You ought to learn the next dialogue and evaluation of our monetary situation and outcomes of operations at the side of the consolidated monetary statements and the notes thereto included elsewhere on this report. The following dialogue comprises forward-looking statements that replicate our plans, estimates and beliefs. Our precise outcomes may differ materially from these mentioned within the forward-looking statements. Factors that might trigger or contribute to those variations embody these mentioned under and elsewhere in this report, significantly within the sections titled "Cautionary Note on Forward-Looking Statements" and "Risk Factors."
Management Overview
We are a frontrunner in efficiency marketplaces and applied sciences for the monetary providers and residence providers industries. We concentrate on buyer acquisition for shoppers in excessive worth, information-intensive markets or "verticals," together with monetary providers and residence providers. Our shoppers embody some of the world's largest corporations and manufacturers in these markets. The majority of our operations and income are inNorth America . We ship measurable and cost-effective advertising and marketing outcomes to our shoppers, sometimes within the kind of certified inquiries reminiscent of clicks, leads, calls, purposes, or clients. Clicks, leads, calls, and purposes can then convert right into a buyer or sale for shoppers at a price that leads to an acceptable advertising and marketing value to them. We are sometimes paid by shoppers after we ship certified inquiries within the kind of clicks, leads, calls, purposes, or clients, as outlined by our agreements with them. References to the supply of clients means a sale or accomplished buyer transaction (e.g., funded loans, certain insurance coverage insurance policies or buyer appointments with shoppers). Because we bear the prices of media, our applications should lead to engaging advertising and marketing prices to our shoppers at media prices and margins that present sound monetary outcomes for us. To ship clicks, leads, calls, purposes, and clients to our shoppers, usually we:
• personal or entry focused media by enterprise preparations (e.g., income
sharing preparations with on-line writer companions, giant and small) or by
buying media (e.g., clicks from main serps);
• run ads or different kinds of advertising and marketing messages and applications in
that media that lead to client or customer responses, sometimes within the
kind of clicks (by a client to additional qualification or matching steps,
or to on-line shopper purposes or choices), leads (e.g., client
contact info), calls (from a client or to a client by our owned
and operated or contracted name facilities or by that of our shoppers or their
brokers), purposes (e.g., for enrollment or a monetary product), or clients (e.g., funded private loans); and
• repeatedly search to show shoppers and shopper choices to guests or
customers that consequence within the most quantity of customers discovering options
that may meet their wants and to which they may take motion to reply,
leading to media shopping for effectivity (e.g., by segmenting media or visitors
in order that probably the most acceptable shoppers or shopper choices could be displayed
or “matched” to every section based mostly on match, response charges or conversion
charges); • by know-how and analytics, search to optimize mixture of goals to fulfill the utmost quantity of procuring or researching
guests or customers, ship on shopper advertising and marketing goals, successfully
compete for on-line media, and generate a sound monetary final result for us.
Our major monetary goal has been and stays creating income development from sustainable sources, at goal ranges of profitability. Our major monetary goal is to not maximize short-term earnings, however somewhat to attain goal ranges of profitability whereas investing in varied development initiatives, as we proceed to consider we're within the early phases of a big, long-term market alternative. Our enterprise derives its web income primarily from charges earned by the supply of certified inquiries reminiscent of clicks, leads, calls, purposes, or clients. Through a vertical focus, focused media presence and our know-how platform, we're capable of ship focused, measurable advertising and marketing outcomes to our shoppers. Our monetary providers shopper vertical represented 74%, 75% and 68% of web income in fiscal years 2021, 2020 and 2019. Our residence providers shopper vertical represented 23%, 10% and 9% of web income in fiscal years 2021, 2020 and 2019. Our outcomes of operations for fiscal 12 months 2021 mirrored our acquisition of Modernize, which was accomplished at first of the fiscal 12 months. Other income, which primarily consists of our efficiency advertising and marketing company and know-how providers, represented 1% of web income in fiscal 12 months 2021. In addition, income acknowledged from our divested companies (together with our former schooling shopper vertical, business-to-business know-how shopper vertical, mortgage enterprise, andBrazil companies) represented 2%, 15%, and 23% of web income for fiscal years 2021, 2020 and 2019. See Note 7, Divestitures, to our consolidated monetary statements for extra info associated to the divestitures. We generated the bulk of our income from gross sales to shoppers inthe United States . 35
