tax loss generated during the quarter was subject to a valuation allowance. The Company's effective tax rates for the three and six months ended June 30, 2014 of 30.2% and 27.3% differ from the U.S. federal statutory tax rate due primarily to state and foreign income taxes, other non-tax-deductible expenses and stock-based compensation expense, partially offset by research and development tax credits.
During the fourth quarter of 2014, the Company determined that it was more-likely-than-not that it would not realize its net deferred tax asset position and recorded a valuation allowance on its net deferred tax assets of $6.4 million. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss in recent years and its forecasted losses in the near-term as significant negative evidence. The Company determined that the negative evidence outweighed the positive evidence and a valuation allowance on its net deferred tax assets was established. At June 30, 2015, the Company continues to maintain a full valuation allowance on net deferred tax assets. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed.
The Company is routinely under audit by federal, state, local and foreign tax authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing the Company’s federal tax returns for the years ended December 31, 2010 and 2011. Various other jurisdictions are open to examination for various tax years. Management believes it has adequately provided for all uncertain tax positions and any potential audit adjustments would not have a material impact on the Company’s liquidity, results of operations or financial condition.
Unrecognized tax benefits totaled $4.8 million and $4.7 million at June 30, 2015 and December 31, 2014, respectively. Management does not expect that the balance of unrecognized tax benefits will significantly increase or decrease over the next twelve months. If unrecognized tax benefits at June 30, 2015 are subsequently recognized, the Company's income tax expense would be reduced by $4.1 million ($0.5 million net of the impact of the Company’s valuation allowance), which would have a favorable impact on the effective tax rate.
8. Debt
Long-term debt consisted of the following:
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Term Loan Credit Facility
 
$
79,000

 
$
79,400

Term Loan Credit Facility original issue discount
 
(587
)
 
(667
)
Other financing arrangements
 
37

 
106

Total debt
 
78,450

 
78,839

Less: current portion (Term Loan Credit Facility)
 
(800
)
 
(800
)
Less: current portion (Other financing arrangements)
 
(37
)
 
(106
)
Total long-term debt
 
$
77,613

 
$
77,933

Based on available market information, the estimated fair value of the Company’s long-term debt was $78.4 million and $78.7 million as of June 30, 2015 and December 31, 2014, respectively. These fair value measurements were determined using Level 2 observable inputs, as defined in Note 2. The estimated fair value of the Company’s other financing arrangements approximates the carrying value at each reporting period.

13


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


On February 24, 2014, the Company refinanced all of the outstanding indebtedness under its prior credit facility with the proceeds of its Term Loan Credit Facility. The Term Loan Credit Facility provides for an $80.0 million, 5-year term loan and bears interest at a base rate (as defined in the Term Loan Credit Facility) plus a margin of 5.25% per annum with a 2.00% floor for an effective interest rate of 7.25%. There is a $0.2 million principal payment due on the last day of each quarter, which commenced on June 30, 2014, with the balance due in a final installment on February 24, 2019.
On February 24, 2014, the Company also entered into a Revolving Credit Facility that provides for commitments of up to $15.0 million for general corporate purposes, working capital, certain investments, acquisitions and letters of credit. Loan drawings under the Revolving Credit Facility are subject to a further cap based on the Company’s borrowing base, which is equal to 85% of its eligible accounts receivable, minus customary reserves established by the Company’s lender. In addition, following the June 2014 amendment of this facility, up to 50% of the Company's eligible accounts receivable can be made up of account debtors of the Company based in certain European countries. Loans under the Revolving Credit Facility bear interest at the Eurodollar rate plus 2.50%. In addition, the Company pays a commitment fee in arrears on the first business day of each fiscal quarter of 0.50% on the average daily unused balance for the preceding quarter under the Revolving Credit Facility. The Revolving Credit Facility matures and the commitments thereunder terminate on the earlier of February 24, 2019 and the date that is six months prior to the maturity date of the Term Loan Credit Facility. Available borrowings under the Revolving Credit Facility are reduced by any outstanding letters of credits issued on behalf of the Company under this facility. As of June 30, 2015, the Company had $3.0 million in outstanding letters of credit issued under its Revolving Credit Facility.
Debt issuance costs of approximately $2.8 million related to the Term Loan Credit Facility and the Revolving Credit Facility (collectively, the "Credit Facilities") were deferred and are being amortized on a straight-line basis over the term of the loans. At June 30, 2015, unamortized debt issuance costs of $0.6 million and $1.5 million were recorded within "Other current assets" and "Other assets (non-current)," respectively, on the Consolidated Balance Sheet.
Each of the Credit Facilities is secured by liens on substantially all of the Company's assets. The Revolving Credit Facility is secured by a first lien on cash, accounts receivable and certain other liquid collateral and a second lien on other assets. The Term Loan Credit Facility is secured by a second lien on cash, accounts receivable and certain other liquid collateral and a first lien on other assets.
The Credit Facilities include covenants that restrict certain activities by the Company, as well as require the Company to comply with certain financial ratios such as a Consolidated Net Leverage Ratio and a springing Fixed Charge Coverage Ratio, as these terms are defined in the agreements governing the Credit Facilities. The agreements governing the Credit Facilities also contain other affirmative and negative covenants with which the Company is required to comply. The Term Loan Credit Facility requires partial prepayment of a portion of the principal outstanding in the event that the Company generates Consolidated Excess Cash Flow (as defined under the Term Loan Credit Facility) in excess of a certain threshold. This determination is to be made 90 days following the end of the preceding fiscal year, with any payment, if required 105 days following the end of the preceding fiscal year. The Company was in compliance with all applicable covenants set forth in the Credit Facilities as of June 30, 2015 and there was no required prepayment for the year ended December 31, 2014.
9. Employee Stock Plans
Stock-based compensation expense is measured at the grant date, based on the fair value of the award and recognized as expense over the requisite service period, net of an estimated forfeiture rate. The Company maintains several stock-based compensation plans, which are more fully described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
In February and June 2015, the Company granted 487,700 and 52,410 restricted stock units with market conditions, respectively, to its executive leadership team pursuant to the Company's 2010 Equity Incentive Plan. Vesting of these awards is based upon the achievement of specified stock performance and service thresholds. The Company performed a Monte-Carlo simulation to calculate the awards' grant date fair value of $3.5 million and $0.5 million, respectively, which will be recognized over the requisite service period. In June 2015, 94,000 of these restricted stock units with a grant date fair value of $0.8 million were forfeited as a result of changes to the Company's executive leadership team.
Stock-based compensation expense related to all of the Company’s stock awards is included in operating expense categories, as follows:

