JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply Chain
Company®, today announced financial results for the second quarter
ended June 30, 2010. JDA reported record total revenues of $158.4
million, a 59 percent increase from $99.5 million of revenue
reported in second quarter 2009. Software license and subscription
revenues in the second quarter 2010 increased 38 percent to $38.0
million from $27.6 million in second quarter 2009.
Adjusted EBITDA increased 44 percent to $41.3 million in second
quarter 2010 from $28.7 million in the second quarter of 2009. JDA
also reported adjusted non-GAAP earnings per share for second
quarter 2010 of $0.48, an increase from the $0.47 per share
reported in second quarter 2009. Adjusted non-GAAP earnings exclude
amortization of acquired software technology and intangibles,
restructuring charges, stock-based compensation and costs related
to the acquisition and transition of i2. GAAP net income for second
quarter 2010 was $7.9 million or $0.19 per share, compared to GAAP
net income of $8.9 million or $0.25 per share in second quarter
2009.
Results for 2010 include the completion of the acquisition of i2
Technologies, Inc. (i2) as of January 28, 2010.
“Record license sales were a primary feature of the second
quarter and once again the contribution from i2 products was
significant,” said JDA president and chief executive officer
Hamish Brewer. “Six months into the integration of i2, we fully
expected to be delivering the cost synergies we are seeing, but
this accelerated license revenue growth is far better than we had
planned. Further work remains to be done, but so far the
integration process is going very well.”
Software and Subscription
Software and subscription revenue increased 38 percent to $38.0
million in the second quarter 2010 from $27.6 million in the second
quarter 2009. This increase was driven by the acquisition of i2 and
by strong sales in the Americas region, which continued to show a
strong pipeline. The average sales price for the trailing 12 months
ended June 30, 2010 was $608,000 compared to $618,000 for the
trailing 12 months ended March 31, 2010.
Maintenance and Support Services
Maintenance revenue increased 37 percent to $60.6 million in the
second quarter 2010 from $44.4 million in the second quarter 2009.
This increase was driven primarily by the acquisition of i2 and the
year-over-year improvement in retention rates. The annualized
retention rate in the second quarter 2010 increased to 97.3 percent
from 93.8 percent in the second quarter 2009. The renewal rate in
2009 was negatively impacted by the adverse economic conditions,
and the current year renewals are trending better than JDA
historical averages. Maintenance gross margins increased to 76
percent in the current quarter from 75 percent in the second
quarter 2009 primarily due to increased software sales with
maintenance attachments and a greater proportion of maintenance
being performed in the more cost effective Centers of Excellence
(“CoE”) in India.
Consulting Services
Consulting services revenue increased 117 percent to $59.8
million in the second quarter 2010 from $27.5 million in the second
quarter 2009. This increase was primarily due to the acquisition of
i2 and increased implementation services work associated with
larger JDA software product sales in 2009. Consulting services
gross margins increased to 24 percent in second quarter 2010 from
18 percent in the second quarter 2009. This increase was driven
primarily by the higher volume of consulting services revenue
together with higher margin projects and greater utilization of the
lower cost CoE resources.
Other Financial Data
- Operating expenses as a percent
of revenue show the operating leverage effects of the i2
acquisition. Product development expenses as a percent of revenue
improved to 12 percent in the second quarter 2010 compared to 13
percent in the second quarter 2009. Sales and marketing expenses as
a percent of revenue improved to 15 percent in the second quarter
2010 compared to 16 percent in the second quarter 2009. General and
administrative expenses increased as a percent of revenue to 13
percent in the second quarter 2010 compared to 12 percent in the
second quarter 2009. This increase is primarily due to increased
legal fees in connection with ongoing litigation and increased
headcount from the i2 acquisition.
- DSO improved to 66 days at the
end of second quarter 2010 from 74 days at the end of first quarter
2010. Compared to the second quarter in the prior year, DSO
increased from 57 days primarily due to the receivables acquired
from i2. JDA continues to apply its focused collection process to
the new receivables as a part of the overall company integration
process, with the goal of reducing the overall DSO.