--------------------------------------------------------------------------------
Trends Affecting our Business COVID-19 We proceed to observe COVID-19 for impacts which will unfavorably have an effect on our enterprise, reminiscent of reductions in shopper spending on advertising and marketing and promoting, drops in media availability or efficiency, deteriorating client spending, fluctuations in rates of interest, and credit score high quality of our receivables. The COVID-19 pandemic has affected and could proceed to have an effect on our enterprise operations, together with our staff, shoppers, publishers, enterprise companions, and communities, and there's substantial uncertainty within the nature and diploma of its continued results over time. For instance, inside our monetary providers shopper vertical, sure credit-driven strains of enterprise, reminiscent of private loans and bank cards, have seen and could proceed to see reductions in near-term demand for our providers because of weakening financial and employment circumstances, and the uncertainty over the size and depth of the financial downturn. The extent to which the COVID-19 pandemic impacts our enterprise going ahead will rely upon quite a few evolving elements we can not reliably predict, together with the length and scope of the pandemic; enterprise and people' actions in response to the pandemic; additional actions taken by governmental authorities to restrict the human and financial impression of the pandemic (e.g., stimulus funds); the event, efficacy and distribution of vaccines for COVID-19; and the impression on financial exercise together with the size and depth of the financial downturn or monetary market instability. These elements could adversely impression client, enterprise, and authorities spending in addition to our shoppers' capability to pay for our providers on an ongoing foundation. While there's optimism that the pandemic will come to an finish with the event and prevalence of vaccines, there are nonetheless vital uncertainties. For instance, the resurgence of circumstances because of emergence and persistency of new variants to COVID-19 and the financial impression because of various ranges of restrictions imposed by every state. Refer to Risk Factors (Part I, Item 1A of this Form 10-Okay) for a dialogue of these elements and different dangers.
Client Verticals
Our monetary providers shopper vertical has been challenged by a quantity of elements prior to now, together with the restricted availability of prime quality media at acceptable margins attributable to the acquisition of media sources by opponents, elevated competitors for top of the range media and adjustments in search engine algorithms. These elements could impression our enterprise sooner or later once more. To offset this impression, now we have enhanced our product set to offer better segmentation, matching, transparency and proper pricing of media which have enabled higher monetization to offer better entry to prime quality media sources. Moreover, now we have entered into strategic partnerships and acquisitions to extend and diversify our entry to high quality media and shopper budgets. Our monetary providers shopper vertical additionally advantages from extra spending by shoppers in digital media and efficiency advertising and marketing as digital advertising and marketing continues to evolve. In the primary quarter of fiscal 12 months 2021, we accomplished the acquisition of Modernize, a number one residence enchancment efficiency advertising and marketing firm, to broaden our buyer and media relationships within the residence providers shopper vertical. Our residence providers shopper vertical has been increasing over the previous a number of years, primarily pushed by profitable execution of development initiatives and ahead-of-schedule integration and synergies with the Modernize acquisition.
In addition, within the first quarter of fiscal 12 months 2021, consequently of the
choice to slim our focus to one of the best performing companies and market
alternatives, we entered into an settlement with a third-party and accomplished the
divestiture of our former schooling shopper vertical.
Acquisitions and Divestitures
Acquisitions have traditionally been, and proceed to be, an necessary aspect of our total company technique and use of capital. We have accomplished a number of strategic acquisitions in the course of the previous three fiscal years, together with the acquisitions of Modernize,Mayo Labs and FCE accomplished in fiscal 12 months 2021, and the acquisitions of AmOne, CCM, and MBT accomplished in fiscal 12 months 2019. Furthermore, consequently of the choice to slim our focus to one of the best performing companies and market alternatives, we accomplished a collection of enterprise divestitures prior to now two fiscal years, together with the divestiture of our former schooling shopper vertical accomplished in fiscal 12 months 2021, and the divestitures of our former B2B shopper vertical, our companies inBrazil consisting of QSB and VEMM together with its pursuits in EDB, and our mortgage enterprise accomplished in fiscal 12 months 2020.
For detailed info concerning our acquisitions and divestitures, seek advice from
Note 6, Acquisitions, and Note 7, Divestitures, respectively, to our
consolidated monetary statements.