14


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Cost of revenue
 
$
101

 
$
94

 
$
216

 
$
272

Sales and marketing
 
485

 
464

 
1,050

 
828

General and administrative
 
2,035

 
1,598

 
3,916

 
3,076

Product development
 
359

 
412

 
682

 
721

Total
 
$
2,980

 
$
2,568

 
$
5,864

 
$
4,897

10. Net Loss per Share
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 June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
  

 
  

Net loss (in thousands)
 
$
(8,491
)
 
$
(5,673
)
 
$
(17,843
)
 
$
(11,052
)
Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares used to compute basic net loss per share
 
56,862,896

 
55,812,187

 
56,728,439

 
55,696,792

Effect of dilutive options, unvested shares of restricted stock awards and restricted stock units
 

 

 

 

Weighted-average shares used to compute diluted net loss per share
 
56,862,896

 
55,812,187

 
56,728,439

 
55,696,792

Net loss per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.15
)
 
$
(0.10
)
 
$
(0.31
)
 
$
(0.20
)
Diluted
 
$
(0.15
)
 
$
(0.10
)
 
$
(0.31
)
 
$
(0.20
)
The following outstanding options to purchase common stock, unvested shares of restricted stock awards and restricted stock units were excluded from the computation of diluted net loss per share for the periods presented as their inclusion would have been anti-dilutive:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
Options to purchase common stock
 
4,542,316

 
5,035,520

 
4,542,316

 
5,035,520

Unvested shares of restricted stock awards
 
521,553

 
519,047

 
521,553

 
519,047

Unvested shares of restricted stock units
 
2,455,276

 
1,672,032

 
2,455,276

 
1,672,032

11. Contingencies
In the ordinary course of business, the Company and its subsidiaries are subject to various claims, charges, disputes, litigation and regulatory inquiries and investigations. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where it believes an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company's liquidity, results of operations or financial condition, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable

15


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


outcome and estimated extent of potential loss. These matters, if resolved adversely against the Company, may result in monetary damages, fines and penalties or require changes in business practices. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the Company's liquidity, results of operations or financial condition.
Legal Proceedings
The Company is not currently aware of any pending or threatened material claims, charges, disputes, litigation and regulatory inquiries and investigations except as follows:
Securities Class Action.  On December 5, 2011, the Company became aware of a purported class action lawsuit filed in the U.S. District Court for the Southern District of New York (the “SDNY” or the “Court”) against the Company and certain of its current and former executive officers (the “Securities Class Action”). The initial complaint (the “Wallace Complaint”) alleges that the defendants made false and misleading statements or omissions about the Company’s business prospects, financial condition and performance in violation of the Securities Exchange Act of 1934, as amended.  The plaintiff seeks unspecified compensatory damages for the purported class of purchasers of the Company’s common stock during the period from February 17, 2011 through November 10, 2011 (the “Allegation Period”). On December 27, 2011, a second purported class action complaint, which makes substantially the same claims as, and is related to, the Wallace Complaint, was filed in the SDNY against the Company and certain of its current and former executive officers seeking similar unspecified compensatory damages for the Allegation Period. On April 3, 2012, the Court consolidated the actions and appointed Plumbers and Pipefitters National Pension Fund as lead plaintiff, and also appointed lead counsel in the consolidated action (“Consolidated Class Action”).  On June 15, 2012, the lead plaintiff filed an amended complaint (“Consolidated Class Action Complaint”) that, in addition to the original allegations made in the Wallace Complaint, alleges that the Company, certain of its current and former officers and directors, and the underwriters in IntraLinks’ April 6, 2011 stock offering issued a registration statement and prospectus in connection with the offering that contained untrue statements of material fact or omitted material information required to be stated therein in violation of the Securities Act of 1933, as amended. The defendants filed motions to dismiss the action on July 31, 2012.  On May 8, 2013, the Court issued an opinion dismissing claims based on certain allegations in the complaint, but otherwise denied defendants’ motions to dismiss. On June 28, 2013, defendants filed their answers to the Consolidated Class Action Complaint. On February 18, 2014, lead plaintiff filed its motion for class certification. On September 30, 2014, the Court issued an opinion certifying a class of all persons who purchased IntraLinks stock between February 17, 2011 and November 11, 2011 and a subclass of persons who purchased IntraLinks stock pursuant or traceable to the Company’s April 6, 2011 offering. On October 14, 2014, the defendants filed a petition in the U.S. Court of Appeals for the Second Circuit for permission to appeal the September 30, 2014 opinion granting plaintiff’s motion for class certification. On December 30, 2014, the Second Circuit denied defendants’ petition. On March 12, 2015, the Court suspended the remaining deadlines in the current scheduling order pending mediation. On July 30, 2015, the Company and the other defendants entered into a stipulation and agreement of settlement (“Settlement”), which was filed with the Court on July 31, 2015. The Settlement provides for the resolution of all of the pending claims in the Securities Class Action, without any admission or concession of wrongdoing or liability by the Company or the other defendants. The Company and the other defendants continue to maintain that they have meritorious defenses to all claims alleged in the Securities Class Action. The Company and the other defendants agreed to the Settlement to avoid further expense, inconvenience, and the distraction and inherent risks of burdensome and protracted litigation. Pursuant to the Settlement, the defendants will pay $14.0 million (the “Settlement Amount”) for a full and complete release of all claims that were or could have been asserted against the Company or the other defendants in the Securities Class Action. As such, the Company recorded a liability of $14.0 million, which was included within "Accrued expenses and other liabilities" on the Consolidated Balance Sheet at June 30, 2015. The Company currently anticipates that the full Settlement Amount will be paid for and covered by the Company’s insurers pursuant to the applicable insurance policies and, as such, has also recorded a receivable of $14.0 million, which was included within "Other current assets" on the Consolidated Balance Sheet at June 30, 2015. On July 31, 2015, the Court issued an order preliminarily approving the Settlement and setting a date of November 12, 2015 for the final approval hearing. The Settlement is subject to final approval by the Court and certain other conditions.
 