- Net interest and other expense
for the second quarter 2010 increased to $6.8 million from $0.3
million in the second quarter of 2009 due to interest on the senior
notes issued in connection with the i2 acquisition and currency
rate changes.
- Cash flow from operations was a
use of ($2.6) million in second quarter 2010 compared to positive
cash flow from operations of $27.5 million in second quarter 2009.
The negative cash flow was caused by realized deferred revenues
from the i2 acquisition where the cash was collected prior to the
acquisition close date combined with an increase in receivables and
deferred expenses.
- Cash and cash equivalents,
including restricted cash, were $158.0 million at June 30, 2010,
compared to $363.8 million at December 31, 2009, which included net
proceeds from the issuance of $275.0 million of senior notes that
were used to complete the acquisition of i2 on January 28,
2010.
- Weighted average shares
outstanding for the quarter ended June 30, 2010 were 42.3
million.
Second Quarter 2010 Highlights
The following presents a high-level summary of JDA’s regional
sales performance:
- JDA reported $27.1 million in
software license and subscription revenues in its Americas region
during second quarter 2010, compared to $18.9 million in first
quarter 2010 and $14.4 million in second quarter 2009. Customers
that signed new software licenses in second quarter 2010 include:
Dick’s Sporting Goods, Inc., Guitar Center, Inc. Boscov’s
Department Store, LLC, Ripley’s Comercial ECSSA S.A., Sodimac Chile
S.A., IFH Retail and Tiendas Peruanas, Michaels Stores, Inc., Syms
Corporation, Liz Claiborne, Inc., Delhaize America, Inc. and
VMR Electronics, LLC.
- Software license and
subscription revenues in the Europe, Middle East and Africa (EMEA)
region were $4.8 million in second quarter 2010, compared to $5.4
million in first quarter 2010 and $5.0 million in second quarter
2009. New software deals in the EMEA region included: Esselunga
SpA, Crai Secom SpA, and Renault SA.
- JDA’s Asia-Pacific region posted
software license and subscription revenues of $6.1 million in
second quarter 2010, compared to $4.4 in first quarter 2010 and
$8.2 million in second quarter 2009. Wins in this region included:
JFE Steel Corporation and Lenovo Group Ltd.
Six Months Ended June 30, 2010 Results
- Revenue for the six months ended
June 30, 2010 increased 59 percent to $290.0 million from $182.8
million for the six months ended June 30, 2009. Adjusted EBITDA
increased to $72.7 million for the first six months ended June 30,
2010 from $45.4 million in the first half of 2009. The increases
were primarily driven by the acquisition of i2 Technologies and
growth in the core business.
- Adjusted non-GAAP earnings per
share for the six months ended June 30, 2010 was $0.87 compared to
$0.73 per share for the six months ended June 30, 2009. Adjusted
non-GAAP earnings exclude amortization of acquired software
technology and intangibles, restructuring charges, stock-based
compensation and costs related to the acquisition and transition of
i2.
- The GAAP net income applicable
to common shareholders for the six months ended June 30, 2010 was
$3.6 million or $0.09 per share, compared to net income of $11.6
million or $0.33 per share for the six months ended June 30, 2009.
The decrease was primarily due to costs related to the acquisition
and transition of i2.
- Cash flow from operations was
$9.6 million for the six months ended June 30, 2010 compared to
cash flow from operations of $60.5 million for the six months ended
June 30, 2009. The change in operating cash flow in the current
period was caused by realized deferred revenues from the i2
acquisition where the cash was collected prior to the acquisition
close date, an increase in receivables and deferred expenses and
payments related to acquisition accruals.