36 --------------------------------------------------------------------------------
Development, Acquisition and Retention of High Quality Targeted Media
One of the first challenges of our enterprise is discovering or creating media that is top quality and focused sufficient to draw prospects for our shoppers at prices that present a sound monetary final result for us. In order to develop our enterprise, we should be capable of discover, develop, or purchase and retain high quality focused media on a cheap foundation. Consolidation of media sources, adjustments in search engine algorithms and elevated competitors for obtainable media has, throughout some durations, restricted and could proceed to restrict our capability to generate income at acceptable margins. To offset this impression, now we have developed new sources of media, together with getting into into strategic partnerships with different advertising and marketing and media corporations and acquisitions. Such partnerships embody takeovers of efficiency advertising and marketing capabilities for big net media properties; backend monetization of unmatched visitors for shoppers with giant media buys; and white label merchandise for different efficiency advertising and marketing corporations. We have additionally centered on rising our income from name middle, electronic mail, cellular and social media visitors sources. Seasonality Our outcomes are topic to vital fluctuation consequently of seasonality. In explicit, our quarters endingDecember 31 (our second fiscal quarter) are sometimes characterised by seasonal weak point. In our second fiscal quarters, there's usually decrease availability of media in the course of the vacation interval on a value efficient foundation and some of our shoppers have decrease budgets. In our quarters endingMarch 31 (our third fiscal quarter), this pattern usually reverses with higher media availability and usually new budgets at first of the 12 months for our shoppers with fiscal years endingDecember 31 . Our outcomes are additionally topic to fluctuation consequently of seasonality in our shoppers' enterprise. For instance, income in our residence providers shopper vertical is topic to cyclical and seasonal tendencies, as the patron demand for residence providers sometimes rises in the course of the spring and summer time seasons and declines in the course of the fall and winter seasons. Other elements affecting our shoppers' companies embody macro elements reminiscent of credit score availability available in the market, rates of interest, the energy of the financial system and employment.
Regulations
Our income has fluctuated partially consequently of federal, state and industry-based laws and growing requirements with respect to the enforcement of these laws. Our enterprise is affected instantly as a result of we function web sites and conduct telemarketing and electronic mail advertising and marketing, and not directly affected as our shoppers regulate their operations consequently of regulatory adjustments and enforcement exercise that have an effect on their industries. Clients in our monetary providers vertical have been affected by legal guidelines and laws and the elevated enforcement of new and pre-existing legal guidelines and laws. The impact of these laws, or any future laws, could proceed to lead to fluctuations within the quantity and combine of our enterprise with these shoppers. An instance of a regulatory change which will have an effect on our enterprise is the modification of the Telephone Consumer Protection Act (the "TCPA") that impacts telemarketing calls. Our shoppers could make enterprise selections based mostly on their very own experiences with the TCPA regardless of our merchandise and compliance practices. Those selections could negatively have an effect on our income and profitability. 37 --------------------------------------------------------------------------------
Basis of Presentation Net Revenue Our enterprise generates income primarily from charges earned by the supply of certified inquiries reminiscent of clicks, leads, calls, purposes, or clients. We ship focused and measurable outcomes by a vertical focus, which consists of monetary providers shopper vertical and residence providers shopper vertical. All remaining companies that aren't vital sufficient for separate reporting are included in different income. Our income acknowledged in fiscal years 2021, 2020 and 2019 additionally included the income generated from the divested companies (together with our former schooling shopper vertical, business-to-business know-how shopper vertical, mortgage enterprise, andBrazil companies). See Note 7, Divestitures, to our consolidated monetary statements for extra info associated to the divestitures.
Cost of Revenue
Cost of income consists primarily of media and advertising and marketing prices, personnel prices, amortization of intangible belongings, depreciation expense and amenities expense. Media and advertising and marketing prices consist primarily of charges paid to third-party publishers, media homeowners or managers, or to strategic companions which can be instantly associated to a revenue-generating occasion and of pay-per-click, or PPC, advert purchases from Internet search corporations. We pay these third-party publishers, media homeowners or managers, strategic companions and Internet search corporations on a revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, foundation. Personnel prices embody salaries, stock-based compensation expense, bonuses, commissions and worker profit prices. Personnel prices are primarily associated to people related to sustaining our servers and web sites, our name middle operations, our editorial workers, shopper administration, inventive staff, content material, compliance group and media buying analysts. Costs related to software program incurred within the growth part or obtained for inside use are capitalized and amortized to value of income over the software program's estimated helpful life.