16


INTRALINKS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Horbal Derivative Action.  On April 16, 2012, a shareholder derivative complaint (the “Horbal Action”) was filed in the Supreme Court of the State of New York in New York County (“New York State Court”) against the Company and certain of its current and former directors and officers. The complaint alleges that the defendants breached their fiduciary duties by causing the Company to issue materially false and misleading statements about the Company’s business operations and financial condition during the same Allegation Period alleged in the Consolidated Class Action Complaint.  On April 24, 2012, one of the director defendants removed the Horbal Action to the SDNY, and on May 22, 2012, the plaintiff moved to remand the case to New York State Court.  On March 11, 2013, the SDNY granted plaintiff’s motion to remand, and the case is currently pending in New York State Court. On June 6, 2013, the parties filed a stipulation with the New York State Court agreeing to stay all proceedings in the Horbal Action, including discovery, until ninety days after the SDNY issues a scheduling order in the Consolidated Class Action. On January 13, 2014, the parties filed a stipulation with the New York State Court agreeing to work together on a schedule for defendants’ time to answer, move against or otherwise respond to the complaint or an amended complaint.  On June 6, 2014, plaintiff filed an amended complaint that continues to assert the same claims against the same defendants. Defendants filed their motions to dismiss the amended complaint on July 14, 2014. On February 4, 2015, following oral argument, the New York State Court announced from the bench that it would grant defendants’ motions to dismiss. On February 19, 2015, the director defendants served plaintiff with a notice of entry of that dismissal, and on March 20, 2015, plaintiff filed a notice of appeal. We believe the claims in the Horbal Action are without merit and intend to defend this lawsuit vigorously.
 
Levine Shareholder Demand Letter/Complaint. The Company received a shareholder demand letter, dated May 16, 2013, demanding that the Company’s Board take action to remedy alleged breaches of fiduciary duty by current and former directors and officers of the Company. These alleged breaches are based on the same alleged misconduct in the complaints in the Horbal and Consolidated Class Actions. The letter specifically demands that the Company’s Board undertake an independent internal investigation into the alleged breaches and commence a civil action against each of the allegedly breaching current and former directors and officers. On June 26, 2013, the Company’s Board created a Demand Committee to conduct an investigation into the allegations in the letter. On December 13, 2013, the shareholder filed a derivative complaint (the “Levine Action”) in New York State Court against the Company and certain of its current and former directors and officers. The Levine Action alleges that since the Company’s Board has not responded substantively to the shareholder’s demand letter in over six months, this has resulted in an improper “functional refusal” of the demand. The Levine Action makes substantially the same claims as, and is related to, the Horbal and Consolidated Class Actions. It alleges, among other things, that the defendants breached their fiduciary duties by making materially false and misleading statements related to the strength of the Company’s business and customer satisfaction. On March 27, 2014, counsel for the Demand Committee sent a letter to shareholder’s counsel stating that after thorough investigation of the allegations in the demand letter, the Board concluded that taking any or all of the demanded actions would not serve the best interests of the Company and its shareholders, and voted unanimously to reject the demand. Pursuant to a stipulation filed on June 2, 2014, the defendants filed motions to dismiss the action on July 2, 2014. On February 4, 2015, following oral argument, the New York State Court announced from the bench that it would grant the defendants’ motions to dismiss, without prejudice. On May 20, 2015, Larry Levine filed a new derivative complaint (“Second Levine Action”) under a different docket number in New York State Court against the Company and certain of its current and former directors and officers. The Second Levine Action makes substantially the same claims as in the prior Levine Action, but adds allegations that the prior shareholder demand was wrongfully refused. Pursuant to a stipulation filed on June 2, 2015, the defendants filed motions to dismiss the action on June 26, 2015. Plaintiff filed his opposition on July 20, 2015 and defendants filed their replies on July 31, 2015. We believe the claims in the Levine Action are without merit and intend to defend this lawsuit vigorously.
       
Due to the state of the Horbal Action and the Second Levine Action and the nature of the potential claims, a range of loss cannot be determined at this time.

12. Subsequent Event
On July 30, 2015, Intralinks Holdings, Inc. entered into the Settlement related to the Securities Class Action, which was filed with the Court on July 31, 2015. For a more detailed discussion of the Settlement, see Note 11 - "Commitments and Contingencies".

17


ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 - "Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in Part II, Item 8 - "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Executive Overview
Intralinks is a leading, global technology provider of Software-as-a-Service, or SaaS, solutions for secure enterprise content collaboration within and among organizations. Our cloud-based solutions enable organizations to securely manage, control, track, search, exchange and collaborate on 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 workflows, meet regulatory and risk management requirements and collaborate with business counterparties in a secure, auditable and compliant manner. We help our customers eliminate many of 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 acquisition transactions. Today, we serve enterprises and governmental agencies across a variety of industries, including financial services, pharmaceutical, manufacturing, biotechnology, consumer, energy, telecommunications, industrial, legal, professional services, insurance and technology. 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.
We deliver our solutions through redundant multi-customer SaaS systems and use primary instances of our software to serve all of our customers. We sell our solutions directly through a field team with industry-specific expertise, an inside sales team and indirectly through a customer referral network and channel partners. During the six months ended June 30, 2015, we generated $135.3 million in revenue, 40.9% of which was derived from sales across 95 countries outside of the United States.
Key Metrics
We evaluate our operating and financial performance using various performance indicators, as well as against the macroeconomic trends affecting the demand for our solutions in our principal markets. We also monitor relevant industry performance, including the mergers and acquisitions, or M&A, market globally and transactional activity in the debt capital markets, or DCM, 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.
Our management relies on the key performance indicators set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. We discuss revenue under "Results of Operations" and net cash provided by operating activities under "Financial Position, Liquidity and Capital Resources." Other measures of our performance, including non-GAAP adjusted gross profit, non-GAAP adjusted gross margin, non-GAAP adjusted operating income, non-GAAP adjusted net income, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, and free cash flow are defined and discussed under "Non-GAAP Financial Measures" below.

18


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
Consolidated Statement of Operations Data:
 
(In thousands)
Revenue
 
$
68,975

 
$
63,557

 
$
135,281

 
$
122,798

Non-GAAP adjusted gross profit
 
$
51,826

 
$
48,613

 
$
101,777

 
$
93,019

Non-GAAP adjusted gross margin
 
75.1
%
 
76.5
%
 
75.2
%
 
75.7
%
Non-GAAP adjusted operating income
 
$
1,593

 
$
1,550

 
$
4,063

 
$
3,555

Non-GAAP adjusted net income
 
$
644

 
$
240

 
$
459

 
$
934

Non-GAAP adjusted EBITDA
 
$
8,461

 
$
7,632

 
$
17,624

 
$
15,789

Non-GAAP adjusted EBITDA margin
 
12.3
%
 
12.0
%
 
13.0
%
 
12.9
%
Consolidated Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
16,122

 
$
14,025

 
$
7,950

 
$
10,887

Free cash flow
 
$
7,666

 
$
2,843

 
$
(6,042
)
 
