Table of Contents
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 04-3065140 | |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) |
Burlington, Massachusetts 01803
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code)
Page | ||||||||
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
16 | ||||||||
39 | ||||||||
40 | ||||||||
40 | ||||||||
41 | ||||||||
41 | ||||||||
41 | ||||||||
EX-31.1 Section 302 Certification of CEO | ||||||||
EX-31.2 Section 302 Certification of CFO | ||||||||
EX-31.2 Section 906 Certification of CEO & CFO |
2
Table of Contents
(Amounts in thousands, except share and per share amounts)
June 30, | December 31, | |||||||
2005 | 2004 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 64,302 | $ | 39,036 | ||||
Short-term investments | 5,295 | 12,589 | ||||||
Restricted cash | 2,200 | 600 | ||||||
Accounts receivable, net | 13,206 | 14,368 | ||||||
Other current assets | 1,834 | 2,214 | ||||||
Current assets related to assets sold | 5,313 | 5,490 | ||||||
Total current assets | 92,150 | 74,297 | ||||||
Property and equipment, net | 14,117 | 16,293 | ||||||
Other assets, net | 154 | 268 | ||||||
Goodwill | 57,628 | 57,628 | ||||||
Intangible assets, net | 19,831 | 21,247 | ||||||
Non-current assets related to assets sold | 300 | 753 | ||||||
Total assets | $ | 184,180 | $ | 170,486 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,827 | $ | 4,694 | ||||
Accrued compensation and benefits | 3,339 | 4,831 | ||||||
Other accrued liabilities | 5,510 | 3,861 | ||||||
Deferred rent | 1,816 | 1,592 | ||||||
Deferred revenues | 2,825 | 2,331 | ||||||
Funds due to merchants | 6,440 | 5,558 | ||||||
Reserve for restructuring | 1,117 | 2,479 | ||||||
Current liabilities related to assets sold | 2,562 | 5,354 | ||||||
Total current liabilities | 27,436 | 30,700 | ||||||
Deferred rent, less current portion | 2,350 | 2,709 | ||||||
Other long-term liabilities | 950 | 149 | ||||||
Non-current liabilities related to assets sold | 766 | — | ||||||
Total liabilities | 31,502 | 33,558 | ||||||
Commitments and contingencies (Note 5) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding at June 30, 2005 and December 31, 2004 | — | — | ||||||
Common stock, $.01 par value; 60,000,000 shares authorized; 30,091,059 and 29,951,826 shares issued and 26,652,016 and 26,512,783 shares outstanding at June 30, 2005 and December 31, 2004, respectively | 301 | 300 | ||||||
Additional paid-in capital | 168,267 | 167,465 | ||||||
Warrants | — | 206 | ||||||
Foreign currency translation | 41 | (184 | ) | |||||
Retained earnings (accumulated deficit) | 4,856 | (10,072 | ) | |||||
Less: treasury stock, at cost | (20,787 | ) | (20,787 | ) | ||||
Total stockholders’ equity | 152,678 | 136,928 | ||||||
Total liabilities and stockholders’ equity | $ | 184,180 | $ | 170,486 | ||||
3
Table of Contents
(Amounts in thousands, except per share amounts)
Three Months Ended | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Revenues: | ||||||||
Transaction services | $ | 25,147 | $ | 27,306 | ||||
Consulting and maintenance services | 1,417 | 2,961 | ||||||
Software licensing and hardware | — | 1,859 | ||||||
Total revenues | 26,564 | 32,126 | ||||||
Cost of revenues: | ||||||||
Transaction services | 11,972 | 14,273 | ||||||
Consulting and maintenance services | 557 | 1,092 | ||||||
Software licensing and hardware | — | — | ||||||
Total cost of revenues | 12,529 | 15,365 | ||||||
Gross profit: | ||||||||
Transaction services | 13,175 | 13,033 | ||||||
Consulting and maintenance services | 860 | 1,869 | ||||||
Software licensing and hardware | — | 1,859 | ||||||
Total gross profit | 14,035 | 16,761 | ||||||
Operating expenses: | ||||||||
Engineering and development | 3,495 | 5,527 | ||||||
Sales and marketing | 4,429 | 5,533 | ||||||
General and administrative | 4,152 | 4,045 | ||||||
Restructuring costs | (8 | ) | 4 | |||||
Total operating expenses | 12,068 | 15,109 | ||||||
Income from operations | 1,967 | 1,652 | ||||||
Other income, net | 328 | 143 | ||||||
Income from continuing operations before provision for income taxes | 2,295 | 1,795 | ||||||
Provision for income taxes | 34 | 697 | ||||||
Income from continuing operations | 2,261 | 1,098 | ||||||
Discontinued operations, net of income taxes: | ||||||||
Gain on sale of INS assets | 12,689 | — | ||||||
Discontinued operations | 670 | (525 | ) | |||||
Total discontinued operations, net of income taxes | 13,359 | (525 | ) | |||||
Net income | $ | 15,620 | $ | 573 | ||||
Net income (loss) per common shares (basic): | ||||||||
From continuing operations | $ | 0.09 | $ | 0.04 | ||||
From discontinued operations | 0.50 | (0.02 | ) | |||||
Net income (loss) per common share (basic) | $ | 0.59 | $ | 0.02 | ||||