Operating Expenses
We classify our working bills into three classes: product growth,
gross sales and advertising and marketing, and basic and administrative. Our working bills
consist primarily of personnel prices and, to a lesser extent, skilled
providers charges, amenities charges and different prices. Personnel prices for every
class of working bills usually embody salaries, stock-based
compensation expense, bonuses, commissions and associated taxes, and worker
profit prices.
Product Development. Product growth bills consist primarily of personnel prices, amenities charges and skilled providers charges associated to the event and upkeep of our merchandise and media administration platform. We are constraining bills usually to the extent practicable.
Sales and Marketing. Sales and advertising and marketing bills consist primarily of personnel
prices, amenities charges and skilled providers charges. We are constraining
bills usually to the extent practicable.
General and Administrative. General and administrative bills consist primarily of personnel prices of our finance, authorized, worker advantages and compliance, technical assist and different administrative personnel, accounting and authorized skilled providers charges, amenities charges and unhealthy debt expense. We are constraining bills usually to the extent practicable.
Interest and Other Income, Net
Interest and different revenue, web, consists primarily of curiosity expense, curiosity revenue, and different revenue and expense. Interest expense is expounded to imputed curiosity on post-closing funds associated to our acquisitions. We haven't any borrowing agreements excellent as ofJune 30, 2021 ; nonetheless curiosity expense may improve if, amongst different issues, we enter into a brand new borrowing settlement to handle liquidity or make further acquisitions by debt financing. Interest revenue represents curiosity earned on our money and money equivalents, which can improve or lower relying on market rates of interest and the quantities invested. Other revenue and expense consists of positive aspects and losses on overseas forex change, positive aspects and losses on divestitures of subsidiaries, shopper verticals and belongings that weren't thought of to be strategically necessary to our enterprise, and different non-operating gadgets.
(Provision for) Benefit from Income Taxes
We are topic to tax inthe United States in addition to different tax jurisdictions or nations wherein we conduct enterprise. Earnings from our restricted non-U.S. actions are topic to native nation revenue tax and could also be topic toU.S. revenue tax. 38
--------------------------------------------------------------------------------
Results of Operations
The following desk units forth our consolidated statements of operations for the durations indicated: Fiscal Year Ended June 30, 2021 2020 2019 (In 1000's, besides percentages) Net income$ 578,487 100.0 %$ 490,339 100.0 %$ 455,154 100.0 % Cost of income (1) 507,956 87.8 437,864 89.3 393,509 86.5 Gross revenue 70,531 12.2 52,475 10.7 61,645 13.5 Operating bills: (1) Product growth 19,344 3.3 14,206 2.9 12,329 2.6 Sales and advertising and marketing 10,991 1.9 8,876 1.8 8,755 1.9 General and administrative 26,270 4.6 23,188 4.7 29,834 6.6 Operating revenue 13,926 2.4 6,205 1.3 10,727 2.4 Interest revenue 39 - 230 - 290 - Interest expense (1,296 ) (0.2 ) (696 ) (0.1 ) (367 ) - Other revenue, web 16,660 2.9 12,947 2.6 69 - Income earlier than revenue taxes 29,329 5.1 18,686 3.8 10,719 2.4 (Provision for) profit from revenue taxes (5,774 ) (1.0 ) (584 ) (0.1 ) 51,761 11.3 Net revenue$ 23,555 4.1 %$ 18,102 3.7 %$ 62,480 13.7 %
(1) Cost of income and working bills embody stock-based compensation
expense as follows: Cost of income$ 8,997 1.6 %$ 8,569 1.7 %$ 7,354 1.6 % Product growth 2,339 0.4 1,819 0.4 1,606 0.4 Sales and advertising and marketing 2,459 0.4 1,701 0.3 1,358 0.3 General and administrative 5,838 1.0 4,628 0.9 3,810 0.8 Gross Profit Fiscal Year Ended June 30, 2021 - 2020 2020- 2019 2021 2020 2019 % Change % Change (In 1000's) Net income$ 578,487 $ 490,339 $ 455,154 18 % 8 % Cost of income 507,956 437,864 393,509 16 % 11 % Gross revenue$ 70,531 $ 52,475 $ 61,645 34 % (15 %) Net Revenue Net income elevated by$88.1 million , or 18%, in fiscal 12 months 2021 in comparison with fiscal 12 months 2020. Revenue from our residence providers shopper vertical elevated by$84.6 million , or 169%, primarily consequently of inorganic and natural (synergy) income results from the acquisition of Modernize accomplished in fiscal 12 months 2021. Revenue from our monetary providers shopper vertical elevated by$60.5 million , or 17%, primarily because of our enhanced product set and knowledge analytics that enabled entry to extra media and a rise in shopper budgets in our insurance coverage enterprise, offset by a decline in income within the credit-driven companies because of weakening financial and employment circumstances attributable to COVID-19. Other income, which