$
(6,658
)
Non-GAAP Financial Measures
This Form 10-Q includes information about certain financial measures that are not prepared in accordance with generally accepted accounting principles in the United States, or GAAP or U.S. GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies.
Management defines its non-GAAP financial measures as follows:
Non-GAAP adjusted gross profit represents the corresponding GAAP measure adjusted to exclude, if applicable: (1) amortization of intangible assets and (2) stock-based compensation expense.
Non-GAAP adjusted operating income represents the corresponding GAAP measure adjusted to exclude, if applicable: (1) amortization of intangible assets, (2) stock-based compensation expense and (3) impairment charges or asset write-offs.
Non-GAAP adjusted net income represents the corresponding GAAP measure adjusted to exclude, if applicable: (1) amortization of intangible assets, (2) stock-based compensation expense and (3) impairment charges or asset write-offs. The income tax expense included in non-GAAP adjusted net income is calculated using an estimated long-term effective tax rate.
Non-GAAP adjusted EBITDA represents net loss adjusted to exclude, if applicable: (1) depreciation and amortization, (2) amortization of intangible assets, (3) stock-based compensation expense, (4) impairment charges or asset write-offs, (5) interest expense, (6) amortization of debt issuance costs, (7) other expense (income), net, and (8) income tax (benefit) expense.
Free cash flow represents net cash provided by operating activities less capitalized software development costs and capital expenditures.
Management believes that these non-GAAP financial measures, when viewed with our results under U.S. GAAP and the accompanying reconciliations, provide useful information about our period-over-period growth and provide additional information that is useful for evaluating our operating performance. In addition, free cash flow provides management with useful information for managing the cash needs of our business. Management also believes that these non-GAAP financial measures provide a more meaningful comparison of our operating results against those of other companies in our industry, as well as on a period-over-period basis, because these measures exclude items that are not representative of our operating performance, such as amortization of intangible assets, stock-based compensation expense and interest expense. 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. However, non-GAAP adjusted gross profit, non-GAAP adjusted operating income, non-GAAP adjusted net income, non-GAAP adjusted EBITDA and free cash flow are not measures of financial performance under U.S. GAAP and, accordingly, should not be considered as substitutes for or superior to gross profit, loss from operations, net loss and net cash provided by operating activities as indicators of operating performance.



19



The table below provides reconciliations of U.S. GAAP financial measures to the non-GAAP financial measures discussed above:
 
 
Three Months Ended June 30,
 
Six months ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Gross profit
 
$
49,643

 
$
46,474

 
$
97,396

 
$
88,713

Gross margin
 
72.0
%
 
73.1
%
 
72.0
%
 
72.2
%
Cost of revenue – amortization of intangible assets
 
2,082

 
2,045

 
4,165

 
4,034

Cost of revenue – stock-based compensation expense
 
101

 
94

 
216

 
272

Non-GAAP adjusted gross profit
 
$
51,826

 
$
48,613

 
$
101,777

 
$
93,019

Non-GAAP adjusted gross margin
 
75.1
%
 
76.5
%
 
75.2
%
 
75.7
%
 
 
 
 
 
 
 
 
 
Loss from operations
 
$
(7,375
)
 
$
(6,963
)
 
$
(13,776
)
 
$
(13,156
)
Amortization of intangible assets
 
5,988

 
5,945

 
11,975

 
11,814

Stock-based compensation expense
 
2,980

 
2,568

 
5,864

 
4,897

Non-GAAP adjusted operating income
 
$
1,593

 
$
1,550

 
$
4,063

 
$
3,555

 
 
 
 
 
 
 
 
 
Net loss before income tax
 
$
(7,929
)
 
$
(8,127
)
 
$
(17,099
)
 
$
(15,205
)
Amortization of intangible assets
 
5,988

 
5,945

 
11,975

 
11,814

Stock-based compensation expense
 
2,980

 
2,568

 
5,864

 
4,897

Non-GAAP adjusted net income before tax
 
1,039

 
386

 
740

 
1,506

Non-GAAP income tax expense
 
395

 
146

 
281

 
572

Non-GAAP adjusted net income
 
$
644

 
$
240

 
$
459

 
$
934

 
 
 
 
 
 
 
 
 
Net loss
 
$
(8,491
)
 
$
(5,673
)
 
$
(17,843
)
 
$
(11,052
)
Depreciation and amortization
 
6,868

 
6,082

 
13,561

 
12,234

Amortization of intangible assets
 
5,988

 
5,945

 
11,975

 
11,814

Stock-based compensation expense
 
2,980

 
2,568

 
5,864

 
4,897

Interest expense
 
1,069

 
1,005

 
2,199

 
1,965

Amortization of debt issuance costs
 
143

 
177

 
286

 
293

Other (income) expense, net
 
(658
)
 
(18
)
 
838

 
(209
)
Income tax expense (benefit)
 
562

 
(2,454
)
 
744

 
(4,153
)
Non-GAAP adjusted EBITDA
 
$
8,461

 
$
7,632

 
$
17,624

 
$
15,789

Non-GAAP adjusted EBITDA margin
 
12.3
%
 
12.0
%
 
13.0
%
 
12.9
%
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
16,122

 
$
14,025

 
$
7,950

 
$
10,887

Capitalized software development costs
 
(6,109
)
 
(8,163
)
 
(11,212
)
 
(13,102
)
Capital expenditures
 
(2,347
)
 
(3,019
)
 
(2,780
)
 
(4,443
)
Free cash flow
 
$
7,666

 
$
2,843

 
$
(6,042
)
 
$
(6,658
)

20


Critical Accounting Policies and Estimates
The preparation of financial statements requires the application of appropriate accounting policies and the use of estimates. Our significant accounting policies are described in Note 2 - "Summary of Significant Accounting Policies" included in Part II, Item 8 - "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 .
The preparation of our Consolidated Financial Statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates and assumptions including those related to the determination of the fair value of stock-based awards, including estimated forfeitures of such awards, the fair value of our single reporting unit, the recoverability of our definite-lived intangible assets, capitalized software and fixed assets (and their related useful lives), certain components of the income tax provision, including the valuation allowance on deferred tax assets, allowances for doubtful accounts and reserves for customer credits and accruals for certain compensation expenses. We base our estimates, judgments and assumptions on historical experience, our forecasts and budgets and on various other factors that we believe to be reasonable under the circumstances.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements see Note 1 - "Intralinks Holdings, Inc. and Summary of Significant Accounting Policies" included in Part I, Item 1 - "Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q.
Results of Operations
The following table sets forth Consolidated Statements of Operations data as a percentage of revenue.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
Revenue
 
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenue
 
28.0
 %
 
26.9
 %
 
28.0
 %
 
27.8
 %
Gross profit
 
72.0
 %
 
73.1
 %
 
72.0
 %
 
72.2
 %
Operating expenses:
 
 
 
 
 
 
 