Conference Call Information
JDA Software Group, Inc. will host a conference call at 4:45
p.m. Eastern time today to discuss earnings results for its second
quarter ended June 30, 2010. To participate in the call,
dial 1-877-941-8416 (United States) or 1-480-629-9808
(International) and ask the operator for the “JDA Software
Group, Inc. Second Quarter 2010 Earnings Conference Call.” A
live audio webcast of the conference call can be accessed by
logging onto www.jda.com in the Investor Relations section.
A replay of the conference call will begin on July 27, 2010
at 8:00 p.m. Eastern time and will end on August 27, 2010. To
hear a replay of the call over the Internet, access JDA’s website
at www.jda.com.
About JDA Software Group, Inc.
JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply Chain
Company®, is a leading global provider of innovative supply chain
management, merchandising and pricing excellence solutions. JDA
empowers more than 6,000 companies of all sizes to make optimal
decisions that improve profitability and achieve real results in
the discrete and process manufacturing, wholesale distribution,
transportation, retail and services industries. With an integrated
solutions offering that spans the entire supply chain from
materials to the consumer, JDA leverages the powerful heritage and
knowledge capital of acquired market leaders including i2
Technologies®, Manugistics®, E3®, Intactix® and Arthur®. JDA’s
multiple service options provide customers with flexible
configurations, rapid time-to-value, lower total cost of ownership
and 24/7 functional and technical support and expertise. To learn
more, visit www.jda.com or e-mail info@jda.com.
JDA SOFTWARE GROUP,
INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In
thousands, except share amounts, unaudited)
June 30,2010
December 31,2009
ASSETS Current Assets:
Cash and cash equivalents
$ 146,179 $ 75,974
Restricted cash
11,780 287,875
Accounts receivable, net
116,091 68,883
Deferred tax asset
57,630 19,142
Prepaid expenses and other current
assets
33,251 15,667
Total current assets
364,931 467,541
Non-Current Assets:
Property and equipment, net
44,648 40,842
Goodwill
197,813 135,275 Other Intangibles, net:
Customer-based intangibles
156,614 99,264
Technology-based intangibles
41,161 20,240
Marketing-based intangibles
13,226 157
Deferred tax asset
269,421 44,350
Other non-current assets
17,381 13,997
Total non-current assets
740,264 354,125
Total Assets
$
1,105,195 $
821,666
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
Liabilities:
Accounts payable
$ 14,423 $ 7,192
Accrued expenses and other
liabilities
68,840 45,523 Income taxes payable 3,152 3,489
Deferred revenue
121,818 65,665
Total current liabilities
208,233 121,869
Non-Current Liabilities: Long-term debt
272,451 272,250 Accrued exit and disposal obligations 6,626 7,341
Liability for uncertain tax positions 10,306 8,770
Deferred revenue
14,601
--
Total non-current liabilities
303,984 288,361
Total Liabilities
512,217 410,230
Stockholders' Equity:
Preferred stock, $.01 par value;
authorized 2,000,000 shares; none issued or outstanding
--
--
Common stock, $.01 par value;
authorized, 50,000,000 shares; issued 43,628,080 and 36,323,245
shares, respectively
436
363
Additional paid-in capital
554,579 361,362 Deferred compensation (12,783 ) (5,297 )
Retained earnings
77,612 74,014
Accumulated other comprehensive
income (loss)
(1,014 ) 3,267 Less treasury stock, at cost, 1,920,105 and
1,785,715 shares, respectively
