Quarterly Report (10-q)

Date : 11/07/2018 @ 4:30PM
Source : Edgar (US Regulatory)
Stock : Zix Corp. (ZIXI)
Quote : 6.53  -0.14 (-2.10%) @ 3:15PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

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: 0-17995

 

ZIX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Texas

 

75-2216818

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

(Address of Principal Executive Offices)

(214) 370-2000

(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       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act            

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 5, 2018

Common Stock, par value $0.01 per share

 

54,197,628

 

 

 


 

INDEX

 

 

 

 

 

Page

Number

PART I — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

Condensed Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2018 and 2017

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2018

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

Item 4.

 

Controls and Procedures

 

25

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

25

Item 1A.

 

Risk Factors

 

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

 

Defaults Upon Senior Securities

 

33

Item 4.

 

Mine Safety Disclosures

 

33

Item 5.

 

Other Information

 

33

Item 6.

 

Exhibits

 

34

 

2


 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and par value data)

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,977

 

 

$

33,009

 

Receivables, net

 

 

3,222

 

 

 

1,389

 

Prepaid and other current assets

 

 

2,826

 

 

 

3,222

 

Total current assets

 

 

30,025

 

 

 

37,620

 

Property and equipment, net

 

 

4,058

 

 

 

4,048

 

Other assets and deferred costs

 

 

8,647

 

 

 

 

Intangible assets, net

 

 

14,640

 

 

 

5,524

 

Goodwill

 

 

13,494

 

 

 

8,469

 

Deferred tax assets

 

 

21,371

 

 

 

25,647

 

Total assets

 

$

92,235

 

 

$

81,308

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

584

 

 

$

1,053

 

Accrued expenses

 

 

8,016

 

 

 

6,101

 

Deferred revenue

 

 

29,425

 

 

 

28,362

 

Total current liabilities

 

 

38,025

 

 

 

35,516

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

2,392

 

 

 

1,087

 

Deferred rent

 

 

1,054

 

 

 

1,185

 

Total long-term liabilities

 

 

3,446

 

 

 

2,272

 

Total liabilities

 

 

41,471

 

 

 

37,788

 

Commitments and contingencies (see Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 81,722,748

   issued and 54,194,512 outstanding in 2018 and 80,709,970 issued and 54,542,612

   outstanding in 2017

 

 

779

 

 

 

778

 

Additional paid-in capital

 

 

383,990

 

 

 

381,457

 

Treasury stock, at cost; 27,528,236 common shares in 2018 and 26,167,358

   common shares in 2017

 

 

(108,385

)

 

 

(102,343

)

Accumulated deficit

 

 

(225,620

)

 

 

(236,372

)

Total stockholders’ equity

 

 

50,764

 

 

 

43,520

 

Total liabilities and stockholders’ equity

 

$

92,235

 

 

$

81,308

 

 

See notes to condensed consolidated financial statements.

 

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except share and per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

17,876

 

 

$

16,592

 

 

$

52,029

 

 

$

48,863

 

Cost of revenues

 

 

3,870

 

 

 

3,272

 

 

 

11,189

 

 

 

9,342

 

Gross margin

 

 

14,006

 

 

 

13,320

 

 

 

40,840

 

 

 

39,521

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,764

 

 

 

2,916

 

 

 

8,720

 

 

 

8,047

 

Selling, general and administrative

 

 

8,025

 

 

 

7,514

 

 

 

24,139

 

 

 

23,282

 

Total operating expenses

 

 

10,789

 

 

 

10,430

 

 

 

32,859

 

 

 

31,329

 

Operating income

 

 

3,217

 

 

 

2,890

 

 

 

7,981

 

 

 

8,192

 

Other income, net

 

 

183

 

 

 

86

 

 

 

662

 

 

 

230

 

Income before income taxes

 

 

3,400

 

 

 

2,976

 

 

 

8,643

 

 

 

8,422

 

Income tax expense

 

 

(945

)

 

 

(1,070

)

 

 

(2,455

)

 

 

(3,603

)

Net income

 

$

2,455

 

 

$

1,906

 

 

$

6,188

 

 

$

4,819

 

Basic income per common share

 

$

0.05

 

 

$

0.04

 

 

$

0.12

 

 

$

0.09

 

Diluted income per common share

 

$

0.05

 

 

$

0.03

 

 

$

0.12

 

 

$

0.09

 

Basic weighted average common shares outstanding

 

 

52,494,340

 

 

 

53,786,876

 

 

 

52,611,161

 

 

 

53,443,749

 

Diluted weighted average common shares outstanding

 

 

53,474,849

 

 

 

54,631,407

 

 

 

53,389,622

 

 

 

54,263,258

 

 

See notes to condensed consolidated financial statements.