Net income (loss) per common share (diluted): | ||||||||
From continuing operations | $ | 0.08 | $ | 0.04 | ||||
From discontinued operations | 0.50 | (0.02 | ) | |||||
Net income (loss) per common share (diluted): | $ | 0.58 | $ | 0.02 | ||||
Basic weighted average shares | 26,623 | 26,639 | ||||||
Diluted weighted average shares | 27,014 | 26,678 | ||||||
4
Table of Contents
(Amounts in thousands, except per share amounts)
Six Months Ended | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Revenues: | ||||||||
Transaction services | $ | 50,801 | $ | 47,872 | ||||
Consulting and maintenance services | 2,936 | 6,194 | ||||||
Software licensing and hardware | — | 1,868 | ||||||
Total revenues | 53,737 | 55,934 | ||||||
Cost of revenues: | ||||||||
Transaction services | 25,018 | 26,554 | ||||||
Consulting and maintenance services | 1,322 | 2,190 | ||||||
Software licensing and hardware | — | 12 | ||||||
Total cost of revenues | 26,340 | 28,756 | ||||||
Gross profit: | ||||||||
Transaction services | 25,783 | 21,318 | ||||||
Consulting and maintenance services | 1,614 | 4,004 | ||||||
Software licensing and hardware | — | 1,856 | ||||||
Total gross profit | 27,397 | 27,178 | ||||||
Operating expenses: | ||||||||
Engineering and development | 7,888 | 10,504 | ||||||
Sales and marketing | 8,983 | 8,268 | ||||||
General and administrative | 7,699 | 7,397 | ||||||
Purchased in-process research and development | — | 679 | ||||||
Restructuring costs | 851 | 489 | ||||||
Total operating expenses | 25,421 | 27,337 | ||||||
Income (loss) from operations | 1,976 | (159 | ) | |||||
Other income, net | 590 | 300 | ||||||
Income (loss) from continuing operations before provision for income taxes | 2,566 | 141 | ||||||
Provision for (benefit from) for income taxes | 104 | (50 | ) | |||||
Income (loss) from continuing operations | 2,462 | 191 | ||||||
Discontinued operations, net of income taxes: | ||||||||
Gain on sale of INS assets | 12,689 | — | ||||||
Discontinued operations | (223 | ) | (359 | ) | ||||
Total discontinued operations, net of income taxes | 12,466 | (359 | ) | |||||
Net income (loss) | $ | 14,928 | $ | (168 | ) | |||
Net income (loss) per common shares (basic): | ||||||||
From continuing operations | $ | 0.09 | $ | 0.007 | ||||
From discontinued operations | 0.47 | (0.013 | ) | |||||
Net income (loss) per common share (basic) | $ | 0.56 | $ | (0.006 | ) | |||
Net income (loss) per common share (diluted): | ||||||||
From continuing operations | $ | 0.09 | $ | 0.007 | ||||
From discontinued operations | 0.46 | (0.013 | ) | |||||
Net income (loss) per common share (diluted): | $ | 0.55 | $ | (0.006 | ) | |||
Basic weighted average shares | 26,592 | 26,794 | ||||||
Diluted weighted average shares | 26,963 | 26,918 | ||||||
5
Table of Contents
(Amounts in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 14,928 | $ | (168 | ) | |||
Gain from discontinued operations | 12,466 | (359 | ) | |||||
Income (loss) from continuing operations | 2,462 | 191 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities for continuing operations: | ||||||||
Purchased in-process research and development | — | 679 | ||||||
Depreciation and amortization | 4,879 | 4,736 | ||||||
Deferred income taxes | — | 205 | ||||||
Loss on disposal of property and equipment | 8 | 12 | ||||||
Gain on sale of INS assets, net of taxes | (12,689 | ) | — | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 1,162 | 1,884 | ||||||
Other assets | (1,189 | ) | 178 | |||||
Accounts payable and accrued liabilities | (2,203 | ) | (2,533 | ) | ||||
Funds due to merchants | 882 | (436 | ) | |||||
Deferred rent | (902 | ) | — | |||||
Deferred revenues | 1,265 | 282 | ||||||
Other liabilities | 801 | 109 | ||||||
Net cash provided by (used in) operating activities of continuing operations | (5,524 | ) | 5,307 | |||||
Cash flows from investing activities of continuing operations: | ||||||||
Purchases of property and equipment | (1,799 | ) | (6,881 | ) | ||||
Restricted cash | (1,600 | ) | — | |||||
Purchase of short-term investments | (3,928 | ) | (26,335 | ) | ||||
Proceeds from sales and maturities of short-term investments | 11,222 | 83,693 | ||||||
Net cash proceeds from the sale of INS assets | 15,017 | — | ||||||
Acquisition of Authorize.Net, less cash received | — | (77,510 | ) | |||||
Net cash provided by (used in) investing activities for continuing operations | 18,912 | (27,033 | ) | |||||
Cash flows from financing activities of continuing operations: | ||||||||
Proceeds from issuance of common stock | 597 | 313 | ||||||
Repurchase of common stock | — | (3,832 | ) | |||||
Net cash provided by (used in) financing activities of continuing operations | 597 | (3,519 | ) | |||||