 
Sales and marketing
 
46.7
 %
 
47.0
 %
 
46.0
 %
 
45.6
 %
General and administrative
 
27.0
 %
 
28.5
 %
 
27.2
 %
 
28.5
 %
Product development
 
9.0
 %
 
8.6
 %
 
9.1
 %
 
8.9
 %
Total operating expenses
 
82.7
 %
 
84.1
 %
 
82.2
 %
 
83.0
 %
Loss from operations
 
(10.7
)%
 
(11.0
)%
 
(10.2
)%
 
(10.7
)%
Interest expense
 
1.5
 %
 
1.6
 %
 
1.6
 %
 
1.6
 %
Amortization of debt issuance costs
 
0.2
 %
 
0.3
 %
 
0.2
 %
 
0.2
 %
Other expense (income), net
 
(1.0
)%
 
 %
 
0.6
 %
 
(0.2
)%
Net loss before income tax
 
(11.5
)%
 
(12.8
)%
 
(12.6
)%
 
(12.4
)%
Income tax expense (benefit)
 
0.8
 %
 
(3.9
)%
 
0.5
 %
 
(3.4
)%
Net loss
 
(12.3
)%
 
(8.9
)%
 
(13.2
)%
 
(9.0
)%

21


Comparison of the Three Months Ended June 30, 2015 and 2014
Revenue
Total revenue was $69.0 million for the three months ended June 30, 2015, up $5.4 million, or 8.5%, from $63.6 million for the three months ended June 30, 2014, primarily due to a $3.2 million, or 13.5% increase in Enterprise revenue and a $2.2 million, or 6.9%, increase in M&A revenue.
 
 
 
 
 
 
 
 
 
 
% Revenue
  
 
Three Months Ended June 30,
 
Increase
(Decrease)
 
% Increase
(Decrease)
 
Three Months Ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
 
 
 
 
 
 
M&A
 
$
34,734

 
$
32,488

 
$
2,246

 
6.9
%
 
50.4
%
 
51.1
%
Enterprise
 
26,570

 
23,418

 
3,152

 
13.5
%
 
38.5
%
 
36.9
%
DCM
 
7,671

 
7,651

 
20

 
0.3
%
 
11.1
%
 
12.0
%
Total revenue
 
$
68,975

 
$
63,557

 
$
5,418

 
8.5
%
 
100
%
 
100.0
%
M&A — The results for the three months ended June 30, 2015 reflect an increase in M&A revenue of $2.2 million, or 6.9%, as compared to the three months ended June 30, 2014. The increase in M&A revenue largely resulted from a higher volume of strategic business transactions in the market.
Enterprise — The results for the three months ended June 30, 2015 reflect an increase in Enterprise revenue of $3.2 million, or 13.5%, as compared to the three months ended June 30, 2014. The increase in Enterprise revenue was primarily due to the growth in revenue generated from our Intralinks VIA offering.
DCM — DCM revenue for the three months ended June 30, 2015 remains largely unchanged as compared to the three months ended June 30, 2014.
Cost of Revenue and Gross Profit
 
 
Three Months Ended June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Cost of revenue
 
$
19,332

 
$
17,083

 
$
2,249

 
13.2
%
Gross profit
 
$
49,643

 
$
46,474

 
$
3,169

 
6.8
%
Gross margin
 
72.0
%
 
73.1
%
 
(1.1
)%
 


Cost of revenue for the three months ended June 30, 2015 increased $2.2 million, or 13.2%, as compared to the three months ended June 30, 2014, driven by increases in employee compensation and related expenses of $0.9 million, primarily due to an increase in headcount, as well as amortization of capitalized software development costs of $0.5 million related to the continued development and enhancements of our service offerings. Gross margin decreased 1.1% due to the $5.4 million increase in revenue, primarily related to the growth in both Enterprise and M&A revenue, partially offset by an increase of $2.2 million in cost of revenue.


22


Operating Expenses
Total operating expenses for the three months ended June 30, 2015 increased by $3.6 million, or 6.7%, as compared to the three months ended June 30, 2014.
 
 
Three Months Ended June 30,
 
Increase
(Decrease)
 
% Increase
(Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Sales and marketing
 
$
32,198

 
$
29,872

 
$
2,326

 
7.8
%
General and administrative
 
18,605

 
18,105

 
500

 
2.8
%
Product development
 
6,215

 
5,460

 
755

 
13.8
%
Total operating expenses
 
$
57,018

 
$
53,437

 
$
3,581

 
6.7
%
Sales and Marketing — The results for the three months ended June 30, 2015 reflect an increase in sales and marketing expense of $2.3 million, or 7.8%, as compared to the three months ended June 30, 2014, driven primarily by increases in employee compensation and related expenses, including sales commissions, of $2.8 million and travel and entertainment expenses of $0.3 million, primarily due to increased headcount as well as increased sales. The increase was partially offset by a decrease in marketing expenses of $0.7 million.
General and Administrative — The results for the three months ended June 30, 2015 reflect an increase in general and administrative expense of $0.5 million, or 2.8%, as compared to the three months ended June 30, 2014, driven primarily by an increase in employee compensation and related expenses of $1.4 million, primarily related to increased headcount and an increase in stock-based compensation expense due to an increase in equity awards granted to key employees compared to the prior year. The increase was partially offset by a decrease of $1.1 million in consulting and contractor expenses primarily related to assistance with company-wide initiatives to support the growth of our business.
Product Development — The results for the three months ended June 30, 2015 reflect an increase in product development expense of $0.8 million, or 13.8%, as compared to the three months ended June 30, 2014, which was primarily due to a lesser percentage of development costs being capitalized in the second quarter of 2015 as compared to the prior year period.
Total product development costs are comprised of both capitalized software and product development expense.
 
 
Three Months Ended June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Capitalized software
 
$
6,919

 
$
7,524

 
$
(605
)
 
(8.0
)%
Product development expense
 
6,215

 
5,460

 
755

 
13.8
 %
Total product development costs
 
$
13,134

 
$
12,984

 
$
150

 
1.2
 %
The total product development costs for the three months ended June 30, 2015 remained largely unchanged as compared to the three months ended June 30, 2014.
Non-Operating Expenses
 
 
Three Months Ended June 30,
 
Increase
(Decrease)
 
% Increase
(Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Interest expense
 
$
1,069

 
$
1,005

 
$
64

 
6.4
 %
Amortization of debt issuance costs
 
$
143

 
$
177

 
$
(34
)
 
(19.2
)%
Other (income) expense, net
 
$
(658
)
 
$
(18
)
 
$
(640
)
 
