UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2015

¨

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

Commission File Number: 001-36373

 

TriNet Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

95-3359658

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1100 San Leandro Blvd., Suite 400

San Leandro, CA 94577

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (510) 352-5000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

¨

Accelerated filer

¨

 

Non-accelerated filer

x (do not check if a smaller reporting company)

Smaller reporting company

¨

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

As of April 30, 2015, the registrant had 70,212,084 shares of common stock outstanding.

 

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Unaudited Consolidated Financial Statements

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Income (Loss)

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited 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

32

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

49

Signatures

50

Exhibit Index

51

 

 

 

 


PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

TriNet Group, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

104,401

 

 

$

134,341

 

Restricted cash

 

14,546

 

 

 

14,543

 

Prepaid income taxes

 

10,411

 

 

 

26,711

 

Prepaid expenses

 

10,001

 

 

 

9,336

 

Deferred loan costs and other current assets

 

4,570

 

 

 

4,271

 

Worksite employee related assets

 

922,619

 

 

 

1,635,136

 

Total current assets

 

1,066,548

 

 

 

1,824,338

 

Workers compensation receivable

 

54,130

 

 

 

31,905

 

Restricted cash and investments

 

73,964

 

 

 

69,447

 

Property and equipment, net

 

33,769

 

 

 

32,298

 

Goodwill

 

288,857

 

 

 

288,857

 

Other intangible assets, net

 

70,501

 

 

 

81,718

 

Deferred and other long term income taxes

 

21,586

 

 

 

7,184

 

Deferred loan costs and other assets

 

10,860

 

 

 

12,017

 

Total assets

$

1,620,215

 

 

$

2,347,764

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

11,182

 

 

$

12,273

 

Accrued corporate wages

 

27,415

 

 

 

29,179

 

Deferred income taxes

 

65,713

 

 

 

65,713

 

Current portion of notes payable and borrowings under capital leases

 

20,305

 

 

 

20,738

 

Other current liabilities

 

10,784

 

 

 

10,303

 

Worksite employee related liabilities

 

915,985

 

 

 

1,630,555

 

Total current liabilities

 

1,051,384

 

 

 

1,768,761

 

Notes payable and borrowings under capital leases, less current portion

 

494,533

 

 

 

524,412

 

Workers compensation liabilities

 

82,748

 

 

 

75,448

 

Other liabilities

 

6,649

 

 

 

4,902

 

Total liabilities

 

1,635,314

 

 

 

2,373,523

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Preferred stock, $.000025 per share stated value; 20,000,000 shares authorized;

   no shares issued and outstanding at March 31, 2015 and December 31, 2014

 

 

 

 

 

Common stock, $.000025 per share stated value; 750,000,000 shares authorized;

   70,076,978 and 69,811,326 shares issued and outstanding at March 31, 2015

   and December 31, 2014, respectively

 

462,655

 

 

 

442,682

 

Accumulated deficit

 

(477,341

)

 

 

(468,127

)

Accumulated other comprehensive loss

 

(413

)

 

 

(314

)

Total stockholders’ deficit

 

(15,099

)

 

 

(25,759

)

Total liabilities and stockholders’ deficit

$

1,620,215

 

 

$

2,347,764

 

 

See accompanying notes.

 

 

3


TriNet Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2015

 

 

 

2014

 

Professional service revenues

 

$

97,016

 

 

$

82,875

 

Insurance service revenues

 

 

528,562

 

 

 

426,037

 

Total revenues

 

 

625,578

 

 

 

508,912

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Insurance costs

 

 

483,203

 

 

 

381,157

 

Cost of providing services (exclusive of depreciation and

   amortization of intangible assets)

 

 

36,370

 

 

 

33,643

 

Sales and marketing

 

 

37,624

 

 

 

31,837

 

General and administrative

 

 

15,464

 

 

 

14,337

 

Systems development and programming costs

 

 

7,225

 

 

 

5,894

 

Amortization of intangible assets

 

 

11,217

 

 

 

13,549

 

Depreciation

 

 

3,434

 

 

 

3,218

 

Total costs and operating expenses

 

 

594,537

 

 

 

483,635

 

Operating income

 

 

31,041

 

 

 

25,277

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense and bank fees

 

 

(5,204

)

 

 

(21,852

)

Other, net

 

 

450

 

 

 

103

 

Income before provision for income taxes

 

 

26,287

 

 

 

3,528

 

Provision for income taxes

 

 

10,476

 

 

 

1,988

 

Net income

 

$

15,811

 

 

$

1,540

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

 

$

0.03

 

Diluted

 

$

0.22

 

 

$

0.03

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

70,198,184

 

 

 

16,775,513

 

Diluted

 

 

73,350,219

 

 

 

19,397,777

 

 

See accompanying notes.