Effects of foreign exchange rate changes on cash and cash equivalents | 211 | (10 | ) | |||||
Net cash provided by (used in) net assets related to assets sold | 11,070 | (2,269 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 25,266 | (27,524 | ) | |||||
Cash and cash equivalents, beginning of period | 39,036 | 69,085 | ||||||
Cash and cash equivalents, end of period | $ | 64,302 | $ | 41,561 | ||||
6
Table of Contents
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Results of operations: | ||||||||||||||||
Net revenues | $ | 3,355 | $ | 2,440 | $ | 5,285 | $ | 5,582 | ||||||||
Total Expenses | 2,685 | 2,965 | 5,508 | 5,941 | ||||||||||||
Net income (loss) | 670 | (525 | ) | (223 | ) | (359 | ) | |||||||||
Gain on sale of INS | 12,689 | — | 12,689 | — | ||||||||||||
Net income (loss) from discontinued operations | $ | 13,359 | $ | (525 | ) | $ | 12,466 | $ | (359 | ) | ||||||
The remaining assets and liabilities from the INS business that the Company retained are not significant to the Company’s ongoing operations. Accordingly, we have classified the remaining assets and liabilities, principally consisting of accounts receivable, trade payables and restructuring accruals, from the INS business on the Balance Sheet as assets and liabilities “related to assets sold.” The Company anticipates that all accounts receivable and trade payables will be collected and paid by the end of 2005.
June 30,2005 | December 31, 2004 | |||||||
Financial position: | ||||||||
Current assets | $ | 5,313 | $ | 5,490 | ||||
Other assets | 300 | 753 | ||||||
Total liabilities | (3,328 | ) | (5,354 | ) | ||||
Net assets related to assets sold | $ | 2,285 | $ | 889 | ||||
7
Table of Contents
Pro forma net revenues | $ | 60,292 | ||
Pro forma net loss from continuing operations | $ | (1,093 | ) | |
Pro forma net loss per basic and diluted share from continuing operations | $ | (0.04 | ) | |
Shares used for basic and diluted computation | 26,794 |
• | Payment Processing Services (Payment Processing) — This segment provides a transaction processing system under the Authorize.Net® brand that allows businesses to authorize, settle and manage credit card, electronic check and other electronic payment transactions online. | ||
• | Telecom Decisioning Services (TDS) — This segment provides wireless subscriber qualification, risk assessment, fraud screening, consulting services and call center services to telecom and other companies. | ||
• | Instant Conferencing Services (Instant Conferencing) — This segment provides managed instant conferencing services through its Lightbridge GroupTalkTM product. |
8
Table of Contents
Sub-total | ||||||||||||||||||||||||
Three Months Ended | Payment | Instant | Reportable | Reconciling | Consolidated | |||||||||||||||||||
June 30, 2005 | TDS | Processing | Conferencing | Segments | Items | Total | ||||||||||||||||||
Revenues | $ | 15,817 | $ | 10,747 | $ | — | $ | 26,564 | $ | — | $ | 26,564 | ||||||||||||
Gross profit (loss) | 6,078 | 8,470 | (513 | ) | 14,035 | — | 14,035 | |||||||||||||||||
Operating income (loss) | 3,204 | 2,453 | (500 | ) | 5,157 | (3,190 | )(1) | 1,967 | ||||||||||||||||
Depreciation and amortization | 983 | 1,039 | 37 | 2,059 | 217 | (2) | 2,276 |
Sub-total | ||||||||||||||||||||||||
Three Months Ended | Payment | Instant | Reportable | Reconciling | Consolidated | |||||||||||||||||||
June 30, 2004 | TDS | Processing | Conferencing | Segments | Items | Total | ||||||||||||||||||
Revenues | $ | 23,606 | $ | 8,138 | $ | 382 | $ | 32,126 | $ | — | $ | 32,126 | ||||||||||||
Gross profit (loss) | 10,434 | 5,945 | 382 | 16,761 | — | 16,761 | ||||||||||||||||||
Operating income (loss) | 4,867 | 1,341 | (830 | ) | 5,378 | (3,726 | )(1) | 1,652 | ||||||||||||||||
Depreciation and amortization | 1,602 | 1,030 | 146 | 2,778 | 337 | (2) | 3,115 |
9
Table of Contents
Sub-total | ||||||||||||||||||||||||
Six Months Ended | Payment | Instant | Reportable | Reconciling | Consolidated | |||||||||||||||||||
June 30, 2005 | TDS | Processing | Conferencing | Segments | Items | Total | ||||||||||||||||||
Revenues | $ | 32,890 | $ | 20,847 | $ | — | $ | 53,737 | $ | — | $ | 53,737 | ||||||||||||
Gross profit (loss) | 11,950 | 16,275 | (828 | ) | 27,397 | — | 27,397 | |||||||||||||||||
Operating income (loss) | 5,679 | 4,550 | (1,387 | ) | 8,842 | (6,866 | )(1) | 1,976 | ||||||||||||||||
Depreciation and amortization | 2,132 | 2,086 | 241 | 4,459 | 420 | (2) | 4,879 |
Sub-total | ||||||||||||||||||||||||
Six Months Ended | Payment | Instant | Reportable | Reconciling | Consolidated | |||||||||||||||||||
June 30, 2004 | TDS | Processing | Conferencing | Segments | Items | Total | ||||||||||||||||||
Revenues | $ | 47,414 | $ | 8,138 | $ | 382 | $ | 55,934 | $ | — | $ | 55,934 | ||||||||||||
