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TYLER TECHNOLOGIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates," "plans," "intends," "continues," "may," "will," "should," "projects," "might," "could" or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our customers, primarily local and state governments, that could negatively impact information technology spending; (2) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (3) material portions of our business require the Internet infrastructure to be adequately maintained; (4) our ability to achieve our financial forecasts due to various factors, including project delays by our customers, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (5) economic, political and market conditions, including the global economic and financial crisis, and the general tightening of access to debt or equity capital; (6) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (7) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (8) competition in the industry in which we conduct business and the impact of competition on pricing, customer retention and pressure for new products or services; (9) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and (10) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of these factors and other risks that affect our business are described in our filings with the Securities and Exchange Commission, including the detailed "Risk Factors" contained in our most recent annual report on Form 10-K. We expressly disclaim any obligation to publicly update or revise our forward-looking statements. GENERAL We provide integrated information management solutions and services for the public sector, with a focus on local governments. We develop and market a broad line of software products and services to address the information technology ("IT") needs of cities, counties, schools and other local government entities as well as state governments. In addition, we provide professional IT services to our customers, including software and hardware installation, data conversion, and training and for certain customers, product modifications, along with continuing maintenance and support for customers using our systems. We also provide subscription-based services such as software as a service ("SaaS"), which utilize the Tyler private cloud, and electronic document filing solutions ("e-filings"), which simplify the filing and management of court related documents. Revenues for e-filings are derived from transaction fees and in some cases fixed fee arrangements. We also provide property appraisal outsourcing services for taxing jurisdictions. Our products generally automate three major functional areas: (1) financial management and education, (2) courts and justice and (3) property appraisal and tax. We report our results in two segments. The Enterprise Software Solutions ("ESS") segment provides municipal and county governments and schools with software systems to meet their information technology and automation needs for mission-critical "back-office" functions such as financial management and courts and justice processes. The Appraisal and Tax Software Solutions and Services ("ATSS") segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction. Total organic revenues increased 20% for both the three and nine months ended September 30, 2014, compared to the prior year periods. On August 29, 2014, we acquired all of the capital stock of SoftCode, Inc. ("SoftCode") which develops and sells civil solution software typically to county sheriff departments. The purchase price, net of cash acquired of $71,000, was $3.2 million in cash and 16,540 shares of Tyler common stock valued at $1.5 million. Our total employee count increased to 2,796 at September 30, 2014 from 2,482 at September 30, 2013. This increase includes 10 employees added as a result of the acquisition of SoftCode. 11 -------------------------------------------------------------------------------- Outlook We plan to continue to make significant investments in our business that we believe will enhance our market leadership and improve long-term revenue and margin growth. These investments include expenses associated with accelerated hiring to ensure that we are well positioned to deliver our current backlog and anticipated new business, as well as product development expenses. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of accounting principles generally accepted in the United States ("GAAP") for the interim period and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition and amortization and potential impairment of intangible assets and goodwill and share-based compensation expense. As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the year ended December 31, 2013. There have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year ended December 31, 2013. ANALYSIS OF RESULTS OF OPERATIONS Percentage of Total Revenue Third Quarter Nine Months 2014 2013 2014 2013 Revenue: Software licenses and royalties 10.3 % 9.8 % 10.0 % 9.6 % Subscriptions 17.6 14.2 17.5 13.9 Software services 24.2 23.2 23.4 22.7 Maintenance 42.5 46.1 42.9 46.4 Appraisal services 4.5 4.9 4.4 5.2 Hardware and other 0.9 1.8 1.8 2.2 Total revenue 100.0 100.0 100.0 100.0 Operating Expenses: Cost of software licenses, royalties and acquired software 0.8 1.0 0.8 1.1 Cost of software services, maintenance and subscriptions 47.7 48.4 47.8 48.0 Cost of appraisal services 2.9 3.1 2.9 3.5 Cost of hardware and other 0.5 1.1 1.2 1.5 Selling, general