primarily consists of efficiency advertising and marketing company and know-how providers, contributed$5.5 million of income for fiscal 12 months 2021. The enterprise divestitures accomplished in fiscal years 2021 and 2020 decreased income by$62.5 million for fiscal 12 months 2021. Net income elevated by$35.2 million , or 8%, in fiscal 12 months 2020 in comparison with fiscal 12 months 2019. Revenue from our monetary providers shopper vertical elevated by$57.7 million , or 19%, primarily because of our enhanced product set and knowledge analytics that enabled entry to extra media and a rise in shopper budgets in our insurance coverage enterprise. The change in income from our monetary providers shopper vertical was additionally pushed by elevated income from our private loans enterprise, primarily consequently of the acquisition of AmOne accomplished within the first quarter of fiscal 12 months 2019, and elevated income from our bank cards and banking companies pushed by increasing media sources, offset by a decline in income in the credit-driven companies over the last fiscal quarter because of 39 -------------------------------------------------------------------------------- weakening financial and employment circumstances attributable to COVID-19. Revenue from our residence providers shopper vertical elevated by$9.7 million , or 24%, primarily attributable to elevated shopper demand. Revenue from our former schooling shopper vertical (disposed in fiscal 12 months 2021) decreased by$7.3 million , or 11%, primarily because of the loss of a big not-for-profit schooling shopper who entered federal receivership inJanuary 2019 . The enterprise divestitures accomplished in fiscal 12 months 2020 decreased income by$24.9 million for fiscal 12 months 2020.
Cost of Revenue and Gross Profit Margin
Cost of income elevated by$70.1 million , or 16%, in fiscal 12 months 2021 in contrast to fiscal 12 months 2020. This was primarily pushed by elevated media and advertising and marketing prices of$58.0 million , elevated personnel prices together with stock-based compensation expense of$6.0 million , and elevated amortization of intangible belongings of$4.7 million . The improve in media and advertising and marketing prices was related with larger income volumes. The improve in personnel prices was primarily due to larger headcount related to the Modernize acquisition, elevated incentive compensation related to the achievement of efficiency goals for fiscal 12 months 2021 and elevated stock-based compensation expense. The improve in amortization expense was primarily because of the acquisitions of intangible belongings in fiscal 12 months 2021. Gross revenue margin, which is the distinction between web income and value of income as a proportion of web income, was 12% in fiscal 12 months 2021 in comparison with 11% in fiscal 12 months 2020. The improve in gross revenue margin was primarily attributable to decreased media and advertising and marketing prices as a proportion of income. Cost of income elevated by$44.4 million , or 11%, in fiscal 12 months 2020 in contrast to fiscal 12 months 2019. This was primarily pushed by elevated media and advertising and marketing prices of$34.0 million , elevated personnel prices together with stock-based compensation expense of$7.6 million , and elevated amortization of intangible belongings of$2.5 million . The improve in media and advertising and marketing prices was related with larger income volumes. The improve in personnel prices and stock-based compensation was primarily because of larger headcount consequently of the acquisitions accomplished in fiscal 12 months 2019. The improve in amortization expense was primarily because of the acquisitions of intangible belongings in fiscal 12 months 2019. Gross revenue margin was 11% in fiscal 12 months 2020 in comparison with 14% in fiscal 12 months 2019. The lower in gross revenue margin was attributable to elevated media charges and personnel prices as a proportion of income. Operating Expenses Fiscal Year Ended June 30, 2021 - 2020 2020- 2019 2021 2020 2019 % Change % Change (In 1000's) Product growth$ 19,344 $ 14,206 $ 12,329 36 % 15 % Sales and advertising and marketing 10,991 8,876 8,755 24 % 1 % General and administrative 26,270 23,188 29,834 13 % (22 %) Operating bills$ 56,605 $ 46,270 $ 50,918 22 % (9 %)
Product Development Expenses
Product growth bills elevated by$5.1 million , or 36%, in fiscal 12 months 2021 in comparison with fiscal 12 months 2020. This was primarily because of elevated personnel prices of$4.5 million consequently of larger headcount related to the Modernize acquisition, elevated incentive compensation related to the achievement of efficiency goals for fiscal 12 months 2021 and elevated stock-based compensation expense. Product growth bills elevated by$1.9 million , or 15%, in fiscal 12 months 2020 in comparison with fiscal 12 months 2019, primarily because of elevated personnel prices of$1.8 million consequently of annual compensation will increase.