 

 

 

4


TriNet Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2015

 

 

 

2014

 

Net income

 

$

15,811

 

 

$

1,540

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Unrealized gains on investments

 

 

37

 

 

 

16

 

Foreign currency translation adjustments

 

 

(136

)

 

 

(42

)

Total other comprehensive loss, net of tax

 

 

(99

)

 

 

(26

)

Comprehensive income

 

$

15,712

 

 

$

1,514

 

 

See accompanying notes.

 

 

 

5


TriNet Group, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2015

 

 

 

2014

 

Operating activities

 

 

 

Net income

 

$

15,811

 

 

$

1,540

 

Adjustments to reconcile net income to net cash provided by  operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,741

 

 

 

22,028

 

Deferred income taxes

 

 

 

 

 

1,412

 

Stock-based compensation

 

 

3,920

 

 

 

2,147

 

Excess tax benefit from equity incentive plan activity

 

 

(12,853

)

 

 

(1,753

)

Accretion of workers compensation and leases fair value adjustment

 

 

(88

)

 

 

(347

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

(4,520

)

 

 

(3,961

)

Prepaid expenses and other current assets

 

 

(2,181

)

 

 

(1,411

)

Workers compensation receivables

 

 

(22,100

)

 

 

3,379

 

Other assets

 

 

(13,259

)

 

 

4,033

 

Accounts payable

 

 

(1,352

)

 

 

2,078

 

Income tax payable/receivable

 

 

29,153

 

 

 

(3,789

)

Other current liabilities

 

 

(211

)

 

 

1,532

 

Other liabilities

 

 

9,110

 

 

 

4,869

 

Worksite employee related assets

 

 

712,517

 

 

 

108,637

 

Worksite employee related liabilities

 

 

(714,570

)

 

 

(110,057

)

Net cash provided by operating activities

 

 

14,118

 

 

 

30,337

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of debt securities

 

 

 

 

 

(1,000

)

Purchase of property and equipment

 

 

(4,644

)

 

 

(5,064

)

Net cash used in investing activities

 

 

(4,644

)

 

 

(6,064

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

218,859

 

Proceeds from issuance of common stock on exercised options

 

 

3,199

 

 

 

494

 

Excess tax benefit from equity incentive plan activity

 

 

12,853

 

 

 

1,753

 

Repayment of notes payable

 

 

(30,125

)

 

 

(216,575

)

Repayments under capital leases

 

 

(180

)

 

 

(66

)

Repurchase of common stock

 

 

(25,025

)

 

 

(451

)

Net cash provided by (used in) financing activities

 

 

(39,278

)

 

 

4,014

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(136

)

 

 

(42

)

Net increase (decrease) in cash and cash equivalents

 

 

(29,940

)

 

 

28,245

 

Cash and cash equivalents at beginning of period

 

 

134,341

 

 

 

94,356

 

Cash and cash equivalents at end of period

 

$

104,401

 

 

$

122,601

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

(3,872

)

 

$

(9,093

)

Cash received (paid) for income taxes, net

 

$

4,357

 

 

$

(4,352

)

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

 

 

Payable for purchase of property and equipment

 

$

1,034

 

 

$

632

 

 

See accompanying notes.

 

 

 

6


TriNet Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

TriNet Group, Inc. (the Company or TriNet), a Delaware corporation incorporated in January 2000, provides a comprehensive human resources solution for small to medium-sized businesses. The Company’s solution includes payroll processing, human capital consulting, employment law compliance and employee benefits, including health insurance, retirement plans and workers compensation insurance.

The Company provides its services through co-employment relationships with its customers, under which the Company and its customers each take responsibility for certain portions of the employer-employee relationship for worksite employees (WSEs). The Company is the employer of record for most administrative and regulatory purposes, including the following: (i) compensation through wages and salaries; (ii) employer payroll-related taxes payment; (iii) employee payroll-related taxes withholding and payment; (iv) employee benefit programs including health and life insurance, and others; and (v) workers compensation coverage.     

Segment Information

The Company operates in one reportable segment in accordance with Accounting Standard Codification (ASC) 280 – Segment Reporting, issued by the Financial Accounting Standards Board (FASB). All of the Company’s service revenues are generated from external customers. Less than 1% of revenues is generated outside of the United States of America (U.S.). Substantially all of the Company’s long-lived assets are located in the U.S.

Basis of Presentation

The accompanying unaudited consolidated financial statements and footnotes thereto of the Company and its wholly owned subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 30, 2015. There have been no changes to the Company’s significant accounting policies described in the Annual Report that have had a material impact on our consolidated financial statements and related notes. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated balance sheets present the current assets and current liabilities directly related to the processing of human resources transactions as WSE-related assets and WSE-related liabilities, respectively. WSE-related assets are comprised of cash and investments restricted for current workers compensation claim payments, payroll funds collected, accounts receivable, unbilled service revenues, and refundable or prepaid amounts related to the Company-sponsored workers compensation and health plan programs. WSE-related liabilities are comprised of customer prepayments, wages and payroll taxes accrued and payable, and liabilities related to the Company-sponsored workers compensation and health plan programs resulting from workers compensation case reserves, premium amounts due to providers for enrolled employees, and workers compensation and health reserves that are expected to be disbursed within the next 12 months.