and administrative expenses 21.3 23.0 21.9 23.6 Research and development expense 5.1 5.6 5.2 5.6 Amortization of customer and trade name intangibles 0.9 1.1 1.0 1.1 Operating income 20.8 16.7 19.2 15.6 Other expense, net - 0.3 0.1 0.3 Income before income taxes 20.8 16.4 19.1 15.3 Income tax provision 7.6 6.1 7.2 5.9 Net income 13.2 % 10.3 % 11.9 % 9.4 % 12 -------------------------------------------------------------------------------- Revenues Software licenses and royalties The following table sets forth a comparison of our software licenses and royalties revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % ESS $ 12,192 $ 10,126 $ 2,066 20 % $ 34,336 $ 27,849 $ 6,487 23 % ATSS 1,034 369 665 180 2,205 1,566 639 41 Total software licenses and royalties revenue $ 13,226 $ 10,495 $ 2,731 26 % $ 36,541 $ 29,415 $ 7,126 24 % Software license and royalty revenue for the three and nine months ended September 30, 2014 increased 26% and 24%, respectively, compared to the prior year periods. The majority of this growth was due to a more active marketplace as the result of improvement in local government economic conditions, as well as our increasingly strong competitive position, which we attribute in part to our investment in product development over the past few years. An increase in the number of larger contracts, as well as geographic expansion on the West Coast, also contributed to the growth in licenses revenue. The mix of new contracts between subscription-based and perpetual license arrangements can vary from quarter to quarter, which can negatively impact our software license growth rate if a growing number of customers choose our subscription-based options, rather than purchasing the software under a traditional perpetual software license arrangement. Subscription-based arrangements result in lower revenues in the initial year as compared to perpetual software license arrangements but generate higher overall subscription-based revenue over the term of the contract. Our new customer mix in the nine months ended September 30, 2014 was approximately 71% selecting perpetual software license arrangements and approximately 29% selecting subscription-based arrangements compared to a customer mix in the nine months ended September 30, 2013 of approximately 66% selecting perpetual software license arrangements and approximately 34% selecting subscription-based arrangements. 38 and 114 new customers entered into subscription-based arrangements in the three and nine months ending September 30, 2014, respectively, compared to 24 and 74 new customers in the three and nine months ended September 30, 2013, respectively. Subscriptions The following table sets forth a comparison of our subscriptions revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % ESS $ 21,725 $ 14,537 $ 7,188 49 % $ 61,571 $ 40,527 $ 21,044 52 % ATSS 969 677 292 43 2,564 2,023 541 27 Total subscriptions revenue $ 22,694 $ 15,214 $ 7,480 49 % $ 64,135 $ 42,550 $ 21,585 51 % Subscriptions revenue primarily consists of revenues derived from SaaS arrangements, which utilize the Tyler private cloud. The initial contract terms for SaaS arrangements are typically for periods of three to six years. As part of our subscription-based services, we also provide electronic document filing solutions ("e-filings") that simplify the filing and management of court related documents for courts and law offices. Revenues from e-filings are derived from transaction fees and fixed fee arrangements. Subscriptions revenue grew 49% and 51% for the three and nine months ending September 30, 2014 compared to the prior year periods. E-filing services contributed approximately $3.7 million and $11.7 million of the subscriptions revenue increase for the three and nine months ended September 30, 2014, respectively. Most of the e-filing revenue increase related to a new contract with the Texas Office of Court Administration for our Odyssey File and Serve e-filing system for Texas courts ("eFileTexas.gov"). The state of Texas has mandated all counties use eFileTexas.gov and this contract will provide a recurring revenue stream that is expected to total approximately $17.0 million in 2014 and $19.0 million in 2015. New SaaS customers as well as existing customers who converted to our SaaS model provided the remainder of the subscriptions revenue increase. In the three and nine months ending September 30, 2014, we added 38 and 114 new SaaS customers, respectively, and 11 and 47 existing on-premise customers converted to our SaaS model, respectively. Since September 30, 2013, we have added 140 new SaaS customers and 62 existing on-premise customers converted to our SaaS model. 13-------------------------------------------------------------------------------- Software services The following table sets forth a comparison of our software services revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % ESS $ 28,398 $ 22,615 $ 5,783 26 % $ 78,006 $ 63,308 $ 14,698 23 % ATSS 2,761 2,245 516 23 7,588 6,098 1,490 24 Total software services revenue $ 31,159 $ 24,860 $ 6,299 25 % $ 85,594 $ 69,406 $ 16,188 23 % Software services revenues primarily consists of professional services billed in connection with implementing our software, converting customer data, training customer personnel, consulting, and custom development software. New customers who purchase our proprietary software licenses generally also contract with us to provide for the related software services. Existing customers also periodically purchase additional