3,555.6
 %
Interest Expense Interest expense for the three months ended June 30, 2015 increased $0.1 million, or 6.4%, as compared to the three months ended June 30, 2014 primarily due to a decrease in capitalized interest of $0.1 million due to lower capitalized software development costs in the three months ended June 30, 2015.
Other Expense (Income), Net — Other expense (income), net primarily relates to foreign currency transaction losses (gains) and interest income. The net increase in other income of $0.6 million primarily resulted from the remeasurement of Euro and British pound sterling denominated accounts receivable held by entities where these currencies are not the functional currencies. This net

23


increase was largely due to the weakening of the U.S. Dollar against the Euro and the British pound sterling for the three months ended June 30, 2015 and an increase in accounts receivable denominated in Euro and the British pound sterling.
Income Tax Expense (Benefit)
 
 
Three Months Ended June 30,
 
 
2015
 
2014
 
 
(In thousands)
Income tax expense (benefit)
 
$
562

 
$
(2,454
)
We recorded an income tax expense of $0.6 million despite a pre-tax loss of $7.9 million for the three months ended June 30, 2015 primarily because the income tax benefit related to the U.S. pre-tax loss generated during the quarter was subject to a valuation allowance. Our effective tax rate for the three months ended June 30, 2014 of 30.2% differs from the U.S. federal statutory tax rate due primarily to state and foreign income taxes, other non-tax-deductible expenses and stock-based compensation expense, partially offset by research and development tax credits.
We regularly assess whether a valuation allowance is required on our deferred tax assets by considering both positive and negative evidence related to the likelihood of the realization of our deferred tax assets. In our evaluation, we considered our cumulative loss in recent years and our forecasted losses in the near-term as significant negative evidence. We determined that the negative evidence outweighed the positive evidence and a valuation allowance of $6.4 million on our net deferred tax assets was established during the fourth quarter of 2014. At June 30, 2015, we continue to maintain a full valuation allowance on our net deferred tax assets. We will continue to assess the realizability of our deferred tax assets going forward and will adjust the valuation allowance as needed.

Comparison of the Six Months Ended June 30, 2015 and 2014
Revenue
Total revenue was $135.3 million for the six months ended June 30, 2015, up $12.5 million, or 10.2%, from $122.8 million for the six months ended June 30, 2014, primarily due to a $6.6 million, or 14.4% increase in Enterprise revenue and a $5.8 million, or 9.3%, increase in M&A revenue.
 
 
 
 
 
 
 
 
 
 
% Revenue
  
 
Six months ended June 30,
 
Increase
(Decrease)
 
% Increase
(Decrease)
 
Six months ended June 30,
  
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
 
 
 
 
 
 
M&A
 
$
67,933

 
$
62,136

 
$
5,797

 
9.3
%
 
50.2
%
 
50.6
%
Enterprise
 
52,590

 
45,961

 
6,629

 
14.4
%
 
38.9
%
 
37.4
%
DCM
 
14,758

 
14,701

 
57

 
0.4
%
 
10.9
%
 
12.0
%
Total revenue
 
$
135,281

 
$
122,798

 
$
12,483

 
10.2
%
 
100
%
 
100.0
%
M&A — The results for the six months ended June 30, 2015 reflect an increase in M&A revenue of $5.8 million, or 9.3%, as compared to the six months ended June 30, 2014. The increase in M&A revenue largely resulted from a higher volume of strategic business transactions in the market.
Enterprise — The results for the six months ended June 30, 2015 reflect an increase in Enterprise revenue of $6.6 million, or 14.4%, as compared to the six months ended June 30, 2014. The increase in Enterprise revenue was primarily due to the growth in revenue generated from our Intralinks VIA offering.
DCM — DCM revenue for the six months ended June 30, 2015 remains largely unchanged as compared to the six months ended June 30, 2014.

24


Cost of Revenue and Gross Profit
 
 
Six months ended June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Cost of revenue
 
$
37,885

 
$
34,085

 
$
3,800

 
11.1
%
Gross profit
 
$
97,396

 
$
88,713

 
$
8,683

 
9.8
%
Gross margin
 
72.0
%
 
72.2
%
 
(0.2
)%
 


Cost of revenue for the six months ended June 30, 2015 increased $3.8 million, or 11.1%, as compared to the six months ended June 30, 2014, driven by increases in employee compensation and related expenses of $1.5 million, primarily due to an increase in headcount, amortization of capitalized software development costs of $0.9 million related to the continued development and enhancements of our service offerings and depreciation expense of $0.6 million. Gross margin decreased 0.2% due to the $12.5 million increase in revenue, primarily related to the growth in both Enterprise and M&A revenue, partially offset by an increase of $3.8 million in cost of revenue.
Operating Expenses
Total operating expenses for the six months ended June 30, 2015 increased by $9.3 million, or 9.1%, as compared to the six months ended June 30, 2014.
 
 
Six Months Ended June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Sales and marketing
 
$
62,170

 
$
55,991

 
$
6,179

 
11.0
%
General and administrative
 
36,754

 
34,953

 
1,801

 
5.2
%
Product development
 
12,248

 
10,925

 
1,323

 
12.1
%
Total operating expenses
 
$
111,172

 
$
101,869

 
$
9,303

 
9.1
%
Sales and Marketing — The results for the six months ended June 30, 2015 reflect an increase in sales and marketing expense of $6.2 million, or 11.0%, as compared to the six months ended June 30, 2014, driven primarily by increases in employee compensation and related expenses, including sales commissions, of $5.2 million and travel and entertainment expenses of $1.2 million, primarily due to increased headcount, as well as increased sales. The increase was partially offset by a decrease in marketing expenses of $0.6 million.
General and Administrative — The results for the six months ended June 30, 2015 reflect an increase in general and administrative expense of $1.8 million, or 5.2%, as compared to the six months ended June 30, 2014, driven primarily by an increase in employee compensation and related expenses of $2.8 million, primarily related to increased headcount and an increase in stock-based compensation expense due to an increase in equity awards granted to key employees compared to the prior year. The increase was partially offset by a decrease of $1.0 million in consulting and contractor expenses primarily related to assistance with company-wide initiatives to support the growth of our business.
Product Development — The results for the six months ended June 30, 2015 reflect an increase in product development expense of $1.3 million, or 12.1%, as compared to the six months ended June 30, 2014, which was primarily due to an increase in employee compensation and related expenses of $1.0 million, largely related to an increase in headcount. The increase was also partially due to a lesser percentage of development costs being capitalized in the first half of 2015 as compared to the prior year period.
Total product development costs are comprised of both capitalized software and product development expense.
 
 
Six months ended June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Capitalized software
 
$
12,729

 
$
13,054

 
$
(325
)
 
(2.5
)%
Product development expense
 
12,248

 
10,925

 
1,323

 
12.1
 %
Total product development costs
 
$
24,977

 
$
23,979

 
$
998

 
4.2
 %
The increase in total product development costs of $1.0 million, or 4.2%, was largely due to an increase in consulting fees related to the continued development of our Intralinks platform.