The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation. The results of the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

 

Seasonality

Historically, the Company has experienced its highest monthly addition of WSEs, as well as its highest monthly levels of client attrition, in the month of January, primarily because clients that change their payroll service providers tend to do so at the beginning of a calendar year. In addition, the Company experiences higher levels of client attrition in connection with renewals of the health insurance it provides for its WSEs, in the event that such renewals result in increased premiums that it passes on to its clients. The Company has also historically experienced higher insurance claim volumes in the second and third quarters of a fiscal year than in the first and fourth quarters of a fiscal year, as WSEs typically access their health care providers more often in the second and third quarters of a fiscal year, which has negatively impacted the Company’s insurance costs in these quarters. These historical trends may change, and other seasonal trends may develop that make it more difficult for the Company to manage its business.

7


Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates include, but are not limited to, allowances for accounts receivable, workers compensation related assets and liabilities, health plan assets and liabilities, recoverability of goodwill and other intangible assets, income taxes, stock-based compensation and other contingent liabilities. Such estimates are based on historical experience and on various other assumptions that Company management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In January 2015, the FASB issued Accounting Standards Update (ASU) 2015-01— Income Statement-Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). ASU 2015-01 became effective on January 9, 2015. The amendment eliminates from GAAP the concept of extraordinary items. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company adopted this guidance in 2014. The adoption did not have an effect on the consolidated financial statements.

In November 2014, the FASB issued ASU 2014-17— Business Combinations, which provides an acquired entity with an option to apply pushdown accounting in its financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. ASU 2014-17 became effective on November 28, 2014. An acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The Company adopted this guidance in 2014. The adoption did not have an effect on the consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15—Presentation of Financial Statements — Going Concern (Subtopic 205-40), which addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12—Compensation - Stock Compensation, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The amendments may be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented. The Company does not expect this guidance to have a material effect on its consolidated financial statements. The Company expects to adopt this guidance in 2016.

In May 2014, the FASB issued ASU 2014-09—Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step analysis of transactions to determine when and how revenue is recognized. ASU 2014-09 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The amendments may be applied retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company expects to adopt this guidance in 2017. The Company has not yet selected a method of adoption and is currently evaluating the effect that the amendments will have on the consolidated financial statements.

 

 

8


NOTE 2. WORKSITE EMPLOYEE-RELATED ASSETS AND LIABILITIES

The following schedule presents the components of the Company’s WSE-related assets and WSE-related liabilities (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Worksite employee-related assets:

 

 

 

 

 

 

 

Restricted cash

$

78,763

 

 

$

64,890

 

Restricted investment

 

2,441

 

 

 

4,555

 

Payroll funds collected

 

502,306

 

 

 

1,336,994

 

Unbilled revenue, net of advance collections of $59,877 and $113,190 at March 31, 2015

     and December 31, 2014, respectively

 

309,327

 

 

 

203,599

 

Accounts receivable, net of allowance for doubtful accounts of $288 and $388 at

    March 31, 2015 and December 31, 2014, respectively

 

11,253

 

 

 

5,193

 

Prepaid health plan expenses

 

5,527

 

 

 

4,932

 

Refundable workers compensation premiums

 

5,385

 

 

 

7,975

 

Prepaid workers compensation expenses

 

1,562

 

 

 

1,256

 

Other payroll assets

 

6,055

 

 

 

5,742

 

Total worksite employee-related assets

$

922,619

 

 

$

1,635,136

 

 

 

 

 

 

 

 

 

Worksite employee-related liabilities:

 

 

 

 

 

 

 

Unbilled wages accrual

$

345,955

 

 

$

292,906

 

Payroll taxes payable

 

326,665

 

 

 

1,119,427

 

Health benefits payable

 

105,235

 

 

 

104,220

 

Customer prepayments

 

48,549

 

 

 

53,770

 

Workers compensation payable

 

61,591

 

 

 

36,778

 

Other payroll deductions

 

27,990

 

 

 

23,454

 

Total worksite employee-related liabilities

$

915,985

 

 

$

1,630,555

 

 

 

 

 

NOTE 3. WORKERS COMPENSATION

The Company has agreements with various insurance carriers to provide workers compensation insurance coverage for worksite employees. Insurance carriers are responsible for administrating and paying claims. The Company is responsible for reimbursing each carrier up to a deductible limit per occurrence.