training, consulting and minor programming services. Software services revenue grew 25% and 23% for the three and nine months ended September 30, 2014, respectively, compared to the prior year periods. This growth is mainly due to much higher revenues from new proprietary software arrangements, slightly higher rates on certain services, as well as additions to our implementation and support staff which increased our capacity to deliver backlog. Maintenance The following table sets forth a comparison of our maintenance revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % ESS $ 50,486 $ 45,182 $ 5,304 12 % $ 144,344 $ 129,630 $ 14,714 11 % ATSS 4,227 4,109 118 3 12,560 12,350 210 2 Total maintenance revenue $ 54,713 $ 49,291 $ 5,422 11 % $ 156,904 $ 141,980 $ 14,924 11 % We provide maintenance and support services for our software products and third party software. Maintenance revenue increased 11% for both the three and nine months ended September 30, 2014, compared to the prior year periods. Maintenance and support revenues increased due to growth in our installed customer base from new software license sales as well as annual maintenance rate increases. Appraisal services The following table sets forth a comparison of our appraisal service revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % ESS $ - $ - $ - 0 % $ - $ - $ - 0 % ATSS 5,802 5,207 595 11 16,097 15,854 243 2 Total appraisal services revenue $ 5,802 $ 5,207 $ 595 11 % $ 16,097 $ 15,854 $ 243 2 % The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states. Appraisal services revenues for the three months ended September 30, 2014, benefitted by the mid-year addition of several new revaluation contracts in New York and the current appraisal cycle in Indiana which began in July. Appraisal services revenues for the nine months ended September 30, 2014, were negatively affected by severe weather throughout much of the country, which impacted the effectiveness of our field data-gathering efforts on many of our appraisal services projects during the first few months of the year. 14-------------------------------------------------------------------------------- Cost of Revenues and Gross Margins The following table sets forth a comparison of the key components of our cost of revenues for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Software licenses and royalties $ 565 $ 583 $ (18 ) (3 )% $ 1,439 $ 1,701 $ (262 ) (15 )% Acquired software 448 513 (65 ) (13 ) 1,373 1,585 (212 ) (13 ) Software services, maintenance and subscriptions 61,428 51,786 9,642 19 174,701 147,001 27,700 19 Appraisal services 3,764 3,360 404 12 10,740 10,577 163 2 Hardware and other 667 1,230 (563 ) (46 ) 4,528 4,608 (80 ) (2 ) Total cost of revenues $ 66,872 $ 57,472 $ 9,400 16 % $ 192,781 $ 165,472 $ 27,309 17 % The following table sets forth a comparison of gross margin percentage by revenue type for the periods presented as of September 30: Third Quarter Change Nine Months Change 2014 2013 % 2014 2013 % Software licenses, royalties and acquired software 92.3 % 89.6 % 2.7 % 92.3 % 88.8 % 3.5 % Software services, maintenance and subscriptions 43.4 42.1 1.3 43.0 42.1 0.9 Appraisal services 35.1 35.5 (0.4 ) 33.3 33.3 (0.0 ) Hardware and other 37.7 37.1 0.6 29.1 31.3 (2.2 ) Overall gross margin 48.0 % 46.3 % 1.7 % 47.3 % 45.9 % 1.4 % Software licenses, royalties and acquired software. Costs of software licenses, royalties and acquired software are primarily comprised of third party software costs and amortization expense for acquired software. We do not have any direct costs associated with royalties. In the three and nine months ended September 30, 2014, our software licenses, royalties and acquired software gross margin percentage increased 2.7% and 3.5%, respectively, compared to the prior year periods due to increased revenues from proprietary software arrangements, which have a higher gross margin than third party software. Software services, maintenance and subscription services. Cost of software services, maintenance and subscriptions primarily consists of personnel costs related to installation of our software, conversion of customer data, training customer personnel and support activities and various other services such as implementation and on-going operation of SaaS and e-filing arrangements. The software services, maintenance and subscriptions gross margin percentage increased compared to the prior year periods mainly due to revenues from a new contract with the Texas Office of Court Administration for our Odyssey File and Serve e-filing system for Texas courts. This contract began to generate revenues in September 2013, but we incurred initial startup costs in the three and nine months ended September 30, 2013 for which there were very limited related revenues. The addition of revenues from this contract since the prior year accounted for most of the gross margin increase for the three and nine months ended September 30, 2014. The gross margin increase was also offset somewhat by accelerated hiring to ensure that we are well-positioned to deliver our current backlog and anticipated new business. Excluding seven employees added with an acquisition, our implementation and support staff has increased by 259 employees since September 30, 2013. Our blended gross margin increased 1.7% and 1.4% for the three and nine months ended September 30, 2014, respectively, compared to the prior year periods. The gross margin increase was mainly due to a product mix that included more software license revenue, more subscription services revenue and lower initial investment costs for eFileTexas.gov. This improvement in gross margin was offset somewhat by expenses associated with increased hiring of implementation and development staff in order to expand our capacity to implement our contract backlog. 