25


Non-Operating Expenses
 
 
Six Months Ended June 30,
 
Increase
(Decrease)
 
% Increase
(Decrease)
  
 
2015
 
2014
 
 
 
(In thousands)
 
 
Interest expense
 
$
2,199

 
$
1,965

 
$
234

 
11.9
 %
Amortization of debt issuance costs
 
$
286

 
$
293

 
$
(7
)
 
(2.4
)%
Other expense (income), net
 
$
838

 
$
(209
)
 
$
1,047

 
(501.0
)%
Interest Expense Interest expense for the six months ended June 30, 2015 increased $0.2 million, or 11.9%, as compared to the six months ended June 30, 2014 primarily due to a higher interest rate and higher average debt outstanding following the refinancing of our prior credit facility in February 2014.
Other Expense (Income), Net — Other expense (income), net primarily relates to foreign currency transaction losses (gains) and interest income. The net increase in other expense of $1.0 million primarily resulted from the remeasurement of Euro denominated accounts receivables held by entities where the Euro is not the functional currency. This net increase was largely due to the strengthening of the U.S. Dollar against the Euro for the six months ended June 30, 2015 and an increase in accounts receivable denominated in Euro.
Tax Expense (Benefit)
 
 
Six months ended June 30,
 
 
2015
 
2014
 
 
(In thousands)
Income tax expense (benefit)
 
$
744

 
$
(4,153
)
We recorded an income tax expense of $0.7 million despite a pre-tax loss of $17.1 million for the six months ended June 30, 2015 primarily because the income tax benefit related to the U.S. pre-tax loss generated during the quarter was subject to a valuation allowance. Our effective tax rate for the six months ended June 30, 2014 of 27.3% differs from the U.S. federal statutory tax rate due primarily to state and foreign income taxes, other non-tax-deductible expenses and stock-based compensation expense, partially offset by research and development tax credits.
We regularly assess whether a valuation allowance is required on our deferred tax assets by considering both positive and negative evidence related to the likelihood of the realization of our deferred tax assets. In our evaluation, we considered our cumulative loss in recent years and our forecasted losses in the near-term as significant negative evidence. We determined that the negative evidence outweighed the positive evidence and a valuation allowance of $6.4 million on our net deferred tax assets was established during the fourth quarter of 2014. At June 30, 2015, we continue to maintain a full valuation allowance on our net deferred tax assets. We will continue to assess the realizability of our deferred tax assets going forward and will adjust the valuation allowance as needed.

26


Financial Position, Liquidity and Capital Resources
Cash Flows
 
 
June 30,
  
 
2015
 
2014
 
 
(In thousands)
Cash and cash equivalents
 
$
38,044

 
$
37,581

 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2015
 
2014
 
 
(In thousands)
Net cash provided by operating activities
 
$
7,950

 
$
10,887

Net cash used in investing activities
 
(9,442
)
 
(25,609
)
Net cash (used in) provided by financing activities
 
(671
)
 
1,226

Effect of foreign exchange rate changes on cash and cash equivalents
 
(475
)
 
537

Net decrease in cash and cash equivalents
 
$
(2,638
)
 
$
(12,959
)
Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2015 was $8.0 million as a result of $15.2 million in cash generated from results of operations after adjusting for non-cash items, partially offset by a net decrease in our operating assets and liabilities of $7.3 million. The net decrease in operating assets and liabilities consisted primarily of an increase of $7.6 million in accounts receivable, primarily related to the timing of cash collections and a decrease of $3.5 million in accrued expenses and other liabilities, primarily related to payment of bonus and commissions related to 2014, partially offset by an increase of $2.2 million in deferred revenue. Additionally, net cash provided by operating activities during the six months ended June 30, 2015 consisted of a net loss of $17.8 million, plus adjustments for non-cash items of $33.1 million including (a) depreciation and amortization of $13.6 million, (b) amortization of intangible assets of $12.0 million and (c) stock-based compensation expense of $5.9 million.
Net cash provided by operating activities during the six months ended June 30, 2014 was $10.9 million, as a result of $13.6 million in cash generated from results of operations after adjusting for non-cash items, partially offset by a net decrease in our operating assets and liabilities of $2.7 million. The net decrease in operating assets and liabilities consisted primarily of: (i) an increase of $4.0 million in accounts receivable related, in part, to increased billings and (ii) a decrease of $2.0 million in accrued expenses and other liabilities primarily related to payment of bonus and commissions related to 2013, partially offset by (iii) an increase of $1.4 million in accounts payable due to the timing of payments and (iv) an increase of $1.2 million in deferred revenue. Additionally, net cash provided by operating activities during the six months ended June 30, 2014 consisted of a net loss of $11.1 million plus adjustments for non-cash items of $24.6 million including (a) depreciation and amortization of $12.2 million, (b) amortization of intangible assets of $11.8 million and (c) stock-based compensation expense of $4.9 million, partially offset by (d) a deferred tax benefit of $6.3 million.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2015 and 2014 was $9.4 million and $25.6 million, respectively. During the six months ended June 30, 2015 and 2014, net maturities of investments were $5.6 million and net purchases of investments were $0.4 million, respectively, and primarily consisted of corporate securities. During the six months ended June 30, 2014, we used $8.8 million in cash, net of cash acquired of $0.2 million, to acquire all of the outstanding shares of docTrackr. During the six months ended June 30, 2015 and 2014, we purchased minority interests in privately held companies for $1.0 million and $1.5 million, respectively, which are accounted for under the cost method. Cash used in investing activities related to capital expenditures for infrastructure during the six months ended June 30, 2015 and 2014 was $2.8 million and $4.4 million, respectively.
Investments in capitalized software development costs for the six months ended June 30, 2015 and 2014 were $11.2 million and $13.1 million, respectively.
Additionally, during the six months ended June 30, 2014, $2.4 million in cash that was restricted in 2013 was returned to us.