The following summarizes the activities in liability for unpaid claims and claims adjustment expenses (in thousands):

 

 

Three months

ended March 31,

 

 

Year ended

December 31,

 

 

2015

 

 

2014

 

Liability for unpaid claims and claims adjustment at beginning of period

$

92,406

 

 

$

58,610

 

Incurred related to:

 

 

 

 

 

 

 

Current year

 

19,865

 

 

 

61,669

 

Prior years

 

2,736

 

 

 

(4,725

)

Total incurred

 

22,601

 

 

 

56,944

 

Paid related to:

 

 

 

 

 

 

 

Current year

 

(5,947

)

 

 

(13,525

)

Prior years

 

(3,312

)

 

 

(9,623

)

Total paid

 

(9,259

)

 

 

(23,148

)

Liability for unpaid claims and claims adjustment at end of period

 

105,748

 

 

 

92,406

 

Other premiums and collateral liabilities

 

38,591

 

 

 

19,820

 

Total workers compensation liabilities at end of period

$

144,339

 

 

$

112,226

 

Current portion included in worksite employee-related liability

 

61,591

 

 

 

36,778

 

Long term portion

$

82,748

 

 

$

75,448

 

 

Under the terms of its agreements with its workers compensation insurance carriers, the Company collects and holds premiums in restricted accounts pending claims payments by the claims administrator. As of March 31, 2015 and December 31, 2014, such restricted amounts of $44.2 million and $36.5 million, respectively, are presented as restricted cash and restricted investment within WSE-related assets in the accompanying consolidated balance sheets. In addition at March 31, 2015 and December 31, 2014, $74.0 million and $69.4 million, respectively, are presented as restricted long-term investments.

9


 

 

NOTE 4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consist of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Software

$

53,939

 

 

$

53,349

 

Office equipment, including data processing equipment

 

18,458

 

 

 

18,550

 

Leasehold improvements

 

9,341

 

 

 

7,092

 

Furniture, fixtures, and equipment

 

6,507

 

 

 

6,450

 

Projects in progress

 

8,508

 

 

 

6,786

 

 

 

96,753

 

 

 

92,227

 

Accumulated depreciation

 

(62,984

)

 

 

(59,929

)

Property and equipment, net

$

33,769

 

 

$

32,298

 

 

Software and furniture, fixtures, and equipment include amounts for assets under capital leases of $1.2 million and $1.4 million at March 31, 2015 and December 31, 2014, respectively. Accumulated depreciation of these assets was $0.9 million and $0.9 million at March 31, 2015 and December 31, 2014, respectively. Amortization of assets held under capital leases is included with depreciation expense in the accompanying consolidated statements of operations.

Projects in progress consist primarily of software development costs. The Company capitalizes software development costs intended for internal use. The Company recognized depreciation expense for capitalized internally developed software of $1.1 million and $1.6 million for the three months ended March 31, 2015 and 2014, respectively. Accumulated depreciation for these assets was $30.5 million and $29.4 million at March 31, 2015 and December 31, 2014, respectively.

 

 

NOTE 5. MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The Company’s noncurrent restricted cash and investments include $50.5 million of available-for-sale marketable securities and $23.5 million of cash collateral at March 31, 2015. The Company’s restricted investments within WSE-related assets include $0.1 million of available-for-sale marketable securities and $2.3 million of certificates of deposit as of March 31, 2015. The available-for-sale marketable securities as of March 31, 2015 and December 31, 2014 consist of the following (in thousands):

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

$

50,011

 

 

$

67

 

 

$

 

 

$

50,078

 

Mutual funds

 

500

 

 

 

8

 

 

 

 

 

 

508

 

Total investments

$

50,511

 

 

$

75

 

 

$

 

 

$

50,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

$

50,075

 

 

$

22

 

 

$

(15

)

 

$

50,082

 

Mutual funds

 

500

 

 

 

6

 

 

 

 

 

 

506

 

Total investments

$

50,575

 

 

$

28

 

 

$

(15

)

 

$

50,588

 

 

There were no realized gains or losses for the three months ended March 31, 2015 and 2014. As of March 31, 2015 and December 31, 2014, the contractual maturities of the U.S. treasuries were two to three years.

As of March 31, 2015, certain of the Company’s U.S. treasuries were in unrealized loss position, all for a period of less than 12 months. These unrealized losses are principally due to changes in interest rates and credit spreads. In analyzing an issuer’s financial condition, the Company considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. The fair value of these securities in an unrealized loss position represented 1.6% and 59% of the total fair value of all securities available for sale and their unrealized losses were de minimis as of March 31, 2015 and December 31, 2014. As the Company has the ability to hold debt securities until maturity, or for the foreseeable future as classified as available for sale, no decline was deemed to be other-than-temporary.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

10


As a basis for considering such assumptions, the Company uses a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

·

Level I—observable inputs such as quoted prices in active markets

·

Level II—inputs other than the quoted prices in active markets that are observable either directly or indirectly

·

Level III—unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions

This hierarchy requires the Company to use observable market data when available and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures its financial assets at fair value.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis (in thousands):

 

 

Total

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

$

2,318

 

 

$

2,318

 

 

$

 

 

$

 

U.S. treasuries

 

50,078

 

 

 

50,078

 

 

 

 

 

 

 

Mutual funds

 

508

 

 

 

508

 

 

 

 

 

 

 

Total

$

52,904

 

 

$

52,904

 

 

$

 

 

$

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

$

2,318

 

 

$

2,318

 

 

$

 

 

$

 

U.S. treasuries

 

50,082

 

 

 

50,082

 

 

 

 

 

 

 

Mutual funds

 

506

 

 

 

506

 

 

 

 

 

 

 

Interest rate cap

 

1

 

 

 

-

 

 

 

1

 

 

 

 

Total

$

52,907

 

 

$

52,906

 

 

$

1

 

 

$

 

 

There were no transfers between Level I and Level II assets during the three months ended March 31, 2015 or the year ended December 31, 2014.