Gross profit (loss) | 20,867 | 5,945 | 366 | 27,178 | — | 27,178 | ||||||||||||||||||
Operating income (loss) | 8,903 | 662 | (1,902 | ) | 7,663 | (7,822 | )(1) | (159 | ) | |||||||||||||||
Depreciation and amortization | 2,926 | 1,030 | 272 | 4,228 | 508 | (2) | 4,736 |
(1) | Reconciling items from segment operating income (loss) to consolidated operating income (loss) include the following (amounts in thousands): |
Three Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Restructuring costs | $ | (8 | ) | $ | 4 | |||
Unallocated corporate and centralized marketing, general and administrative expenses | 3,198 | 3,722 | ||||||
Total | $ | 3,190 | $ | 3,726 | ||||
Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Restructuring costs | $ | 851 | $ | 489 | ||||
Unallocated corporate and centralized marketing, general and administrative expenses | 6,015 | 7,333 | ||||||
Total | $ | 6,866 | $ | 7,822 | ||||
(2) | Represents depreciation and amortization included in the unallocated corporate or centralized marketing, general and administrative expenses. |
10
Table of Contents
Operating | ||||
Leases | ||||
Remainder of 2005 | $ | 2,348 | ||
2006 | 3,907 | |||
2007 | 3,104 | |||
2008 | 2,854 | |||
2009 | 2,208 | |||
Thereafter | 3,542 | |||
Total minimum lease payments | $ | 17,963 | ||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss) as reported | $ | 15,620 | $ | 573 | $ | 14,928 | $ | (168 | ) | |||||||
Stock-based compensation recorded in net income (loss) | — | — | — | — | ||||||||||||
Stock-based compensation measured using the fair value method | 408 | 320 | 977 | 551 | ||||||||||||
Net income (loss) pro forma | $ | 15,212 | �� | $ | 253 | $ | 13,951 | $ | (719 | ) | ||||||
Basic net income (loss) per share pro forma | $ | 0.57 | $ | 0.01 | $ | 0.52 | $ | (0.03 | ) | |||||||
Diluted net income (loss) per share pro forma | $ | 0.56 | $ | 0.01 | $ | 0.52 | $ | (0.03 | ) | |||||||
11
Table of Contents
Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Risk-free interest rate | 2.8 | % | 2.9% - 4.7 | % | ||||
Expected life of option grants | 1 — 5 years | 1 — 5 years | ||||||
Expected volatility of underlying stock | 63 | % | 84 | % | ||||
Expected dividend payment rate, as a percentage of the stock price on the date of grant | — | — |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Shares for basic computation | 26,623 | 26,639 | 26,592 | 26,794 | ||||||||||||
Options and warrants (treasury stock method) | 391 | 39 | 371 | 124 | ||||||||||||
Shares for diluted computation | 27,014 | 26,678 | 26,963 | 26,918 | ||||||||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | — | $ | 475 | $ | 370 | $ | 105 | ||||||||
12
Table of Contents
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | — | $ | 70 | $ | 53 | $ | 17 | ||||||||
Facility closing and related costs | — | 302 | 56 | 246 | ||||||||||||
Total | $ | — | $ | 372 | $ | 109 | $ | 263 | ||||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | 1,364 | $ | 27 | $ | 1,054 | $ | 337 | ||||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | 25 | $ | (10 | ) | $ | 15 | $ | — | |||||||
13
Table of Contents
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | 835 | $ | (9 | ) | $ | 528 | $ | 298 | |||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Employee severance and termination benefits | $ | 5 | $ | (1 | ) | $ | 4 | $ | — | |||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Facility closing and related costs | $ | 3 | $ | (3 | ) | $ | — | $ | — | |||||||
Balance at | Balance at | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2004 | Accrued | Utilized | 2005 | |||||||||||||
Facility closing and related costs | $ | 283 | $ | — | $ | 169 | $ | 114 | ||||||||
14
Table of Contents
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss) as reported | $ | 15,620 | $ | 573 | $ | 14,928 | $ | (168 | ) | |||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency gain (loss) | 15 | (10 | ) | 225 | (10 | ) | ||||||||||
Comprehensive income (loss) | $ | 15,635 | $ | 563 | $ | 15,153 | $ | (178 | ) | |||||||
15
Table of Contents
16
Table of Contents
17
Table of Contents
• | Payment Processing Services (“Payment Processing”) — This segment provides a transaction processing system, under the Authorize.Net® brand, that allows businesses to authorize, settle and manage credit card, electronic check and other electronic payment transactions online. | ||
• | Telecom Decisioning Services (“TDS”) — This segment provides wireless subscriber qualification, risk assessment, fraud screening, consulting services and call center services to telecom and other companies. | ||
