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DIALOGIC INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2013, in our Annual Report on Form 10-K, filed with the SEC on March 31, 2014. The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements of our future financial operating results, future expectations concerning cash and cash equivalents available to us, our business strategy, including whether we can successfully develop new products and the degree to which these gain market acceptance, revenue estimations, plans, objectives, expectations and intentions. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events are based on assumptions and are subject to risks, uncertainties and other important factors. Our actual results could differ materially from those discussed here. See "Risk Factors" in Item 1A of Part II of this Form 10-Q and the Risk Factors section of our other Form 10-Ks, Form 10-Qs and other filings with the SEC for factors that could cause future results to differ materially from any results expressed or implied by these forward-looking statements. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Overview Dialogic Inc., the Network Fuel® company, helps the world's leading service providers and application developers to improve the performance of media-rich communications across the most advanced networks. We boost the reliability of any-to-any network connections, enhance the impact of applications and amplify the capacity of congested networks, supported by a world class global services team. Wireless and wireline service providers use our products to transport, transcode, manage and optimize video, voice and data traffic while enabling Voice over Internet Protocol and other media rich services. These service providers also utilize our technology to energize their revenue-generating value-added services platforms such as messaging, Short Message Service, voice mail and conferencing, all of which are becoming increasingly video-enabled. Enterprises rely on our innovative products to simplify the integration of IP and wireless technologies and endpoints into existing communication networks, and to empower applications that serve businesses, including unified communication applications, contact centers and Interactive Voice Response/ Interactive Voice and Video Response. We sell our products to both service provider and enterprise customers and sell directly and indirectly through distribution partners such as Technology Equipment Manufacturers, Value Added Resellers and other channel partners. Our customers have the potential to enhance their networks, enterprise communications solutions, or their value-added services with our products. We were incorporated in Delaware on October 18, 2001 as Softswitch Enterprises, Inc., and subsequently changed our name to NexVerse Networks, Inc. in 2001, Veraz Networks, Inc. in 2002 and Dialogic Inc. in 2010. We and businesses that we have acquired have been providing products and services for nearly 25 years. Industry Background The telecommunications industry has traditionally been highly regulated. In recent years, however, certain regulatory barriers to competitive entry have been removed and service providers with telephone, cable, and wireless networks have expanded their offerings to video, voice, and data services over a single broadband platform, increasing competition in the industry. This increase in competition has also led to steep price reductions, which have in turn caused the revenues of incumbent telecom operators to decline. At the same time, the demand for IP-based technologies has increased due to the need to keep pace with subscriber demand, yet reduce operating costs and diversify revenue streams. In developed countries, services are increasingly bundled; for example, Internet access is often bundled with voice telephony and television channels. Service providers and enterprises may either maintain their legacy networks or steadily plan on migrating telecom systems from PSTN to a single IP network to deliver video calls, text messaging, and location-based services and other high-demand services. Our products allow service providers to deploy services efficiently and with scale across disparate networks. We offer a softswitch that allows new services to be implemented flexibly and securely throughout the entire network along with routing, billing, and number portability for operational savings. Our software-based media servers offer state of the art media-rich mixing to enable the creation of innovative value-added communications services with seamless transition to virtualization and cloud. Our network congestion solutions seek to amplify capacity gains across all wireless architectures and across broadband VOIP networks at a fraction of the cost of building new capacity. We also offer a family of session border controllers with superior media signaling and handling 17 -------------------------------------------------------------------------------- performance, secure any to any network and service connectivity and a feature-rich web-based dashboard and management. Our media gateways interconnect complex video, voice and data