As of March 31, 2015 and December 31, 2014, certificates of deposit consisted of certificates of deposit held by domestic financial institutions, which are presented as restricted investments within WSE-related assets in the accompanying consolidated balance sheets.

The book value of the Company’s financial instruments not measured at fair value, including cash, restricted cash, WSE-related assets and liabilities, line of credit and accrued corporate wages, approximates fair value due to the relatively short maturity, cash repayments or market interest rates of such instruments. The fair value of such financial instruments, other than cash and restricted cash, is determined using the income approach based on the present value of estimated future cash flows. The fair value of all of these instruments would be categorized as Level II of the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level I.

At March 31, 2015 and December 31, 2014, the carrying value of our notes payable of $514.7 million and $544.9 million, respectively, approximated fair value. The estimated fair values of our notes payable are considered a Level II valuation in the hierarchy for fair value measurement and are based on a cash flow model discounted at market interest rates that considers the underlying risks of unsecured debt.

 

 

NOTE 6. NOTES PAYABLE AND BORROWINGS UNDER CAPITAL LEASES

The following schedule summarizes the components of the Company’s notes payable and borrowings under capital leases balances (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Notes payable under credit facility

$

514,740

 

 

$

544,875

 

Capital leases

 

98

 

 

 

275

 

Less current portion

 

(20,305

)

 

 

(20,738

)

 

$

494,533

 

 

$

524,412

 

 

In March 2014, the proceeds from the Company’s initial public offering (IPO) were used to fully repay its existing $190.0 million second lien credit facility, which resulted in a prepayment premium of $3.8 million, and to repay $25.0 million of its existing first lien tranche B-1 term loan. Additionally, the remaining balance of the loan fees associated with the second lien credit facility and

11


a portion of the loan fees associated with the first lien credit facility were fully amortized in March 2014 for a charge of $5.0 million. In May 2014, the Company repaid $25.0 million of the first lien tranche B-1 term loan. As a result, a portion of the loan fees associated with the first lien credit facility was fully amortized in May 2014 for a charge of $0.5 million.

On July 9, 2014, the Company amended and restated its first lien credit facility pursuant to an amended and restated first lien credit agreement (the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement provides for: (i) $375 million principal amount of tranche A term loans, (ii) $200 million principal amount of tranche B term loans, and (iii) a revolving credit facility of $75 million. The proceeds of the tranche A term loans were used to refinance in part the tranche B-2 term loans outstanding under the original first lien credit facility. The proceeds of the tranche B term loans were used to (i) refinance the remaining tranche B-2 term loans outstanding under the original first lien credit facility, (ii) refinance other amounts outstanding under the original first lien credit facility and (iii) pay fees and expenses related thereto. The revolving credit facility replaced the revolving credit facility under the original first lien credit facility.

The tranche A term loans and the revolving credit facility will mature on July 9, 2019. The tranche B term loans will mature on July 9, 2017. Loans under the revolving credit facility are expected to be used for working capital and other general corporate purposes.

The tranche A term loans and loans under the revolving credit facility bear interest, at the Company’s option, at a rate equal to either the LIBOR rate, plus an applicable margin equal to 2.75% per annum, or the prime lending rate, plus an applicable margin equal to 1.75% per annum. The applicable margins for the tranche A term loans and loans under the revolving credit facility are subject to reduction by 0.25% or 0.50%, or increase by 0.25%, based upon the Company’s total leverage ratio. The tranche B term loans bear interest, at the Company’s option, at a rate equal to either the LIBOR rate, plus an applicable margin equal to 2.75% per annum or the prime lending rate, plus an applicable margin equal to 1.75% per annum. The Company is required to pay a commitment fee of 0.50%, subject to decrease to 0.375% based on our total leverage ratio, on the daily unused amount of the commitments under the revolving credit facility, as well as fronting fees and other customary fees for letters of credit issued under the revolving credit facility.

The Company is permitted to make voluntary prepayments at any time without payment of a premium. The Company is required to make mandatory prepayments of term loans (without payment of a premium) with (i) net cash proceeds from issuances of debt (other than certain permitted debt), (ii) net cash proceeds from certain non-ordinary course asset sales and casualty and condemnation proceeds (subject to reinvestment rights and other exceptions), and (iii) beginning with the fiscal year ending December 31, 2015, 50% of our excess cash flow (subject to decrease to (x) 25% if our total leverage ratio as of the last day of such fiscal year is less than 3.75 to 1.0 and equal to or greater than 3.00 to 1.0, and (y) 0% if the total leverage ratio as of the last day of such fiscal year is less than 3.00 to 1.0), provided that the Company may defer prepayments based on excess cash flow to the extent such payments would result the working capital being less than $10 million (after giving effect to such prepayments).