• | Instant Conferencing Services (“Instant Conferencing”) — This segment provides managed instant conferencing services through its Lightbridge GroupTalkTM product. |
18
Table of Contents
Quarter Ended | Quarter Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Transaction services | $ | 25,147 | $ | 27,306 | $ | (2,159 | ) | (7.9 | )% | |||||||
Consulting and maintenance services | 1,417 | 2,961 | (1,544 | ) | (52.1 | ) | ||||||||||
Software licensing and hardware | — | 1,859 | (1,859 | ) | (100 | ) | ||||||||||
Total | $ | 26,564 | $ | 32,126 | $ | (5,562 | ) | (17.3 | )% | |||||||
19
Table of Contents
Quarter Ended | Quarter Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cost of revenues: | ||||||||||||||||
Transaction services | $ | 11,972 | $ | 14,273 | $ | (2,301 | ) | (16.1) | % | |||||||
Consulting and maintenance services | 557 | 1,092 | (535 | ) | (49.0 | ) | ||||||||||
Software licensing and hardware | — | — | — | — | ||||||||||||
Total cost of revenues | $ | 12,529 | $ | 15,365 | $ | (2,836 | ) | (18.5) | % | |||||||
Gross profit: | ||||||||||||||||
Transaction services $ | $ | 13,175 | $ | 13,033 | $ | 142 | 1.1 | % | ||||||||
Transaction services % | 52.4 | % | 47.7 | % | ||||||||||||
Consulting and maintenance services $ | $ | 860 | $ | 1,869 | $ | (1,009 | ) | (54.0) | % | |||||||
Consulting and maintenance services % | 60.7 | % | 63.1 | % | ||||||||||||
Software licensing and hardware $ | $ | — | $ | 1,859 | $ | (1,859 | ) | (100.0) | % | |||||||
Software licensing and hardware % | 100.0 | % | ||||||||||||||
Total gross profit $ | $ | 14,035 | $ | 16,761 | $ | (2,726 | ) | (16.3) | % | |||||||
Total gross profit % | 52.8 | % | 52.2 | % |
20
Table of Contents
Three Months | Three Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Engineering and development | $ | 3,495 | $ | 5,527 | $ | (2,032 | ) | (36.8) | % | |||||||
Sales and marketing | 4,429 | 5,533 | (1,104 | ) | (20.0 | ) | ||||||||||
General and administrative | 4,152 | 4,045 | 107 | 2.6 | ||||||||||||
Restructuring | (8 | ) | 4 | (12 | ) | (300.0 | ) | |||||||||
Total | $ | 12,068 | $ | 15,109 | $ | (3,041 | ) | (20.1) | % | |||||||
21
Table of Contents
Quarter Ended | Quarter Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
TDS | $ | 15,817 | $ | 23,606 | $ | (7,789 | ) | (33.0) | % | |||||||
Payment Processing | 10,747 | 8,138 | 2,609 | 32.1 | % | |||||||||||
Instant Conferencing | — | 382 | (382 | ) | (100.0) | % | ||||||||||
Total | $ | 26,564 | $ | 32,126 | $ | (5,562 | ) | (17.3) | % | |||||||
Gross Profit (Loss): | ||||||||||||||||
TDS $ | $ | 6,078 | $ | 10,434 | $ | (4,356 | ) | (41.7) | % | |||||||
TDS % | 38.4 | % | 44.2 | % | ||||||||||||
Payment Processing $ | $ | 8,470 | $ | 5,945 | $ | 2,525 | 42.5 | % | ||||||||
Payment Processing % | 78.8 | % | 73.1 | % | ||||||||||||
Instant Conferencing $ | $ | (513 | ) | $ | 382 | $ | (895 | ) | (234.3) | % | ||||||
Instant Conferencing % | — | % | 100.0 | % | ||||||||||||
Total gross profit $ | $ | 14,035 | $ | 16,761 | $ | (2,726 | ) | (16.3) | % | |||||||
Total gross profit % | 52.8 | % | 52.2 | % | ||||||||||||
Operating Income (Loss): | ||||||||||||||||
TDS | $ | 3,204 | 4,867 | $ | (1,663 | ) | (34.2) | % | ||||||||
Payment Processing | 2,453 | 1,341 | 1,112 | 82.9 | % | |||||||||||
Instant Conferencing | (500 | ) | (830 | ) | 330 | 39.8 | % | |||||||||
Total segment operating income | $ | 5,157 | $ | 5,378 | $ | (221 | ) | (4.1) | % | |||||||
Reconciling items(1) | (3,190 | ) | (3,726 | ) | ||||||||||||
Total operating loss | $ | 1,967 | $ | 1,652 |
(1) | Reconciling items consist of certain corporate or centralized marketing and general and administrative expenses not allocated to our business unit segments, because these activities are managed separately from the business units. Also, we do not allocate restructuring expenses and other non-recurring gains or charges to our business unit segments because our Chief Executive Officer evaluates the segment results exclusive of these items. |
22
Table of Contents
Six Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Transaction services | $ | 50,801 | $ | 47,872 | $ | 2,929 | 6.1 | % | ||||||||
Consulting and maintenance services | 2,936 | 6,194 | (3,258 | ) | (52.6 | ) | ||||||||||
Software licensing and hardware | — | 1,868 | (1,868 | ) | (100.0 | ) | ||||||||||
Total | $ | 53,737 | $ | 55,934 | $ | (2,197 | ) | (3.9) | % | |||||||
23
Table of Contents
Six Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cost of revenues: | ||||||||||||||||
Transaction services | $ | 25,018 | $ | 26,554 | $ | (1,536 | ) | (5.8) | % | |||||||
Consulting and maintenance services | 1,322 | 2,190 | (868 | ) | (39.6 | ) | ||||||||||
Software licensing and hardware | — | 12 | (12 | ) | (100.0 | ) | ||||||||||
Total cost of revenues | $ | 26,340 | $ | 28,756 | $ | (2,416 | ) | (8.4) | % | |||||||