 

4


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Total

Stockholders’

 

(In thousands, except shares)

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balances, January 1, 2018, as reported

 

 

80,709,970

 

 

$

778

 

 

$

381,457

 

 

$

(102,343

)

 

$

(236,372

)

 

$

43,520

 

Cumulative effect adjustment from

   changes in accounting standards, net

   of taxes (see Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,564

 

 

$

4,564

 

Balances, January 1, 2018, as adjusted

 

 

80,709,970

 

 

 

778

 

 

 

381,457

 

 

 

(102,343

)

 

 

(231,808

)

 

 

48,084

 

Net issuance of common stock upon

   exercise of stock options

 

 

85,095

 

 

 

1

 

 

 

160

 

 

 

 

 

 

 

 

 

161

 

Net issuance of common stock upon

   vesting of restricted stock units

 

 

50,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon

   vesting of performance stock units

 

 

32,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common

   stock

 

 

748,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   performance common stock

 

 

95,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based

   compensation costs

 

 

 

 

 

 

 

 

2,373

 

 

 

(649

)

 

 

 

 

 

1,724

 

Treasury repurchase program

 

 

 

 

 

 

 

 

 

 

 

(5,393

)

 

 

 

 

 

(5,393

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,188

 

 

 

6,188

 

Balances, September 30, 2018

 

 

81,722,748

 

 

$

779

 

 

$

383,990

 

 

$

(108,385

)

 

$

(225,620

)

 

$

50,764

 

 

See notes to condensed consolidated financial statements.

 

5


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

6,188

 

 

$

4,819

 

Non-cash items in net income:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,635

 

 

 

2,023

 

Employee stock-based compensation costs

 

 

2,373

 

 

 

2,023

 

Changes in deferred taxes

 

 

2,660

 

 

 

3,216

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(1,410

)

 

 

218

 

Prepaid and other current assets

 

 

464

 

 

 

(203

)

Other assets and deferred costs

 

 

(2,272

)

 

 

 

Accounts payable

 

 

(510

)

 

 

472

 

Deferred revenue

 

 

1,547

 

 

 

2,416

 

Earn-out payment

 

 

(195

)

 

 

 

Accrued and other liabilities

 

 

282

 

 

 

(1,000

)

Net cash provided by operating activities

 

 

11,762

 

 

 

13,984

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, equipment and internal-use software

 

 

(2,340

)

 

 

(1,754

)

Acquisition of business, net of cash acquired

 

 

(11,773

)

 

 

(8,245

)

Net cash used in investing activities

 

 

(14,113

)

 

 

(9,999

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

161

 

 

 

4,198

 

Stock issuance costs

 

 

(195

)

 

 

 

Earn-out payment

 

 

(605

)

 

 

 

Purchase of treasury shares

 

 

(6,042

)

 

 

(1,880

)

Net cash (used in) provided by financing activities

 

 

(6,681

)

 

 

2,318

 

(Decrease) Increase in cash and cash equivalents

 

 

(9,032

)

 

 

6,303

 

Cash and cash equivalents, beginning of period

 

 

33,009

 

 

 

26,457

 

Cash and cash equivalents, end of period

 

$

23,977

 

 

$

32,760

 

 

See notes to condensed consolidated financial statements.

 

 

6


 

ZIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Basis of Presentation

The accompanying condensed consolidated financial statements of Zix Corporation (“Zix” the “Company,” “we,” “our,” or “us”) should be read in conjunction with the audited consolidated financial statements included in the Company’s 2017 Annual Report on Form 10-K. These financial statements are unaudited, but have been prepared in the ordinary course of business for the purpose of providing information with respect to the covered interim periods.