The tranche A term loans will be paid in equal quarterly installments in an aggregate annual amount equal to: (i) beginning on December 31, 2014 to December 31, 2016, 5% of the original principal amount thereof, (ii) beginning on December 31, 2016 to December 31, 2018, 7.5% of the original principal amount thereof, and (iii) beginning on December 31, 2018 to June 30, 2019, 10% of the original principal amount thereof with any remaining balance payable on the final maturity date of the tranche A term loans. The tranche B term loans will be paid in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount thereof, with any remaining balance payable on the final maturity date of the tranche B term loans.

The $75.0 million revolving credit facility includes capacity for a $30.0 million letter of credit facility and a $10.0 million swingline facility. The total unused portion of the revolving credit facility was $59.5 million as of March 31, 2015. In connection with the Amended and Restated Credit Agreement, the Company incurred $11.1 million of debt issuance costs. The Company deferred $8.0 million of the costs, which are being amortized over the term of the credit facility.  The remaining $3.1 million of costs were recorded to interest expense and bank fees.  Additionally, the Company recorded a $9.0 million loss on extinguishment of debt to write-off deferred issuance costs associated with the original first lien credit facility, which was also recorded to interest expense and bank fees.  The remaining $6.1 million of loan fees associated with the previous facility that was deemed to be modified continues to be amortized over the revised remaining term of the Amended and Restated Credit Agreement.

In March 2015, the Company repaid $25.0 million of the first lien tranche B-1 term loan. As a result, a portion of the loan fees associated with the first lien credit facility was fully amortized in March 2015 for a charge of $0.4 million.

The Amended and Restated Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions. The Amended and Restated Credit Agreement also contains financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of at least 3.50 to 1.00, beginning with the fiscal quarter ending September 30, 2014, and a maximum total leverage ratio, currently at 5.00 to 1.00. The Company was in compliance with the restrictive covenants under the credit facilities at March 31,

12


2015. The credit facility is secured by substantially all of the Company’s assets and the assets of the borrower and of the subsidiary guarantors, other than specifically excluded assets.

 

 

NOTE 7: STOCKHOLDERS’ EQUITY

Common Stock

Upon closing of the IPO on March 31, 2014, the Company issued 15,000,000 shares of common stock at a public offering price of $16 per share, for an aggregate offering price of $240 million, resulting in net proceeds to the Company of $217.8 million, after deducting the underwriting discount of approximately $16.8 million and offering expenses of approximately $5.6 million.

In February 2014, the Company issued 91,074 shares to a member of the Board of Directors at $10.98 per share, which was the then estimated fair market value, for an aggregate of $1 million in cash.

Equity-Based Incentive Plans

In 2000, the Company established the 2000 Equity Incentive Plan (the 2000 Plan), which provided for granting incentive stock options, nonstatutory stock options, bonus awards and restricted stock awards to eligible employees, directors, and consultants of the Company. In December 2009, the Board of Directors approved the 2009 Equity Incentive Plan (the 2009 Plan) as the successor to and continuation of the 2000 Plan. As of the 2009 Plan effective date, remaining shares available for issuance under the 2000 Plan were cancelled and became available for issuance under the 2009 Plan. No additional stock awards will be granted under the 2000 Plan. The 2009 Plan provides for the grant of the following awards to eligible employees, directors, and consultants: incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other stock awards. Incentive stock options may only be granted to employees. Nonemployee directors are eligible to receive nonstatutory stock options automatically at designated intervals over their period of continuous service on the Board. The amended 2009 Plan provides that the number of shares reserved for issuance under the 2009 Plan will increase on January 1 of each year for a period of up to five years by 4.5% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, which will begin on January 1, 2015 and continue through January 1, 2019. On January 1, 2015, 3,141,509 shares were automatically reserved for issuance under the amended 2009 Plan.

The exercise price per share of all incentive stock options granted under the 2000 Plan and the 2009 Plan must be at least equal to the fair market value of the shares at the date of grant as determined by the Board of Directors. Options issued to recipients other than nonemployee directors generally vest over four years with a one year cliff and monthly thereafter, and have a maximum contractual term of 10 years. Incentive stock options granted at 110% of the fair market value to stockholders who have greater than 10% ownership have a maximum term of five years.

The Company also has granted restricted stock units (RSUs) to members of the Board of Directors and certain executives. These RSUs represent rights to receive shares of the Company’s common stock on satisfaction of applicable vesting conditions. The fair value of RSUs is equal to the fair value of the Company’s common stock on the date of grant. The RSUs granted to the members of the Board of Directors vest a year from the grant date. The RSUs granted to employees vest at a rate of 1/16 of the total RSUs granted on the 15th day of the second month of each calendar quarter following the grant date.