(25,852
) (22,273 )
Total stockholders' equity
592,978 411,436
Total liabilities and
stockholders' equity
$
1,105,195 $
821,666
JDA SOFTWARE GROUP,
INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME(in
thousands, except earnings per share data, unaudited)
Three Months EndedJune
30,
Six Months EndedJune
30,
2010 2009
2010 2009 REVENUES:
Software licenses $ 32,152 $ 26,589 $ 56,589 $ 40,946 Subscriptions
and other recurring revenues 5,806 996 10,093 1,964
Maintenance services
60,594 44,371
117,654 87,368
Product revenues
98,552 71,956
184,336 130,278
Consulting services
55,255 25,079 98,257 48,113
Reimbursed expenses
4,566 2,450
7,411 4,427
Service revenues
59,821 27,529
105,668 52,540
Total revenues
158,373 99,485
290,004
182,818 COST OF REVENUES: Cost of
software licenses 909 1,235 1,917 1,837 Amortization of acquired
software technology 1,803 980 3,379 1,988 Cost of maintenance
services
14,227
10,984 26,260
21,533
Cost of product revenues
16,939 13,199
31,556 25,358
Cost of consulting services
40,742 20,131 76,011 39,513
Reimbursed expenses
4,566 2,450
7,411 4,427
Cost of service revenues
45,308 22,581
83,422 43,940
Total cost of revenues
62,247 35,780
114,978 69,298
GROSS PROFIT 96,126 63,705 175,026 113,520
OPERATING EXPENSES: Product development 19,481 12,664
36,758 25,237
Sales and marketing
24,460 16,170 45,572 30,422
General and administrative
19,801 11,670 37,498 22,696
Amortization of intangibles
9,915 6,051 18,481 12,127
Restructuring charges
4,548 2,732 12,306 4,162 Acquisition-related costs
865
--
7,608
--
Total operating expenses
79,070 49,287
158,223 94,644
OPERATING INCOME
17,056 14,418 16,803 18,876 Interest expense and
amortization of loan fees (6,182 ) (386 ) (12,268 ) (625 )
Interest income and other, net
(642 ) 123
481 (120
) INCOME BEFORE INCOME TAXES 10,232
14,155 5,016 18,131
Income tax provision
2,366 5,220
1,418 6,552
NET INCOME
$
7 ,866 $
8,935 $
3,598 $
11,579
BASIC EARNINGS PER SHARE $
.19 $
.26 $
.09 $
.33 DILUTED EARNINGS PER SHARE $
.19 $
.25 $
.09 $
.33 SHARES
USED TO COMPUTE:
Basic earnings per share
41,672 35,004
40,514 34,983
Diluted earnings per share
42,265 35,232
41,151 35,154
JDA SOFTWARE GROUP,
INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(in thousands, unaudited)
Three Months EndedJune
30,
Six Months EndedJune
30,
2010 2009 2010 2009
CASH FLOW INFORMATION Net cash
provided by (used in) operating activities: Net Income $ 7,866 $
8,935 $ 3,598 $ 11,579 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 14,862 9,431 28,010 18,842 Provision for doubtful
accounts 500 300 500 300 Amortization of loan fees 495
--
922
--
Share-based compensation expense 3,292 2,157 6,569 3,567 Net gain
on disposal of property and equipment (4 ) (38 ) (9 ) (54 )
Deferred income taxes 2,242 4,663 (304 ) 5,670 Changes in assets
and liabilities, net of effects from business acquisitions:
Accounts receivable (7,645 ) 3,226 (14,856 ) 16,820 Income tax
receivable 955 (586 ) 2,031 (1,434 ) Prepaid expenses and other
current assets (6,022 ) (3,918 ) (13,911 ) (6,882 ) Accounts
payable 3,084 2,665 3,634 7,139 Accrued expenses and other
liabilities (2,974 ) 1,912 (14,075 ) (13,507 ) Income tax payable
(1,610 ) 248 (3,737 ) 365 Deferred revenue
(17,668 ) (1,541
) 11,196
18,107 $
(2,627 ) $
27,454 $
9,568 $
60,512 Net cash provided by (used in)
investing activities: Change in restricted cash $ (82 )
$
--
$ 276,095
$
--
Purchase of i2 Technologies, Inc
--
--
(213,427 )
--