protocols and include both bandwidth and codec optimization. Our products are designed to meet specific customer requirements and industry standards, and are subject to various laws, restrictions and regulations, including, but not limited to, environmental protection, import-export controls, and political and economic considerations, which are more fully discussed in "Item 1A. Risk Factors." Our Products Our products include both Next Generation products that serve advanced mobile and IP networks and are designed to seamlessly connect these disparate networks, as well as Legacy products that serve the predominant installed base of TDM networks. Our Next Generation products and solutions are offered in five main solution areas: 1) Any to Any Networking - We manufacture products designed to seamlessly and efficiently connect disparate networks and/or value-added services platforms based on a complex array of network protocols such as TDM, IP, SIP and IMS. Our technologies seek to enable media-rich communications, including video, voice and data, to flow uninterrupted between service providers and application developers and their end-users while ensuring the lowest operating costs and most optimal customer experience. Products that excel in Any to Any Networking include the ControlSwitch System IP Softswitch, BorderNet Sessions Border Controllers, IMG Media Gateways, Signaling solutions and PowerMedia XMS and HMP media servers. 2) Network Congestion - The explosion in video, voice and data communications has challenged network operators to balance the challenges of network expansion with business profitability. Our solutions re-energize congested networks by optimizing network traffic and amplifying capacity gains of up to 500% at a fraction of the cost of new network capacity. Our key technologies are network agnostic, successfully driving capacity gains over TDM, VOIP, 2G, 3G, 4G, LTE, satellite, microwave, copper and fiber transport. Products that alleviate Network Congestion include Session Bandwidth Optimization solutions for Mobile Backhaul, Core Networks and VOIP. 3) Contact Center Transformation - As contact centers transition from TDM to IP, from premise-based to cloud/hosted or from fragmented to centralized to decentralized, our technologies enable contact center operators to maximize their investment by integrating multi-modal media-rich communications in a secure and optimized fashion. Contact centers empowered by our technologies perform better and run more cost effectively. Products that are designed for Contact Center Transformation include ControlSwitch System IP Softswitch, BorderNet Session Border Controllers, IMG Media Gateways, PowerMedia XMS and HMP media servers and Network Congestion solutions. 4) Unified Communications for Service Providers - Through partnerships with market leaders in Unified Communications, we are enabling Service Providers to better leverage their investments in network switching infrastructure and offer a broader array of value-added services including hosted IP-PBX via PC and mobile, video calling and more sophisticated Class 5 services over a more secure and cost-optimized network. This collaboration enables Service Providers to more effectively compete with traditional Enterprise telephony vendors. Products that are designed for Unified Communications for Service Providers include ControlSwitch System IP Softswitch, BorderNet Session Border Controllers, IMG Media Gateways, and PowerMedia XMS and HMP media servers. 5) Application Enablement - We are a recognized leader in software-based solutions that enable Application Developers to rapidly develop and monetize a wide array of value-added services such as messaging, SMS, video calling, ringtones, lawful intercept and location-based services. Our customers benefit from extensive capabilities in mixing media-rich communications, transitioning to virtualized or cloud-based architectures and deploying highly available and scalable platforms or services. Products that are designed for Application Enablement include PowerMedia XMS and HMP media servers, BorderNet Sessions Border Controllers, IMG Media Gateways, Signaling solutions and Brooktrout Fax over IP software, as well as our Legacy portfolio. Our Legacy products and solutions serve the TDM-only markets. While all networks are moving to IP or mobile-based networks, TDM networks still exist and we anticipate that they will continue to exist for many years. As such, there will continue to be demand, albeit decreasing, for the TDM products to connect these existing networks. Our Legacy products are offered via an array of traditional network and/or media processing boards that range from two-port analog interface boards to octal span T1/E1 media and network interface boards. These products connect to and interact with an enterprise or service provider based circuit switched network, and support a suite of media processing features, including echo cancellation, DTMF detection, voice play and record, conferencing, fax, modem and speech integration. The boards are grouped into four media board families, i.e., Dialogic ® Media and Network Interface boards with various