In March 2015, the Company granted performance-based restricted stock units (PSUs) to its executives intended to represent 33.3% of each executive’s annual long-term incentive compensation award value in fiscal 2015. These PSUs vest over three years based on the Company’s attainment of annual financial performance goals as well as the executive’s continued employment through each vesting date. The number of shares that ultimately vest each year will range from 0 to 200% of the annual target amount, based on the Company’s performance. Cumulative financial performance metrics and goals are established for these awards at the grant date and the tranche of each award related to that period’s performance goal is treated as a separate grant for accounting purposes. The financial performance metric established for the performance awards is cumulative annual growth rate in the Company’s net service revenues. These values are being recognized over the tranches’ 12-month, 24-month and 36-month service periods. The Company began recording stock-based compensation expense for these tranches in March 2015, when the financial performance goals were established.

13


Equity incentive plan activity under the 2000 Plan and the 2009 Plan for the three months ended March 31, 2015 is summarized as follows:

 

   Equity Incentive Plan Activity

Shares Available for Grant

 

Balance at December 31, 2014

 

2,708,524

 

Authorized

 

3,141,509

 

Granted

 

(1,178,751

)

Forfeited

 

343,126

 

Expired

 

 

Balance at March 31, 2015

 

5,014,408

 

 

The following table summarizes stock option activity under the Company’s equity-based plans for the three months ended March 31, 2015:

 

   Stock Options Activity

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Balance at December 31, 2014

 

6,892,810

 

 

$

6.13

 

 

 

8.22

 

 

$

173,338

 

Granted

 

272,200

 

 

 

33.51

 

 

 

 

 

 

 

 

 

Exercised

 

(990,821

)

 

 

3.34

 

 

 

 

 

 

 

 

 

Forfeited

 

(342,626

)

 

 

6.45

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2015

 

5,831,563

 

 

$

7.87

 

 

 

8.15

 

 

 

159,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2015

 

1,802,963

 

 

$

4.02

 

 

 

7.52

 

 

 

56,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at March 31, 2015

 

5,509,233

 

 

$

7.51

 

 

 

8.12

 

 

$

152,709

 

 

The weighted-average grant date fair value of stock options granted in each of the three months ended March 31, 2015 and March 31, 2014 was $13.55 and $6.18 per share, respectively. The total fair value of options vested for the three months ended March 31, 2015 and March 31, 2014 was $4.4 million and $3.4 million, respectively.

The total intrinsic value of options exercised for the three months ended March 31, 2015 and March 31, 2014 was $30.2 million and $6.2 million, respectively.  Cash received from options exercised during the three months ended March 31, 2015 and March 31, 2014 was $3.2 million and $0.5 million, respectively. The exercise price of all options granted was equal to the fair value of the common stock on the date of grant.

As of March 31, 2015, unrecognized compensation expense, net of forfeitures, associated with nonvested options outstanding was $22.4 million and is expected to be recognized over a weighted-average period of 2.02 years.

The following table summarizes RSUs activity under the Company’s equity-based plans for the three months ended March 31, 2015:

 

   Restricted Stock Unit Activity

Number of Units

 

 

Weighted-Average

Grant Date

Fair Value

 

Nonvested at December 31, 2014

 

7,750

 

 

$

13.21

 

Granted

 

733,265

 

 

$

33.49

 

Vested

 

(750

)

 

$

13.21

 

Forfeited

 

(500

)

 

$

33.51

 

Nonvested at March 31, 2015

 

739,765

 

 

$

33.30

 

 

The total grant date fair value of RSUs granted in the three months ended March 31, 2015 was $24.6 million.  The total grant date fair value of RSUs vested in the three months ended March 31, 2015 was de minimis. As of March 31, 2015, unrecognized compensation expense, net of forfeitures, associated with the nonvested RSUs outstanding was $23.9 million, and is expected to be recognized over a weighted-average period of 3.68 years.

14


The following table summarizes PSUs activity under the Company’s equity-based plans for the three months ended March 31, 2015:

 

Performance Based Restricted Stock Unit Activity

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Grant Date

 

 

Number of Units

 

 

Fair Value

 

Outstanding units at December 31, 2014

 

 

 

$

 

Granted

 

173,286

 

 

$

33.51

 

Units converted

 

 

 

$

 

Forfeited

 

 

 

$

 

Outstanding units at March 31, 2015

 

173,286

 

 

$

33.51

 

 

The maximum total grant date fair value of PSUs granted in the three months ended March 31, 2015 was $5.8 million,  assuming maximum 200% performance target is met.  As of March 31, 2015, unrecognized compensation expense assuming a 100% performance target is met, net of forfeitures, was $2.5 million, and is expected to be recognized over a weighted-average period of 2.75 years.         