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective transition method. The cumulative effect of applying the standard was a $4.6 million increase to shareholder’s equity as of January 1, 2018. The Company’s condensed consolidated statement of income for the three and nine month periods ended September 30, 2018, and the Company’s condensed consolidated balance sheet at September 30, 2018, are presented under ASC 606, while the Company’s condensed consolidated statement of income for the three and nine month periods ended September 30, 2017, and the Company’s condensed consolidated balance sheet at December 31, 2017, are presented under ASC 605, Revenue Recognition (“ASC 605”). See note 2 for disclosure of the impact of the adoption of ASC 606 on the Company’s condensed consolidated statement of income for the three and nine month periods ended September 30, 2018, and the Company’s condensed consolidated balance sheet at September 30, 2018, and the effect of changes made to the Company’s consolidated balance sheet as of January 1, 2018.

Management of the Company believes that all adjustments necessary for a fair presentation for such periods have been included and are of a normal recurring nature. The results of operations for the three and nine month periods ended September 30, 2018, are not necessarily indicative of the results to be expected for any future periods or for the full fiscal year.

 

 

2. Recent Accounting Standards and Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, which supersedes most prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles (“GAAP”). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASC 606 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than were required under prior U.S. GAAP.

The standard became effective for us beginning in 2018. Our Company provides primarily email encryption and advanced threat protection security solutions as subscription services in which we recognize revenue as our services are rendered. We determined our revenue was not materially impacted by the new guidance. However, the guidance did require us to increase the amortization period of our sales commission expense. We applied the guidance to commissions earned on all contracts that were not complete as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous guidance. Our Company elected to use a portfolio approach, applying 8 year, 4 year, and 18 month amortization periods to our new, add-on, and renewal sales commission expenses, respectively. Determination of the amortization period and the subsequent assessment for impairment of the deferred cost asset requires significant judgement.

We applied a modified retrospective approach to our implementation of ASC 606 in which we recognized a $4.6 million cumulative effect adjustment to our 2018 retained earnings opening balance related to our increased amortization period. This adjustment includes a $1.6 million impact to our deferred tax asset. The table below presents the cumulative effect of the changes made to our condensed consolidated balance sheet due to the adoption of ASC 606:

 

(In thousands)

 

January 1, 2018

 

 

 

Beginning

Balance

 

 

Cumulative

Effect

Adjustment

 

 

Beginning

Balance, as

Adjusted

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

3,222

 

 

$

(415

)

 

$

2,807

 

Other assets and deferred costs

 

 

 

 

 

6,595

 

 

 

6,595

 

Deferred tax assets

 

 

25,647

 

 

 

(1,616

)

 

 

24,031

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(236,372

)

 

$

4,564

 

 

$

(231,808

)

7


 

 

Financial statement results as reported under the new revenue standard as compared to the previous standard for the three and nine months ended and as of September 30, 2018, are as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

(In thousands, except per share data)

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance

 

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance

 

 

Revenues

 

$

17,876

 

 

$

17,876

 

 

$

 

 

$

52,029

 

 

$

52,029

 

 

$

 

 

Cost of revenues

 

 

3,870

 

 

 

3,870

 

 

 

 

 

 

11,189

 

 

 

11,189

 

 

 

 

 

Gross margin

 

 

14,006

 

 

 

14,006

 

 

 

 

 

 

40,840

 

 

 

40,840

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,764

 

 

 

2,764

 

 

 

 

 

 

8,720

 

 

 

8,720

 

 

 

 

 

Selling, general and administrative

 

 

8,650

 

 

 

8,025

 

 

 

(625

)

 

 

26,038

 

 

 

24,139

 

 

 

(1,899

)

 

Total operating expenses

 

 

11,414

 

 

 

10,789

 

 

 

(625

)

 

 

34,758

 

 

 

32,859

 

 

 

(1,899

)

 

Operating income

 

 

2,592

 

 

 

3,217

 

 

 

625

 

 

 

6,082

 

 

 

7,981

 