architectures, Diva ® Media Boards, Dialogic ® CG Series Media Boards and Brooktrout ® Fax Boards. We have expanded upon our expertise with voice solutions to include video and data. We believe that the continued demand for services by mobile users will drive increasing demand for bandwidth. As a result, we have continued to invest in our portfolio of network congestion solutions to enable mobile operators to amplify their bandwidth in their network. We are also actively expanding 18 -------------------------------------------------------------------------------- products that deliver video applications to mobile devices. Our customers and partners are increasingly adding video to value-added service application and our products support key video codecs and APIs such as WebRTC, perform video transcoding and transrating functions from one codec type to another, and enable video play/record and video conferencing. We also support new voice functionalities such as high definition voice codecs. Critical Accounting Policies and Estimates Management's discussion and analysis of our financial position and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP pursuant to the rules and regulations of the SEC. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. If actual results differ significantly from management's estimates and projections, there could be a material effect on our financial statements. As of March 31, 2014, current liabilities exceeded current assets by $87.7 million. In the event of a bankruptcy, our recorded asset values may be significantly impaired. See Liquidity section for further discussion. There have been no significant changes in our accounting policies for the three months ended March 31, 2014 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2013. Results of Operations (amounts in tables in thousands other than percentages) Comparison of Three Months Ended March 31, 2014 and 2013 Revenue 2014 2013 Period-to-Period Change % of % of Total Total Amount Revenue Amount Revenue Amount Percentage Revenue: Products $ 19,608 69% $ 24,733 73% $ (5,125) (21%) Services 8,827 31% 9,062 27% (235) (3%) Total revenue $ 28,435 100% $ 33,795 100% $ (5,360) (16%) Legacy vs. Next Generation: Legacy $ 8,255 29% $ 10,041 30% $ (1,786) (18%) Next Generation 20,180 71% 23,754 70% (3,574) (15%) Total revenue $ 28,435 100% $ 33,795 100% $ (5,360) (16%) Revenue by geography: Americas $ 13,994 49% $ 15,665 46% $ (1,671) (11%) Europe, Middle East and Africa 10,402 37% 11,200 33% (798) (7%) Asia Pacific 4,039 14% 6,930 21% (2,891) (42%) Total revenue $ 28,435 100% $ 33,795 100% $ (5,360) (16%) Revenue Total revenue of $28.4 million for the three months ended March 31, 2014 decreased by $5.4 million, or 16%, from $33.8 million for the three months ended March 31, 2013. Our product revenue was 69% of total revenue at $19.6 million for the three months ended March 31, 2014, compared to 73% of total revenue, or $24.7 million for the three months ended March 31, 2013, a decrease of $5.1 million, or 21%. The decrease in product revenue is primarily attributable to a decline in demand for our Legacy products, as well as project timing and associated revenue recognition of Next Generation products. 19 -------------------------------------------------------------------------------- Our services revenue was 31% of total revenue at $8.8 million for the three months ended March 31, 2014, compared to 27% of total revenue, or $9.1 million for the three months ended March 31, 2013, a decrease of $0.2 million, or 3%. The decrease in services revenue was the result of decommissioning of our Legacy products in certain customer networks, partially offset by customer expansions and upgrades of our Next Generation products. Cost of Revenue and Gross Profit 2014 2013 Period-to-Period Change % of % of Total Total Amount Revenue Amount Revenue Amount Percentage Cost of Revenue: Products $ 6,737 34% $ 9,577 39% $ (2,840) (30%) Services 3,968 45% 4,641 51% (673) (15%) Total cost of revenue $ 10,705 38% $ 14,218 42% $ (3,513) (25%) Gross Profit: Products $ 12,871 66% $ 15,156 61% $ (2,285) (15%) Services 4,859 55% 4,421 49% 438 10% Total gross profit $ 17,730 62% $ 19,577 58% $ (1,847) (9%) Cost of Revenue Total cost of revenue of $10.7 million for the three months ended March 31, 2014 decreased by 25%, or $3.5 million, from $14.2 million for the three months ended March 31, 2013. Cost of product revenue of $6.7 million for the three months ended March 31, 2014 decreased by 30%, or $2.8 million, from $9.6 million for the three months ended March 31, 2013. The change is primarily attributable to the decline in product volume and a reduction in salaries and benefits due to the decrease in operations personnel headcount. Cost of services revenue of $4.0 million for the three months ended March 31, 2014 decreased by 15%, or $0.7 million, from $4.6 million for the three months ended March 31, 2013. The change is primarily attributable to the decrease in headcount compared to the corresponding prior year period. Cost of services includes the direct costs of customer support and consists primarily of payroll, related benefits and travel for our support personnel. Gross