Gross profit: | ||||||||||||||||
Transaction services $ | $ | 25,783 | $ | 21,318 | $ | 4,465 | 20.9 | % | ||||||||
Transaction services % | 50.8 | % | 44.5 | % | ||||||||||||
Consulting and maintenance services $ | $ | 1,614 | $ | 4,004 | $ | (2,390 | ) | (59.7) | % | |||||||
Consulting and maintenance services % | 55.0 | % | 64.6 | % | ||||||||||||
Software licensing and hardware $ | $ | — | $ | 1,856 | $ | (1,856 | ) | (100.0) | % | |||||||
Software licensing and hardware % | % | 99.4 | % | |||||||||||||
Total gross profit $ | $ | 27,397 | $ | 27,178 | $ | 219 | 0.8 | % | ||||||||
Total gross profit % | 51.0 | % | 48.6 | % |
24
Table of Contents
Six Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | $ | % | |||||||||||||
2005 | 2004 | Difference | Difference | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Engineering and development | $ | 7,888 | $ | 10,504 | $ | (2,616 | ) | (24.9) | % | |||||||
Sales and marketing | 8,983 | 8,268 | 715 | 8.6 | ||||||||||||
General and administrative | 7,699 | 7,397 | 302 | 4.1 | ||||||||||||
Purchased in-process research and development | — | 679 | (679 | ) | (100.0 | ) | ||||||||||
Restructuring | 851 | 489 | 362 | 74.0 | ||||||||||||
Total | $ | 25,421 | $ | 27,337 | $ | (1,916 | ) | (7.0) | % | |||||||
25
Table of Contents
Six Months | Six Months | |||||||||||||||
Ended | Ended | $ | % | |||||||||||||
June 30, | June 30, | Difference | Difference | |||||||||||||
2005 | 2004 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
TDS | $ | 32,890 | $ | 47,415 | $ | (14,525 | ) | (30.6) | % | |||||||
Payment Processing | 20,847 | 8,138 | 12,709 | 156.2 | % | |||||||||||
Instant Conferencing | — | 381 | (381 | ) | (100.0) | % | ||||||||||
Total | $ | 53,737 | $ | 55,934 | $ | (2,197 | ) | (3.9) | % | |||||||
Gross Profit (Loss): | ||||||||||||||||
TDS $ | $ | 11,950 | $ | 20,867 | $ | (8,917 | ) | (42.7) | % | |||||||
TDS % | 36.3 | % | 44.0 | % | ||||||||||||
Payment Processing $ | $ | 16,275 | $ | 5,945 | $ | 10,330 | 173.8 | % | ||||||||
Payment Processing % | 78.1 | % | 73.1 | % | ||||||||||||
Instant Conferencing $ | $ | (828 | ) | $ | 366 | $ | (1,194 | ) | (326.2) | % | ||||||
Instant Conferencing % | — | % | 96.1 | % | ||||||||||||
Total gross profit $ | $ | 27,397 | $ | 27,178 | $ | 219 | 0.8 | % | ||||||||
Total gross profit % | 51.0 | % | 48.6 | % | ||||||||||||
Operating Income (Loss): | ||||||||||||||||
TDS | $ | 5,679 | 8,903 | $ | (3,224 | ) | (36.2) | % | ||||||||
Payment Processing | 4,550 | 662 | 3,888 | 587.3 | % | |||||||||||
Instant Conferencing | (1,387 | ) | (1,902 | ) | 515 | 27.1 | % | |||||||||
Total segment operating income | $ | 8,842 | $ | 7,663 | $ | 1,179 | 15.4 | % | ||||||||
Reconciling items(1) | (6,866 | ) | (7,822 | ) | ||||||||||||
Total operating loss | $ | 1,976 | $ | (159 | ) |
26
Table of Contents
(1) | Reconciling items consist of certain corporate or centralized marketing and general and administrative expenses not allocated to our business unit segments, because these activities are managed separately from the business units. Also, we do not allocate restructuring expenses and other non-recurring gains or charges to our business unit segments because our Chief Executive Officer evaluates the segment results exclusive of these items. |
27
Table of Contents
Operating | ||||
Leases | ||||
Remainder of 2005 | $ | 2,348 | ||
2006 | 3,907 | |||
2007 | 3,104 | |||
2008 | 2,854 | |||
2009 | 2,208 | |||
Thereafter | 3,542 | |||
Total minimum lease payments | $ | 17,963 | ||
28
Table of Contents
29
Table of Contents
• | our ability to maintain our profit margins on sales of products and services to companies in the wireless telecommunications industry; | ||
• | the financial condition of our clients and their continuing ability to pay us for services and products; |
30
Table of Contents
• | our ability to develop and market new or enhanced products and services to new and existing clients; | ||
• | continued growth of the domestic wireless telecommunications markets; | ||
• | the number of carriers seeking to implement prepaid billing services; and | ||
• | our ability to increase sales of our products and services internationally. |
31
Table of Contents
32
Table of Contents
33
Table of Contents
• | We may experience difficulty in integrating and managing acquired businesses successfully and in realizing anticipated economic, operational and other benefits in a timely manner. The need to retain existing clients, employees, and sales and distribution channels of an acquired company and to integrate and manage differing corporate cultures can also present significant risks. If we are unable to successfully integrate and manage acquired businesses, we may incur substantial costs and delays or other operational, technical or financial problems. |