Employee Stock Purchase Plan

The Company adopted the 2014 Employee Stock Purchase Plan (ESPP) in February 2014, which became effective on March 26, 2014. The ESPP was approved with a reserve of 1.1 million shares of common stock for future issuance under various terms provided for in the ESPP, which will automatically increase on January 1 of each year from 2015 through 2024 by the lesser of 1% of the total number of shares outstanding on December 31 of the preceding calendar year or 1,800,000 shares. On January 1, 2015, an additional 698,113 shares were automatically reserved for issuance under the ESPP. We commenced our first purchase period under the ESPP on March 26, 2014 with a purchase price equal to the lesser of 85% of the fair market value of the common stock on the offering date and 85% of the fair market value of the common stock on the applicable purchase date.  Offering periods are six months in duration and will end on or about May 15 and November 15 of each year, with the exception of the initial offering period which commenced on March 26, 2014 and that ended November 14, 2014. Employees may contribute a minimum of 1% and a maximum of 15% of their earnings.

Stock Repurchases

During the three months ended March 31, 2015, the Company repurchased 725,624 shares of outstanding common stock for $25.0 million. As of March 31, 2015, a total of approximately $5.0 million remained available for further repurchases of the Company’s common stock under the Company’s stock repurchase program.

Stock-Based Compensation

Stock-based compensation expense of $3.9 million and $2.1 million was recognized for the three months ended March 31, 2015 and 2014, respectively. Income tax benefit of $1.2 million and $0.6 million was recognized relating to stock-based compensation expense for the three months ended March 31, 2015 and 2014, respectively. The actual tax benefit realized from stock options exercised was $10.2 million and $2.4 million for the three months ended March 31, 2015 and 2014, respectively.

The fair value of stock-based awards is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

Stock Option Assumptions

Three Months Ended March 31,

 

 

2015

 

 

2014

 

Expected term (in years)

6.08

 

 

6.05

 

Expected volatility

 

39

%

 

 

58

%

Risk-free interest rate

 

1.74

%

 

 

1.80

%

Expected dividend yield

 

0

%

 

 

0

%

 

ESPP Assumptions

Three Months Ended March 31,

 

2015

 

 

2014

Expected term (in years)

0.5

 

 

n/a

Expected volatility

 

33

%

 

n/a

Risk-free interest rate

 

0.07

%

 

n/a

Expected dividend yield

 

0

%

 

n/a

 

15


Stock-based compensation expense for stock-based payment awards made to the Company’s employees pursuant to the equity plans was as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

Cost of providing services

$

758

 

 

$

454

 

Sales and marketing

 

917

 

 

 

517

 

General and administrative

 

2,021

 

 

 

1,008

 

Systems development and programming costs

 

224

 

 

 

168

 

 

$

3,920

 

 

$

2,147

 

 

 

NOTE 8: EARNINGS PER SHARE

Prior to its IPO, the Company’s basic and diluted earnings per share (EPS) were computed using the two-class method, an earnings allocation method that determines earnings per share for common stock and participating securities. Shares of convertible preferred stock are considered participating securities and are entitled to dividend, on a pro rata basis, upon redemption, as if these had been converted to common stock. The undistributed earnings are allocated between common stock and participating securities as if all earnings had been distributed during the period.

Basic EPS is calculated by taking net income, less earnings available to participating securities, divided by the basic weighted average common stock outstanding.

Diluted EPS is calculated using the more dilutive of the if-converted method and the two-class method. Because the preferred stock participates in dividends on a pro rata basis as if the shares had been converted, the diluted earnings per share are the same under both methods. The two-class method has been presented below.

The following table sets forth the computation of the Company’s basic and diluted net income per share attributable to common stock (in thousands, except per share data):

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

Numerator (basic)

 

 

 

 

 

 

 

Net income

$

15,811

 

 

$

1,540

 

Less net income allocated to participating securities

 

 

 

 

(1,065

)

Net income attributable to common stock

$

15,811

 

 

$

475

 

Denominator (basic)

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

70,198

 

 

 

16,776

 

Basic EPS

$

0.23

 

 

$

0.03

 

 

 

 

 

 

 

 

 

Numerator (diluted)

 

 

 

 

 

 

 

Net income

$

15,811

 

 

$

1,540

 

Less net income allocated to participating securities

 

 

 

 

(1,016

)

Net income attributable to common stock

$

15,811

 

 

$

524

 

Denominator (diluted)

 

 

 

 

 

 

 

Weighted average shares of common stock

 

70,198

 

 

 

16,776

 

Dilutive effect of stock options and restricted stock units

 

3,152

 

 

 

2,622

 

Weighted average shares of common stock outstanding

 

73,350

 

 

 

19,398

 

Diluted EPS

$

0.22

 

 

$

0.03

 

 

 

 

 

 

 

 

 

Common stock equivalents excluded from income per diluted share

   because of their anti-dilutive effect

 

522

 

 

 

1,511

 

 

 

NOTE 9. INCOME TAXES

The Company is subject to taxation in the United States and Canada. However, business is conducted primarily in the United States. The effective income tax rate differs from the statutory rate primarily due to state taxes, non-deductible stock-based compensation, and tax credits. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with the Company’s plans and estimates. Should the actual amounts differ from these estimates, the amount of the valuation allowance could be materially affected.

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Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial stat