Profit Gross profit of $17.7 million for the three months ended March 31, 2014 decreased by $1.8 million, or 9%, from $19.6 million for the three months ended March 31, 2013. Gross profit margin increased from 58% of total revenue for the three months ended March 31, 2013 to 62% of total revenue for the three months ended March 31, 2014. For the three months ended March 31, 2014, product gross profit decreased by 15%, or $2.3 million, from $15.2 million for the three months ended March 31, 2013 to $12.9 million for the three months ended March 31, 2014. The decrease in gross profit on product revenue is primarily a result of an overall decline in product revenue. Gross profit margin increased from 61% of total product revenue for the three months ended March 31, 2013 to 66% of total product revenue for the three months ended March 31, 2014 due to the mix of products sold. For the three months ended March 31, 2014, services gross profit increased by 10%, or $0.4 million, from $4.4 million for the three months ended March 31, 2013 to $4.9 million for the three months ended March 31, 2014. Gross profit margin increased from 49% of total services revenue for the three months ended March 31, 2013 to 55% of total services revenue for the three months ended March 31, 2014 due to a higher level of maintenance renewals and lower costs as a result of a reduction in headcount. 20 -------------------------------------------------------------------------------- Operating Expenses 2014 2013 Period-to-Period Change % of % of Total Total Amount Revenue Amount Revenue Amount Percentage Research and development, net $ 5,744 20% $ 8,033 24% $ (2,289) (28%) Sales and marketing 7,788 27% 9,248 27% (1,460) (16%) General and administrative 6,387 22% 7,960 24% (1,573) (20%) Restructuring charges, net (4) (0%) 212 1% (216) (102%) Total operating expenses $ 19,915 70% $ 25,453 75% $ (5,538) (22%) Research and Development Expenses Research and development expenses of $5.7 million, or 20% of total revenue, for the three months ended March 31, 2014 decreased by $2.3 million, or 28%, from $8.0 million, or 24% of total revenue for the three months ended March 31, 2013. The decrease was primarily the result of a $1.9 million decrease in salaries and employee benefits and stock-based compensation associated with a decrease in departmental headcount, as a result of our restructuring efforts. Sales and Marketing Sales and marketing expenses of $7.8 million, or 27% of total revenue, for the three months ended March 31, 2014 decreased by $1.5 million, or 16%, from $9.2 million, or 27% of total revenue for the three months ended March 31, 2013. The change in sales and marketing expenses is primarily attributable to decreases in salaries and employee benefits and stock-based compensation of $0.5 million, marketing related costs of $0.4 million, and third party sales commissions of $0.2 million. General and Administrative General and administrative expenses of $6.4 million, or 22% of total revenue, for the three months ended March 31, 2014 decreased by $1.6 million, or 20%, from $8.0 million, or 24% of total revenue for the three months ended March 31, 2013. The change is primarily attributable to decreases in bad debt expense of $0.9 million and third party professional services in the amount of $0.4 million. Restructuring Charges For the three months ended March 31, 2014, we recorded an adjustment to the restructuring accrual, resulting in a net benefit in the amount of $0.04 million. For the three months ended March 31, 2013, we recorded a charge in the amount of $0.2 million, net, related to an expense of $0.9 million in lease and facility exit costs primarily related to idle space in Milpitas, California and Needham, Massachusetts, offset by a reduction in our facility related restructuring accruals for Parsippany, New Jersey, Eatontown, New Jersey and Renningen, Germany based on information received at that time, resulting in a net benefit of $0.7 million. Interest Expense Interest expense increased by $0.3 million or 15%, from $2.4 million for the three months ended March 31, 2013 to $2.7 million for the three months ended March 31, 2014. The change is primarily attributable to PIK interest and the amortization of debt discount on our Term Loan, which increased $0.2 million and $0.2 million, respectively, due to a higher Term Loan principal balance. Change in Fair Value of Warrants The change in fair value of warrants represented a loss of $0.4 million for the three months ended March 31, 2014 as a result of an increase in our stock price compared to December 31, 2013. For the three months ended March 31, 2013, the Company recorded a loss of $1.2 million related to the change in fair value of warrants, as a result of an increase in our stock price compared to December 31, 2012. 