 

 

1,899

 

 

Other income, net

 

 

183

 

 

 

183

 

 

 

 

 

 

662

 

 

 

662

 

 

 

 

 

Income before income taxes

 

 

2,775

 

 

 

3,400

 

 

 

625

 

 

 

6,744

 

 

 

8,643

 

 

 

1,899

 

 

Income tax expense

 

 

(814

)

 

 

(945

)

 

 

(131

)

 

 

(2,056

)

 

 

(2,455

)

 

 

(399

)

 

Net income

 

$

1,961

 

 

$

2,455

 

 

$

494

 

 

$

4,688

 

 

$

6,188

 

 

$

1,500

 

 

Basic income per common share

 

$

0.04

 

 

$

0.05

 

 

$

0.01

 

 

$

0.09

 

 

$

0.12

 

 

$

0.03

 

 

Diluted income per common share

 

$

0.04

 

 

$

0.05

 

 

$

0.01

 

 

$

0.09

 

 

$

0.12

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

September 30, 2018

 

 

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

3,198

 

 

$

2,826

 

 

$

(372

)

Other assets and deferred costs

 

 

 

 

 

8,647

 

 

 

8,647

 

Deferred tax assets

 

 

22,987

 

 

 

21,371

 

 

 

(1,616

)

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(231,684

)

 

$

(225,620

)

 

$

6,064

 

 

Cash Flow Statement

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU was issued with the intent to reduce diversity in practice with respect to eight types of cash flows. The new guidance addressed debt prepayment or extinguishment of costs, settlement of zero-coupon bonds, contingent consideration made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.

The standard became effective for us beginning 2018. We applied the new guidance within our condensed consolidated statements of cash flows classification to an $800 thousand earn-out payment associated with our Greenview(as defined herein) acquisition. Because this consideration payment was not made soon after the consummation date, as required by the guidance, we classified $605 thousand of the payment as a financing activity. This reflects the portion of the payment recognized a contingent liability as of the acquisition date. The $195 thousand balance of the payment was in excess of the original contingent consideration liability and was classified as an operating activity. The standard had no other impact on our condensed consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which introduces a lessee model that brings most leases on the balance sheet. The new ASU eliminates the requirement in U.S. GAAP that entities use bright-line tests in determining

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lease classifications and requires lessors to provide additional transparency into their exposure to t he changes in value of their residual assets and how they manage that exposure.

The standard is effective for us beginning 2019. We expect the valuation of right to use assets and lease liabilities to be the present value of our forecasted future lease commitments and are assessing the discount rate to be applied in these valuations. We are currently evaluating the potential impact of this new guidance on our consolidated financial statements.

 

 

3. Stock- Based Awards and Stock-Based Employee Compensation Expense

Our stock-based awards include (i) stock options, (ii) restricted stock awards, some of which are subject to time-based vesting (“Restricted Stock”) and some of which are subject to performance-based vesting (“Performance Stock”), and (iii) restricted stock units, some of which are subject to time-based vesting (“RSUs”) and some of which are subject to performance-based vesting (“Performance RSUs”). As of September 30, 2018, the Company had 929,219 stock options outstanding; 1,433,316 non-vested Restricted Stock awards; 211,182 non-vested Performance Stock awards; 72,168 non-vested RSUs; 12,499 non-vested Performance RSUs and 5,886,005 shares of common stock available for grant.

Stock Option Activity    

The following is a summary of all stock option transactions during the three months ended September 30, 2018:

 

 

 

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

(Yrs)

 

Outstanding at June 30, 2018

 

 

987,234

 

 

$

3.16

 

 

 

 

 

Granted at market price

 

 

 

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(58,015

)

 

 

2.18

 

 

 

 

 

Outstanding at September 30, 2018

 

 

929,219

 

 

$

3.22

 

 

 

4.98

 

Options exercisable at September 30, 2018

 

 

804,219

 

 

$

3.13

 

 

 

4.58

 

 

At September 30, 2018, all 929,219 stock options outstanding and all 804,219 stock options exercisable had an exercise price lower than the market price of the Company’s common stock on that date. The aggregate intrinsic value of these stock options were $2.2 million and $1.9 million, respectively.        