Payment of direct costs related to acquisitions (789 ) (669 )
(1,639 ) (1,489 ) Purchase of other property and equipment (5,864 )
(404 ) (6,397 ) (1,407 ) Proceeds from disposal of property and
equipment
332 38
349 54
$
(6,403 ) $
(1,035
) $
54,981 $
(2,842
) Net cash provided by financing activities:
Issuance of common stock under equity plans $ 706 $ 2,136 $ 11,610
$ 4,642 Purchase of treasury stock and other, net
(366 ) (680
)
(3,758
)
(3,899
)
$
340 $
1,456 $
7,852 $
743 Effect
of exchange rates on cash
(948 )
1,785 (2,196
) 1,566 Net increase
(decrease) in cash and cash equivalents (9,638 ) 29,660 70,205
59,979 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
155,817 63,015
75,974 32,696
CASH AND CASH EQUIVALENTS, END OF PERIOD $
146,179
$
92,675 $
146,179 $
92,675
JDA SOFTWARE GROUP,
INC.NON-GAAP MEASURES OF PERFORMANCE(in thousands,
except share data, unaudited)
Three Months EndedJune
30,
Six Months EndedJune
30,
2010 2009 2010 2009
Reconciliation of GAAP Net Income to EBITDA and
Adjusted EBITDA Net Income (GAAP BASIS) $
7,866 $ 8,935 $ 3,598 $ 11,579 Income tax provision 2,366 5,220
1,418 6,552 Interest expense and amortization of loan fees 6,182
386 12,268 625 Amortization of acquired software technology 1,803
980 3,379 1,988 Amortization of intangibles 9,915 6,051 18,481
12,127 Depreciation
3,144
2,400 6,150
4,727 EBITDA (earnings before interest, tax,
depreciation and amortization) 31,276 23,972 45,294 37,598
Restructuring charges 4,548 2,732 12,306 4,162 Stock-based
compensation 3,292 2,157 6,569 3,567 Acquisition-related costs 865
-- 7,608 -- Non-recurring transition costs to integrate acquisition
723 -- 1,440 -- Interest income and other non-operating (income)
expense, net
642
(123 ) (481
) 120 Adjusted
EBITDA $
41,346 $
28,738
$
72,736 $
45,447
EBITDA, as a percentage of revenue
20 % 24
% 16 %
21 % Adjusted EBITDA, as a
percentage of revenue 26 %
29 % 25
% 25 %
NON-GAAP EARNINGS PER SHARE Income
before income taxes (GAAP BASIS) $ 10,232 $ 14,155 $ 5,016 $
18,131 Amortization of acquired software technology 1,803
980 3,379 1,988 Amortization of intangibles 9,915 6,051 18,481
12,127 Restructuring charges 4,548 2,732 12,306 4,162 Stock-based
compensation 3,292 2,157 6,569 3,567 Acquisition-related costs 865
-- 7,608 -- Non-recurring transition costs to integrate acquisition
723 --
1,440 -- Adjusted
income before income taxes 31,378 26,075 54,799 39,975 Adjusted
income tax expense
10,982
9,387 19,180
14,252 Adjusted net income $
20,396 $
16,688 $
35,619 $
25,723 Adjusted
non-GAAP diluted earnings per share $
0.48
$
0.47 $
0.87 $
0.73 Shares used to compute non-GAAP diluted
earnings per share 42,265
35,232 41,151
35,154
JDA SOFTWARE GROUP,
INC.SUPPLEMENTAL DATA(dollars in thousands)
Software & Subscription Revenues by Geographic
Region
Three Months Ended
6/30/2010 3/31/2010
12/31/2009 9/30/2009
6/30/2009 Americas $ 27,080 $ 18,917 $ 19,084 $
12,624 $ 14,357 EMEA 4,773 5,403 6,417 4,084 5,012 Asia/Pacific
6,105 4,404 3,125
542 8,216 Total $ 37,958 $ 28,724
$ 28,626 $ 17,250 $ 27,585
Business Segment Data Three
Months Ended 6/30/2010
3/31/2010 12/31/2009
9/30/2009 6/30/2009
Supply Chain Total Revenues $ 152,931 $ 125,233 $ 99,410 $
88,608 $ 88,161 Operating Income 52,638 39,904 33,882 29,054 29,127
Operating Income Margin 34 % 32 % 34 % 33 % 33 %
Services
Industry Total Revenues $ 5,442 $ 6,398 $ 7,713 $ 7,251 $
11,324 Operating Income (Loss) (453 ) 607 986 1,027 5,744 Operating
Income Margin (8 %) 9 % 13 % 14 % 51 %
New vs.