27


Financing Activities
Net cash used in financing activities for the six months ended June 30, 2015 was $0.7 million, which reflects a $0.5 million payment of a holdback related to the acquisition of docTrackr, recorded in "Other" financing activities, $0.4 million of debt repayments, $0.2 million of repayments of outstanding financing arrangements partially offset by $0.4 million related to the exercise of stock options and issuance of common stock.
Net cash provided by financing activities for the six months ended June 30, 2014 of $1.2 million includes $79.2 million in proceeds from our Term Loan Credit Facility entered into in February 2014 of which $74.9 million was used to pay off all the outstanding indebtedness under our prior credit facility and $2.7 million was used to pay debt issuance costs related to the Term Loan Credit Facility and the Revolving Credit Facility entered into in February 2014. The Term Loan Credit Facility and the Revolving Credit Facility are referred to herein as our Credit Facilities.
Cash paid for interest, net of capitalized interest during the six months ended June 30, 2015 and 2014 was $2.1 million and $1.3 million, respectively.
Covenants
The Credit Facilities are subject to certain affirmative and negative covenants, both financial and non-financial. These covenants include the timely submission of unqualified audited financial statements to the lender, as well as customary restrictions on certain activities, including the following, which are subject to lender approval, with certain exceptions:
incurring additional indebtedness other than in the normal course of business;
creating liens or other encumbrances on our assets;
engaging in merger or acquisition transactions;
making investments; and
entering into asset sale agreements or paying dividends, making distributions on or repurchasing our stock.
The Term Loan Credit Facility requires us to comply with a Consolidated Net Leverage Ratio (as defined under the Term Loan Credit Facility). The Consolidated Net Leverage Ratio must be less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter ending thereafter through the maturity date. For purposes of testing our Consolidated Net Leverage Ratio, we are permitted to net from our outstanding total indebtedness up to $20.0 million of our cash and cash equivalents. The Term Loan Credit Facility requires partial prepayment of a portion of the principal outstanding in the event that we generate Consolidated Excess Cash Flow (as defined under the Term Loan Credit Facility) in excess of a certain threshold. This determination is to be made 90 days following the end of the preceding fiscal year, with any payment, if required, 105 days following the end of the preceding fiscal year.
The Revolving Credit Facility includes a springing Fixed Charge Coverage Ratio (as defined in the Revolving Credit Facility), which we must comply with any time our cash and cash equivalents held in deposit or securities accounts subject to a lien in favor of our revolving loan lenders falls below $10.0 million or if an Event of Default (as defined in the Revolving Credit Facility) occurs, in either case, a "Fixed Charge Coverage Trigger Event." The Fixed Charge Coverage Ratio is tested as of the last day of the fiscal quarter preceding the Fixed Charge Coverage Trigger Event and as of the last day of each subsequent fiscal quarter during the Fixed Charge Coverage Compliance Period (as defined in the Revolving Credit Facility). In the event a Fixed Charge Coverage Trigger Event occurs, the Fixed Charge Coverage Ratio must be greater than or equal to 1.10 to 1 as of the last day of each fiscal quarter through the maturity date.
We were in compliance with all applicable financial and non-financial covenants set forth in the Credit Facilities as of June 30, 2015 and there was no required prepayment for the year ended December 31, 2014. The agreements governing our Credit Facilities also contain customary events of default, including, but not limited to, uncured cross-defaults among these agreements. Although we currently expect to remain in compliance with these existing covenants, any breach of these covenants or a change in control could result in a default and subsequent cross-defaults, under our credit agreements, which could cause all of the outstanding indebtedness to become immediately due and payable and terminate all commitments from our lenders to extend further credit.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash, cash equivalents and investments (current and non-current), as well as cash flows we generate from operations. At June 30, 2015, we had $38.0 million in cash and cash equivalents, $17.6 million in current investments, $1.1 million in non-current investments and $53.8 million in accounts receivable, net of allowance for doubtful accounts and credit reserve. We have a $15.0 million Revolving Credit Facility, which expires on February 24, 2019, and is available as an additional source of financing. At June 30, 2015, we had $3.0 million in outstanding letters of credit under our Revolving Credit Facility.

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We believe that our sources of funding will be sufficient to satisfy our normal operating requirements, including capital expenditures and principal payments on long-term debt, for at least the next twelve months. Our liquidity could be negatively affected by a decrease in demand for our services. In addition, we may make acquisitions and strategic investments or increase our capital expenditures that could reduce our cash, cash equivalents and investments (current and non-current) balances and as a result, we may need to raise additional capital through future debt or equity financing to provide for greater financial flexibility to fund these activities. Additional financing may not be available at all or on terms favorable to us.
If the credit markets were to experience a period of disruption, as has happened in the past, it 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, it is possible that those deteriorations could adversely affect our credit ratings, which, among other things, could have a material adverse effect on our ability to obtain external financing or to refinance our existing indebtedness.
Our corporate credit ratings and rating agency outlooks as of June 30, 2015 are summarized in the table below.
Rating Agency
 
Rating
 
Outlook
Moody's
 
B2
 
Stable
Standard & Poor's
 
B+
 
Stable
Credit rating agencies review their ratings periodically, and therefore the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, our financial position, conditions in any of our principal markets and changes in our business strategy. If weak financial market conditions or competitive dynamics cause any of these factors to deteriorate, we could see a reduction in our corporate credit rating.
Contractual Obligations and Commitments
At June 30, 2015, there have been no material changes to our contractual obligations, commitments and off-balance sheet arrangements since the disclosure included in Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2015, there have been no material changes to our exposure to market risk since the disclosure included in Part II, Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure 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 principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Management believes that the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP, and our principal executive officer and principal financial officer have certified that they fairly present in all material respects our financial condition, results of operations and cash flows for each of the periods presented in this report.
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.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
For a discussion of our material pending legal proceedings, see Note 11 - “Contingencies” included in Part I, Item 1 - “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q.
ITEM 1A: RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors included in Part I, Item 1A - "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which could materially affect our business, financial condition or future results. There are no material changes to the risk factors described in our Annual Report.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5: OTHER INFORMATION
None.

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ITEM 6: EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number
 
Description
3.1
 
Amended and Restated By-laws of Intralinks Holdings, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 6, 2015).
10.1
 
Employment Agreement, dated as of June 30, 2015, by and between Intralinks Holdings, Inc. and Christopher J. Lafond (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2015).
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.
101.INS+
 
XBRL Instance Document
101.SCH+
 
XBRL Taxonomy Extension Schema Document
101.CAL+
 
XBRL Taxonomy Calculation Linkbase Document
101.LAB+
 
XBRL Taxonomy Label Linkbase Document
101.PRE+
 
XBRL Taxonomy Presentation Linkbase Document
101.DEF+
 
XBRL Taxonomy Definitions Linkbase Document
                            
* Filed herewith.
+ Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Cash Flows and (v) related notes to these financial statements.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
 
 
 
 
 
INTRALINKS HOLDINGS, INC.
 
 
By: /s/ Ronald W. Hovsepian
Date: August 6, 2015
 
Ronald W. Hovsepian
President and Chief Executive Officer
 
 
 
 
 
By: /s/ Christopher J. Lafond
Date: August 6, 2015
 
Christopher J. Lafond
Chief Financial Officer



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