21 -------------------------------------------------------------------------------- Foreign Exchange Loss net Foreign exchange loss, net was less than $0.1 million for the three months ended March 31, 2014, compared to a foreign exchange loss, net of $0.4 million for the three months ended March 31, 2013. Income Tax (Benefit) Provision For the three months ended March 31, 2014 and 2013, we recorded a benefit for income taxes of $0.1 million and a provision for income taxes of $0.5 million, respectively. The tax benefit for the three months ended March 31, 2014 is due to a net reduction in the reserve for unrecognized tax benefits and taxes in our profitable foreign jurisdictions. The tax expense for the three ended March 31, 2013 was primarily due to the current tax expense in our profitable foreign entities and increases to unrecognized tax benefits. Financial Position Liquidity and Capital Resources Our primary anticipated sources of liquidity are funds generated from operations, and, as required, funds borrowed under the Revolving Credit Agreement and Term Loan Agreement. Both debt instruments mature on March 31, 2015, and as a result are classified as current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2014. We monitor and manage liquidity by preparing and updating annual budgets, as well as by monitoring compliance with the terms of our financing agreements. We have experienced significant losses in the past and have not sustained quarter over quarter profits. As of March 31, 2014, we had cash and cash equivalents of $4.1 million, compared to $4.5 million of cash and cash equivalents as of December 31, 2013. During the three months ended March 31, 2014, we used net cash in operating activities of $0.4 million. As of March 31, 2014, we had borrowed $11.6 million, based on the prior month's borrowing base calculation, under our Revolving Credit Agreement and the unused line of credit totaled $13.4 million, of which $1.2 million was available to us in the first week of April 2014. As of March 31, 2014 our term loan debt with related parties was $78.0 million, net of discount. During the three months ended March 31, 2014, we paid $0.1 million to service the interest payments on the Revolving Credit Agreement. No cash interest was paid during the three months ended March 31, 2014 related to the Term Loan Agreement, as all interest to be incurred during the year ending December 31, 2014 will be paid in kind, as permitted by the Term Lenders. On March 28, 2014, we entered into a Fourth Amendment to the Term Loan Agreement, or Fourth Amendment. Pursuant to the Fourth Amendment, the minimum Adjusted EBITDA financial covenant in the Term Loan Agreement is no longer applicable. On March 28, 2014, we entered into a Twenty-Second Amendment to the Revolving Credit Agreement, or Twenty-Second Amendment. Pursuant to the Twenty-Second Amendment, the Revolving Credit Agreement was amended to change the minimum Adjusted EBITDA financial covenant and postpone its application until the twelve-month period ending on March 31, 2015. The Twenty-Second Amendment also provides that the minimum Adjusted EBITDA will not be tested for the periods ending on March 31, 2014, June 30, 2014, September 30, 2014 and December 31, 2014. Under the Twenty-Second Amendment, the minimum Adjusted EBITDA remains set at $6.0 million and will be increased by 80% of pro forma adjustment to Adjusted EBITDA (as set forth in the definition thereof for any applicable Reference Period) concurrently with the closing of each Permitted Acquisition (as defined in the Revolving Credit Agreement). The Revolving Credit Agreement was also amended to increase the "Availability Block" to $1.4 million, increasing by an additional $100,000 on April 1, 2014 and on the first day of each fiscal quarter thereafter. We may not be able to maintain as high of a borrowing base under the Revolving Credit Agreement due to the increase in Availability Block. Also, if our revenue continues to decline and the corresponding accounts receivable balance declines, this would also reduce the available borrowing base under the Revolving Credit Agreement. As described above, the maturity date for both of our debt agreements is March 31, 2015. As of March 31, 2014, we have classified our debt under the Term Loan Agreement as current on our condensed consolidated balance sheet, since the Term Loan Agreement had not been extended as of that date. We are actively pursuing alternative funding arrangements, including but not limited to extending both debt agreements. We have not yet executed any extensions on either of the debt agreements and do not anticipate having sufficient cash and cash equivalents to repay the debt at the maturity of these agreements on March 31, 2015, or if the maturity dates were accelerated. We will be forced to restructure these agreements and/or seek alternative sources of financing. There can be no assurances that restructuring of the debt or alternative financing will be available on acceptable terms or at all. In the event of an acceleration of our obligations under the Revolving Credit Agreement or Term Loan Agreement prior to their maturity or if the agreements are not extended or otherwise restructured as of March 31, 2015 and we fail to pay the amounts that would then become due, the Revolving Credit Lender and Term Lenders could seek to foreclose on our assets, as a result of which we would likely need to seek protection under the provisions of the U.S. Bankruptcy Code or other applicable bankruptcy codes. In that event, we