34
Table of Contents
• | Our acquisition of Authorize.Net significantly reduced our available cash and liquidity. In other future acquisitions, we may issue equity securities that could be dilutive to our shareholders or we may use our remaining cash, which may have an adverse effect on our liquidity. We also may incur additional debt and amortization expense related to intangible assets as a result of acquisitions. This additional debt and amortization expense, as well as the potential impairment of any purchased goodwill, may materially and adversely affect our business and operating results. We may also be required to make continuing investments in acquired products or technologies to bring them to market, which may negatively affect our cash flows and net income. We may also incur additional costs relating to the integration, review and evaluation and enhancement of our internal controls for Authorize.Net. In addition, we may assume contingent liabilities that may be difficult to estimate and costs and liabilities associated with assumed litigation matters. | ||
• | Acquisitions may divert management’s attention from our existing business and may damage our relationships with our key clients and employees. | ||
• | Acquisitions may also result in liabilities for claims not known at the time of acquisition as well as for assumed obligations. |
• | growth in our targeted markets; | ||
• | our ability to provide products and services to address the needs of those markets; and | ||
• | competition in those markets. |
• | identify and anticipate emerging technological and market trends affecting the markets in which we do business; | ||
• | enhance our current products and services in order to increase their functionality, features and cost-effectiveness to clients that are seeking to control costs and to meet regulatory requirements; | ||
• | develop or acquire new products and services that meet emerging client needs, such as products and services for the online market; | ||
• | modify our products and services in response to changing business practices and technical requirements of our clients, as well as to new regulatory requirements; | ||
• | integrate our current and future products with third-party products; and | ||
• | create and maintain interfaces to changing client and third party systems. |
35
Table of Contents
• | we may suffer a loss of revenue if, due to software errors, we are temporarily unable to provide products or services to our clients; | ||
• | we may not be paid for the products or services provided to a client that contain errors, or we may be liable for losses or damages sustained by a client or its subscribers as a result of such errors; | ||
• | we may incur additional unexpected expenses to correct errors in our software, or to fund product development projects that we may undertake to minimize the occurrences of such errors in the future; | ||
• | we may damage our relationships with clients or suffer a loss of reputation within our industry; | ||
• | we may become subject to litigation or regulatory scrutiny; and | ||
• | our clients may terminate or fail to renew their agreements with us or reduce the products and services they purchase from us. |
36
Table of Contents
• | Seasonal and retail trends affect our transaction revenues, in both our Payment Processing and TDS businesses, as well as our other products and services. Transaction revenues historically have represented the majority of our total revenues. As a result, our revenues can fluctuate. For example, our revenues generally have been highest in the fourth quarter of each calendar year, particularly in the holiday shopping season between Thanksgiving and Christmas. In addition, marketing initiatives undertaken by our clients or their competitors may significantly affect the number of transactions we process. | ||
• | The sales process for our products and services offered to telecommunications clients is lengthy, sometimes exceeding twenty-four months. The length of the sales process makes our revenues difficult to predict. The delay of one or more large orders, could cause our quarterly revenues to fall substantially below expectations. | ||
• | Our consulting services revenues can fluctuate based on the timing of product sales and projects we perform for our clients. Many of our consulting engagements are of a limited duration, so it can be difficult for us to forecast consulting services revenues or staffing requirements accurately more than a few months in advance. | ||