Restricted Stock Activity

The following is a summary of Restricted Stock activity during the three months ended September 30, 2018:

 

 

 

Restricted

Shares

 

 

Weighted

Average

Fair Value

 

Non-vested restricted stock at June 30, 2018

 

 

1,503,855

 

 

$

4.54

 

Granted at market price

 

 

5,000

 

 

 

5.77

 

Vested

 

 

(46,538

)

 

 

4.08

 

Cancelled

 

 

(29,001

)

 

 

4.80

 

Non-vested restricted stock at September 30, 2018

 

 

1,433,316

 

 

$

4.56

 

 

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Restricted Stock Unit Activity

The following is a summary of all RSU activity during the three months ended September 30, 2018:

 

 

 

Restricted

Stock Units

 

 

Weighted

Average

Fair Value

 

Non-vested restricted stock units at June 30, 2018

 

 

72,168

 

 

$

4.59

 

Granted at market price

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Cancelled

 

 

 

 

 

 

Non-vested restricted stock units at September 30, 2018

 

 

72,168

 

 

$

4.59

 

 

Performance RSU Activity

The following is a summary of all Performance RSU activity during the three months ended September 30, 2018:

 

 

 

Performance

RSUs

 

 

Weighted

Average

Fair Value

 

Non-vested performance RSUs at June 30, 2018

 

 

12,499

 

 

$

4.20

 

Granted at market price

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Non-vested performance RSUs at September 30, 2018

 

 

12,499

 

 

$

4.20

 

 

Performance Stock Activity

The following is a summary of all Performance Stock activity during the three months ended September 30, 2018:

 

 

 

Performance

Stock

 

 

Weighted

Average

Fair Value

 

Non-vested performance stock at June 30, 2018

 

 

211,182

 

 

$

4.25

 

Granted at market price

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Non-vested performance stock at September 30, 2018

 

 

211,182

 

 

$

4.25

 

 

The weighted average grant-date fair value of awards of Restricted Stock, RSUs, Performance RSUs and Performance Stock is based on the quoted market price of the Company’s common stock on the date of grant.

Stock-Based Compensation Expense

For the three month period ended September 30, 2018, the total stock-based employee compensation expense resulting from stock options, Restricted Stock, RSUs, Performance RSUs and Performance Stock was recorded to the following line items of the Company’s condensed consolidated statements of income:

 

(In thousands)

 

Three Months

Ended September 30,

2018

 

 

Nine Months

Ended September 30,

2018

 

Cost of revenues

 

$

91

 

 

$

238

 

Research and development

 

 

130

 

 

 

333

 

Selling, general and administrative

 

 

680

 

 

 

1,802

 

Stock-based compensation expense

 

$

901

 

 

$

2,373

 

 

A deferred tax asset totaling $473 thousand and $603 thousand, resulting from stock-based compensation expense associated with awards relating to the Company’s U.S. operations, was recorded for the nine month periods ended September 30, 2018 and 2017, respectively. As of September 30, 2018, there was $6.2 million of total unrecognized stock-based compensation expense related to

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non-vested stock-based compensation awards granted under the incentive plans. This expense is expected to be recognized over a weighted average period of 1.52 years.

For additional information regarding the Company’s Equity Awards and Stock-based Employee Compensation, see Note 3 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

 

4. Supplemental Cash Flow Information

Supplemental cash flow information relating to taxes activities:

 

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2018

 

 

2017

 

Cash income tax payments

 

$

655

 

 

$

465

 

 

 

5. Receivables, net

 

(In thousands)

 

September 30,

2018

 

 

December 31,

2017

 

Gross accounts receivables

 

$

15,433

 

 

$

9,307

 

Allowance for returns and doubtful accounts

 

 

(296

)

 

 

(270

)

Unpaid portion of deferred revenue

 

 

(11,915

)

 

 

(7,648

)

Note receivable

 

 

458

 

 

 

458

 

Allowance for note receivable

 

 

(458

)

 

 

(458

)

Receivables, net

 

$

3,222

 

 

$

1,389

 

 

The allowance for