could seek to reorganize our business or a trustee appointed by the court could be required to liquidate our assets. In either of these events, whether the stockholders receive any value for their shares is highly uncertain. If we needed to liquidate our assets, we might realize significantly less from them than the value that could be obtained in a transaction outside of a bankruptcy proceeding and as a result there could be 22 -------------------------------------------------------------------------------- further write-down or impairment of our assets. The funds resulting from the liquidation of our assets would be used first to pay off the debt owed to secured creditors, including the Term Lenders and the Revolving Credit Lender, followed by any unsecured creditors, before any funds would be available to pay our stockholders. If we are required to liquidate under the federal bankruptcy laws, it is unlikely that stockholders would receive any value for their shares. We will need to either raise additional funding to fund our debt obligations in 2015 or implement a business plan where cash flow will fully fund operations and debt repayments. However, there is no assurance that additional funding will be available to us on acceptable terms on a timely basis, if at all, or that we will achieve profitable operations to fund both operations and our debt obligations. If we are unable to raise additional capital or achieve sufficient operating cash flows to fund our operations and debt obligations, we will need to curtail planned activities and to reduce costs. Doing so may affect our ability to operate effectively. Based on our current plans and business conditions, including the restructuring actions that were taken at the end of 2013 and additional cost-cutting measures that we expect to employ during 2014, we believe that our existing cash and cash equivalents, expected cash generated from operations and available credit facilities will be sufficient to satisfy our anticipated cash requirements through the end of 2014. Accordingly, our consolidated financial statements have been prepared on a going concern basis. Operating Activities Net cash used in operating activities of $0.4 million for the three months ended March 31, 2014 was primarily attributable to our net loss of $5.2 million, offset by adjustments for non-cash items aggregating to $5.3 million. Operating assets decreased by $2.1 million and operating liabilities decreased by $2.6 million. The decrease in operating assets relates to accounts receivable of $1.4 million, inventory of $0.1 million, and other current assets of $0.6 million. The decrease in operating liabilities is primarily attributable to decreases of $3.4 million in accounts payable and accrued liabilities and $0.6 million in other long-term liabilities, partially offset by an increase in deferred revenue of $1.3 million and income taxes payable of $0.1 million. Net cash used in operating activities of $4.9 million for the three months ended March 31, 2013 was primarily attributable to our net loss of $10.4 million, partially offset by adjustments for non-cash items aggregating to $7.4 million. Operating assets decreased by $6.1 million and operating liabilities decreased by $8.1 million. The decrease in operating assets relates to accounts receivable of $3.3 million, inventory of $1.5 million, and other current assets of $1.3 million. The decrease in operating liabilities is primarily attributable to decreases of $8.7 million in accounts payable and accrued liabilities and $0.6 million in other long-term liabilities, partially offset by an increase in deferred revenue of $1.2 million. Investing Activities Net cash provided by investing activities of $0.5 million for the three months ended March 31, 2014 consisted primarily of a increase of $0.6 million related to the release of restricted cash, partially offset by $0.2 million related to the purchase of property and equipment. Net cash used in investing activities of $0.4 million for the three months ended March 31, 2013 consisted primarily of an increase of $0.3 million related to restricted cash and $0.1 million related to the purchase of property and equipment. Financing Activities Net cash used in financing activities of $0.5 million for the three months ended March 31, 2014 included $0.5 million in net payments under the Revolving Credit Agreement. Net cash provided by financing activities of $3.3 million for the three months ended March 31, 2013 included $3.2 million in net borrowings under the Term Loan Agreement and $0.1 million in net borrowing under the Revolving Credit Agreement. Off-Balance Sheet Arrangements As of March 31, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our consolidated financial position or results of operations. Recent Accounting Pronouncements See Note 2 to the audited consolidated financial statement included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014 for a full description of the recent accounting pronouncements including the date of adoption and effect on results of operations and financial condition. 23 -------------------------------------------------------------------------------- |