15 -------------------------------------------------------------------------------- Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses consist primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for administrative and sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing related costs. The following table sets forth a comparison of our SG&A expenses for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Selling, general and administrative expenses $ 27,344 $ 24,581 $ 2,763 11 % $ 80,130 $ 72,198 $ 7,932 11 % SG&A as a percentage of revenues was 21.3% and 21.9% for the three and nine months ended September 30, 2014, respectively, compared to 23.0% and 23.6% for the three months and nine monthes ended September 30, 2013, respectively. SG&A increased due to commission expense and incentive compensation as a result of higher sales and earnings. Stock compensation has also increased due to increases in our stock price. Research and Development Expense The following table sets forth a comparison of our research and development expense for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Research and development expense $ 6,567 $ 5,982 $ 585 10 % $ 19,128 $ 17,174 $ 1,954 11 % Research and development expense consists mainly of costs associated with development of new products and technologies from which we do not currently generate revenue, as well as costs related to the ongoing development efforts for Microsoft Dynamics AX. We expect that research and development expense in 2014 will increase at a lower rate than our revenue growth. Amortization of Customer and Trade Name Intangibles Acquisition intangibles are composed of the excess of the purchase price over the fair value of net tangible assets acquired that is allocated to acquired software and customer and trade name intangibles. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer and trade name intangibles is recorded as operating expense. The following table sets forth a comparison of amortization of customer and trade name intangibles for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Amortization of customer and trade name intangibles $ 1,136 $ 1,129 $ 7 1 % $ 3,393 $ 3,388 $ 5 0 % In August 2014, we completed an acquisition which increased customer and trade name intangibles by approximately $1.0 million. This amount will be amortized over a weighted average period of 12 years. 16-------------------------------------------------------------------------------- Other Expense, Net The following table sets forth a comparison of our other expense, net for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Other expense, net $ 47 $ 285 $ (238 ) (84 )% $ 522 $ 919 $ (397 ) (43 )% The majority of other expense is comprised of non-usage and other fees associated with a revolving credit agreement, offset by interest income associated with invested cash balances. Interest expense declined compared to the prior year because we repaid all borrowings under the revolving credit agreement in early 2013, and had no debt outstanding during the nine months ended September 30, 2014. Income Tax Provision The following table sets forth a comparison of our income tax provision for the periods presented as of September 30: Third Quarter Change Nine Months Change ($ in thousands) 2014 2013 $ % 2014 2013 $ % Income tax provision $ 9,698 $ 6,523 $ 3,175 49 % $ 26,084 $ 18,168 $ 7,916 44 % Effective income tax rate 36.3 % 37.1 % 37.4 % 38.9 % The effective income tax rates for the three and nine months ended September 30, 2014 and 2013, respectively, were different from the statutory United States federal income tax rate of 35% primarily due to state income taxes, non-deductible share-based compensation expense, the qualified manufacturing activities deduction, and non-deductible meals and entertainment costs. Our effective tax rate in the three and nine months ended September 30, 2014, declined compared to the prior year periods because we are currently estimating a higher qualified manufacturing activities deduction based on increased software licenses revenues. However, significant stock option activity in 2013 eliminated the qualified manufacturing activities deduction by the end of that year and a significant increase in stock option activity in 2014 would negatively impact our effective tax rate in 2014. FINANCIAL CONDITION AND LIQUIDITY As of September 30, 2014, we had cash and cash equivalents of $157.4 million, compared to cash and cash equivalents of $78.9 million and investments available-for-sale of $1.3 million at December 31, 2013. As of September 30, 2014, we had an outstanding letter of credit totaling $2.0 million. We do not believe this letter of credit will be required to be drawn upon. This letter of credit expires in 2015. We currently believe that cash on hand, cash from operating activities and access to the credit markets provides us with sufficient flexibility to meet our long-term financial needs. The following table sets forth a summary of cash flows for the nine months ended September 30: ($ in thousands) 2014 2013 Cash flows provided (used) by: Operating activities $ 95,131 $ 58,701 Investing activities (10,252 ) (20,122 ) Financing activities (6,324 ) 7,136 