Install-Base Software Sales and Subscription Revenues
Three Months Ended
6/30/2010 3/31/2010
12/31/2009 9/30/2009
6/30/2009 New Sales $ 8,080
21
% $ 8,415 29 % $ 4,515 16 % $ 3,317 19 % $ 10,066 36 % Install-Base
Sales 29,878 79 % 20,309 71 %
24,111 84 % 13,933 81 % 17,518
64 % Total $ 37,958 $ 28,724 $ 28,626 $ 17,250
$ 27,584
ASP, Multi-Product Deals
& Large Deal Counts Last Twelve
Months Ended 6/30/2010
3/31/2010 12/31/2009
9/30/2009 6/30/2009
Average Sales Price (ASP) $ 608 $ 618 $ 630 $ 733 $ 819
Multiple-Product Deals 18 21 20 19 18 Large Deal Count (>= $1
million ) 25 24 19 16 19 Quota Carrying Sales
Representatives 92 96 75 75 72
Summary
of Revenue Contribution in Second Quarter 2010
JDA i2 Combined Software and
Subscription Revenues $ 21,728 57 % $ 16,230 43 % $ 37,958
Maintenance Revenues 45,417 75 % 15,177 25 %
60,594 Product Revenues 67,145 68 % 31,407 32 % 98,552
Service Revenues 38,294 64 % 21,527 36 %
59,821 Total Revenues $ 105,439 67 % $ 52,934 33 % $ 158,373
Summary of Revenue Contribution in First
Half 2010 Software and Subscription Revenues $
37,606 56 % $ 29,076 44 % $ 66,682 Maintenance Revenues
91,908 78 % 25,746 22 % 117,654 Product Revenues
129,514 70 % 54,822 30 % 184,336 Service Revenues
70,295 67 % 35,373 33 % 105,668 Total Revenues
$ 199,809 69 % $ 90,195 31 % 290,004
“Safe Harbor” Statement under the U.S. Private Securities
Litigation Reform Act of 1995
This press release contains forward-looking statements that are
made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are generally accompanied by words such as “will,” and
“expect” and other words with forward-looking connotations. In this
press release, such forward-looking statements include, without
limitation, our statements regarding our record revenue confirming
our rationale for the i2 acquisition, any implication of future
sales results from our strong sales pipeline in the Americas, and
Mr. Brewer’s statements regarding license revenue growth from i2
products and the progress of our i2 integration efforts. We remind
our investors and prospective investors that future events may
involve risks and uncertainties. Risks and uncertainties that may
affect our business are detailed from time to time in the ``Risk
Factors'' section and other sections of our filings with the
Securities and Exchange Commission. As a result of these and other
risks, actual results may differ materially from those predicted.
We undertake no obligation to update information in this release,
except as required by law.
Use of Non-GAAP Financial Information
This press release and the related conference call contain
non-GAAP financial measures. In evaluating the Company’s
performance, management uses certain non-GAAP financial measures to
supplement consolidated financial statements prepared under GAAP.
Management’s presentation of non-GAAP financial measures is
intended to be supplemental in nature and should not be considered
in isolation or as a substitute for the most directly comparable
GAAP measures.