• | The factors described above under the headings “If One or More of Our Major Clients Stops Using Our Products or Services or Changes the Combination of Products and Services It Uses, Our Operating Results Would Suffer Significantly,” “Certain of Our Revenues Are Uncertain Because Our Clients May Reduce the Amounts of or Change the Combination of Our Products or Services They Purchase” and “ Majority of Our Revenues Are Concentrated in the Wireless Telecommunications Industry, Which Is Experiencing Declining Growth Rates, Consolidation and Increasing Pressure to Control Costs”. |
37
Table of Contents
• | providers of online payment processing services, including VeriSign, CyberSource Corporation, Plug & Pay Technologies, Inc., PayPal, Inc. and LinkPoint International, Inc. | ||
• | software vendors that provide one or more customer acquisition, customer relationship management and retention or risk management solutions, including ECtel Ltd., TSI Telecommunications Services Inc., Fair Isaac Corporation, Magnum Software Systems, Inc., American Management Systems, Incorporated and SLP Infoware; | ||
• | service providers that offer customer acquisition, customer relationship management and retention, risk management or authentication services in connection with other services, including Choicepoint Inc., Visa U.S.A., Experian Information Solutions, Inc., Equifax, Inc., Lexis Nexis, Trans Union, L.L.C., Schlumberger Sema plc and Amdocs Ltd; | ||
• | information technology departments within larger carriers that have the ability to provide products and services that are competitive with those we offer; | ||
• | information technology vendors that offer wireless and internet software applications such as Oracle Corporation, Microsoft Corporation and International Business Machines Corporation; | ||
• | consulting firms or systems integrators that may offer competitive services or the ability to develop customized solutions for customer acquisition and qualification, customer relationship management and retention or risk management, such as American Management Systems, Incorporated, Accenture Ltd., BearingPoint, Inc., PeopleSoft, Inc., Siebel Systems, Inc. and Cap Gemini Ernst & Young; | ||
• | a number of alternative technologies, including profilers, personal identification numbers and authentication, provided by companies such as Verizon Communications, Inc., Authentix Network Inc. and Fair Isaac Corporation; | ||
• | vendors that provide or resell products and services in the voice conferencing market such as Spectel, Inc., Polycom Inc., Raindance Communications, Inc., Ptek Holdings, Inc., and the major worldwide telecommunications providers such as AT&T, Sprint, and Global Crossing Limited. |
38
Table of Contents
• | the imposition of financial and operational controls and regulatory restrictions by foreign governments; | ||
• | the need to comply with a wide variety of complex U.S. and foreign import and export laws and treaties; | ||
• | fluctuations in interest and currency exchange rates, and | ||
• | difficulties in managing staffing and managing foreign subsidiary operations. |
39
Table of Contents
40
Table of Contents
a) | To re-elect Robert E. Donahue to serve as a Class III director for a three-year term beginning on June 20, 2005 and ending at our 2008 annual meeting of stockholders; and | ||
b) | To re-elect Kevin C. Melia to serve as a Class III director for a three-year term beginning on June 20, 2005 and ending at our 2008 annual meeting of stockholders. |
VOTES | VOTES | ABSTENTI | ||||||||||||||
PROPOSAL | VOTES FOR | AGAINST | WITHHELD | ONS | ||||||||||||
a) For Robert E. Donahue | 25,666,221 | — | 280,767 | — | ||||||||||||
b) For Kevin C. Melia | 25,170,647 | — | 776,341 | — |
No. | Description | |
10.1* | Form of Executive Retention Agreement | |
10.2* | Settlement Agreement dated May 19, 2005 between Lightbridge, Inc. and Lucent Technologies, Inc. | |
10.3** | Asset Purchase Agreement dated as of April 25, 2005 by and between VeriSign, Inc. the Company. | |
31.1 | Certification of Robert E. Donahue dated August 9, 2005 | |
31.2 | Certification of Timothy C. O’Brien dated August 9, 2005 | |
32.1 | Certification of Robert E. Donahue and Timothy C. O’Brien dated August 9, 2005 (furnished but not filed with the Securities and Exchange Commission) | |
* | Incorporated by reference to the Company’s Current Report on Form 8-K dated May 25, 2005. | |
** | Incorporated by reference to the Company’s Current Report on Form 8-K dated June 20, 2005. |
41
Table of Contents
LIGHTBRIDGE, INC. | ||||
Date: August 9, 2005 | By: | /s/ Timothy C. O’Brien | ||
Timothy C. O’Brien | ||||
Vice President, Finance and Administration, | ||||
Chief Financial Officer and Treasurer | ||||
(Principal Financial and Chief Accounting Officer) |
42