Net increase in cash and cash equivalents $ 78,555 $ 45,715 Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures. Other capital resources include cash on hand, and potential public and private issuances of debt or equity securities. It is possible that our ability to access the capital and credit markets in the future may be limited by economic conditions or other factors. We currently believe that cash provided by operating activities, cash on hand and access to the credit markets are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, and share repurchases for at least the next twelve months. For the nine months ended September 30, 2014, operating activities provided net cash of $95.1 million, primarily generated from net income of $43.6 million, non-cash depreciation and amortization charges of $10.9 million and non-cash share-based compensation expense of $10.9 million. Working capital, excluding cash, decreased $32.0 million partly because deferred revenue balances are 17 -------------------------------------------------------------------------------- higher due to growth in our installed software maintenance customer base and growth in subscription-based arrangements. In addition, we have received large deposits on several contracts. Working capital also declined due to lower tax payments as a result of tax benefits from exercises of share-based arrangements since the last half of 2013. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings. Our renewal dates occur throughout the year but our heaviest renewal billing cycles occur in the second and fourth quarters. Our days sales outstanding ("DSO") was 78 days at September 30, 2014, compared to 87 days at December 31, 2013 and 76 days at September 30, 2013. Our maintenance billing cycle typically peaks at its highest level in June and second highest level in December of each year and is followed by collections in the subsequent quarter. As a result our DSO is usually lower in the third quarter than the fourth quarter. DSO is calculated based on quarter-end accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days. Investing activities used cash of $10.3 million in the nine months ending September 30, 2014. In August 2014, we completed the acquisition of SoftCode, Inc. and paid approximately $3.2 million, net of cash acquired. The remaining use of cash was comprised primarily of capital expenditures related to computer equipment, furniture and fixtures in support of internal growth, particularly with respect to growth in our cloud-based offerings. Investing activities in the nine months ended September 30, 2013 used cash of $20.1 million, which included approximately $15.2 million paid in connection with the construction of an office building in Plano, Texas, which was completed in 2013. These expenditures were funded from cash generated from operations and cash on hand. Financing activities used cash of $6.3 million in the nine months ended September 30, 2014, compared to cash provided by financing activities of $7.1 million for the same period for 2013. Cash used in financing activities in the nine months ended September 30, 2014, was primarily comprised of purchases of treasury shares, net of proceeds from stock option exercises and contributions from our employee stock purchase plan. We purchased approximately 294,000 shares of our common stock for an aggregate purchase price of $22.8 million and collected $9.8 million from stock option exercises and employee stock purchase plan activity and $6.7 million excess tax benefit from exercises of share-based arrangements. Financing activities in 2013 were comprised of $18.0 million in net payments on our revolving line of credit offset slightly by collections of $11.9 million from stock option exercises and employee stock purchase plan activity and $13.2 million excess tax benefit from exercises of share-based arrangements. At September 30, 2014, we had authorization to repurchase up to 1.4 million additional shares of Tyler common stock. The repurchase program, which was approved by our board of directors, was announced in October 2002, and was amended in April 2003, July 2003, October 2004, October 2005, May 2007, May 2008, May 2009, July 2010, October 2010 and September 2011. We did not replace our revolving credit line of $150.0 million that matured on August 11, 2014. We made federal or state income tax payments, net of refunds, of $9.9 million in the nine months ended September 30, 2014 compared to $9.3 million in the nine months ended September 30, 2013. Excluding acquisitions, we anticipate that 2014 capital spending will be between $10.5 million and $11.0 million. We expect the majority of our capital expenditures will consist of computer equipment and software for infrastructure replacements and expansion. We currently do not expect to capitalize significant amounts related to software development in 2014, but the actual amount and timing of those costs, and whether they are capitalized or expensed may result in additional capitalized software development. Capital spending is expected to be funded from existing cash balances and cash flows provided by operations. From time to time we engage in discussions with potential acquisition candidates. In order to consummate any such opportunities, which could require significant commitments of capital, we may incur debt or issue potentially dilutive securities in the future. No assurance can be given as to our future acquisitions and how such acquisitions may be financed. |