Use and Economic Substance of Non-GAAP Financial Measures
Used by JDA
The Company uses non-GAAP measures of performance, including
adjusted net income, EBITDA (earnings before interest, taxes,
depreciation and amortization) and earnings per share, in its
public statements. Management uses, and chooses to disclose, these
non-GAAP financial measures because (i) such measures provide an
additional analytical tool to clarify the Company’s results from
operations and help the Company to identify underlying trends in
its results of operations; (ii) the Company uses non-GAAP earnings
measures, including EBITDA, as a measure of profitability because
such measures help the Company compare its performance on a
consistent basis across time periods; and (iii) these non-GAAP
measures are employed by the Company’s management in its own
evaluation of performance and are utilized in financial and
operational decision making processes, such as budget planning and
forecasting. The Company also internally uses adjusted EBITDA
measures for determining (a) compliance with certain financial
covenants in its credit agreement and (b) executive and employee
compensation. Set forth below are additional reasons why specific
items are excluded from the Company’s non-GAAP financial
measures:
- Amortization charges for
acquired software technology are excluded because they result from
prior acquisitions, rather than ongoing operations, and absent
additional acquisitions, are expected to decline over time.
- Amortization charges for other
intangibles are excluded because they are non-cash expenses, and
while tangible and intangible assets support our business, we do
not believe the related amortization costs are directly
attributable to the operating performance of our business.
- Restructuring charges are
significant non-routine expenses that cannot be predicted and
typically relate to a change in our business model or to a change
in our estimate of the costs to complete a plan to exit an activity
of an acquired company. The exclusion of these charges promotes
period-to-period comparisons and transparency. Such charges are
primarily related to severance costs and/or the disposition of
excess facilities driven by the changes to our business model.
- Stock-based compensation is not
an expense that typically requires or will require cash settlement
by the Company.
- Acquisition-related costs
associated with the acquisition of i2 and the non-recurring
transition costs to integrate the acquisition are significant
non-routine expenses. Exclusion of these costs promotes
period-to-period comparisons and transparency as we do not believe
these costs are directly attributable to the operating performance
of our business.
Material Limitations (and Compensation thereof) Associated
with the Use of Non-GAAP Financial Measures
Non-GAAP financial measures have limitations as an analytical
tool and should not be considered in isolation or as a substitute
for the Company’s GAAP results. In the future, the Company expects
to continue reporting non-GAAP financial measures excluding items
described above and the Company expects to continue to incur
expenses similar to the non-GAAP adjustments described above.
Accordingly, exclusion of these and other similar items in our
non-GAAP presentation should not be construed as an inference that
these costs are unusual, infrequent or non-recurring.
Some of the limitations in relying on non-GAAP financial
measures are:
- Amortization of acquired
technology and intangibles, though not directly affecting our
current cash position, represent the loss in value as the
technology in our industry evolves, is advanced or is replaced over
time. The expense associated with this loss in value is not
included in the non-GAAP net income presentation and therefore does
not reflect the full economic effect of the ongoing cost of
maintaining our current technological position in our competitive
industry which is addressed through our research and development
program.
- The Company may engage in
acquisition transactions in the future. In addition, we incur other
restructuring charges from time to time when necessary to adjust
our business model. Restructuring related charges may therefore
continue to be incurred and should not be viewed as
non-recurring.
- Stock-based compensation is an
important component of our incentive compensation arrangements and
will be reflected as expenses in our GAAP results for the
foreseeable future.
- Other companies, including other
companies in our industry, may calculate non-GAAP financial
measures differently than we do, limiting their usefulness as a
comparative measure.
We compensate for these limitations by relying primarily on our
GAAP results and using non-GAAP financial measures only
supplementally. We also provide reconciliations of each non-GAAP
financial measure to our most directly comparable GAAP measure, and
we encourage investors to review carefully those
reconciliations.
Usefulness of Non-GAAP Financial Measures to
Investors
The Company believes that the presentation of these non-GAAP
financial measures is warranted for several reasons. First, such
non-GAAP financial measures provide investors and management an
additional analytical tool for understanding the Company’s
financial performance by excluding the impact of items which may
obscure trends in the core operating performance of the business.
Second, since the Company has historically reported non-GAAP
results to the investment community, the Company believes the
inclusion of non-GAAP numbers provides consistency and enhances
investors’ ability to compare the Company’s performance across
financial reporting periods.
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