Sales and Marketing Expenses
Sales and advertising and marketing bills elevated by$2.1 million , or 24%, in fiscal 12 months 2021 in comparison with fiscal 12 months 2020. This was primarily because of elevated personnel prices of$2.2 million consequently of elevated incentive compensation related with the achievement of efficiency goals for fiscal 12 months 2021 and elevated stock-based compensation expense.
Sales and advertising and marketing bills elevated by
2020 in comparison with fiscal 12 months 2019.
40 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative bills elevated by$3.1 million , or 13%, in fiscal 12 months 2021 in comparison with fiscal 12 months 2020. This was primarily because of elevated personnel prices of$2.0 million consequently of elevated stock-based compensation expense and elevated incentive compensation related to the achievement of efficiency goals for fiscal 12 months 2021. General and administrative bills decreased by$6.6 million , or 22%, in fiscal 12 months 2020 in comparison with fiscal 12 months 2019, primarily because of a cost of$8.7 million for unhealthy debt expense associated to a big former schooling shopper recorded in fiscal 12 months 2019, offset by elevated personnel prices together with stock-based compensation expense of$1.4 million , and elevated amenities expense of$0.6 million .
Interest and Other Income, Net
Fiscal Year Ended June 30, 2021 - 2020 2020- 2019 2021 2020 2019 % Change % Change (In 1000's) Interest revenue$ 39 $ 230 $ 290 (83 %) (21 %) Interest expense (1,296 ) (696 ) (367 ) 86 % 90 % Other revenue, web 16,660 12,947 69 29 % NM
Interest and different revenue, web
23 % NM NM - not significant
Interest revenue pertains to curiosity earned on our money and money equivalents in
fiscal years 2021, 2020 and 2019.
Interest expense elevated by$0.6 million , or 86%, in fiscal 12 months 2021 in contrast to fiscal 12 months 2020 primarily because of elevated imputed curiosity on the next common excellent steadiness of the post-closing funds associated to our enterprise acquisitions accomplished in fiscal 12 months 2021. Interest expense elevated by$0.3 million , or 90%, in fiscal 12 months 2020 in comparison with fiscal 12 months 2019 primarily due to elevated imputed curiosity on the next common excellent steadiness of the post-closing funds associated to our enterprise acquisitions accomplished in fiscal 12 months 2019. Other revenue, web, was$16.7 million in fiscal 12 months 2021 primarily because of a achieve of$16.6 million acknowledged from the divestiture of our schooling shopper vertical. Other revenue, web, was$12.9 million in fiscal 12 months 2020 primarily due to a web disposition achieve of$13.6 million acknowledged from the enterprise divestitures accomplished in the course of the fiscal 12 months. Other revenue, web, was immaterial in fiscal 12 months 2019.
(Provision for) Benefit from Income Taxes
Fiscal Year Ended June 30, 2021 2020 2019 (In 1000's) (Provision for) profit from revenue taxes$ (5,774 ) $ (584 ) $ 51,761 Effective tax price 19.7 % 3.1 % (482.9 %) We recorded a provision for revenue taxes of$5.8 million in fiscal 12 months 2021, primarily consequently of deferred federal and state revenue taxes of$5.3 million and present state and overseas taxes of$0.4 million . We recorded a provision for revenue taxes of$0.6 million in fiscal 12 months 2020, primarily consequently of deferred federal and state revenue taxes of$3.5 million , offset by an anticipated tax refund of$3.1 million to be obtained from the California Franchise Tax Board, based mostly on a settlement reached within the third quarter of fiscal 12 months 2020. We recorded a valuation allowance in opposition to the bulk of our deferred tax belongings on the finish of fiscal 12 months 2014. In the second quarter of fiscal 12 months 2019, because of the preponderance of optimistic proof, together with our cumulative revenue earlier than taxes and future forecasts of continued profitability inthe United States , we decided that ample optimistic proof existed to conclude that considerably all of our valuation allowance was now not wanted. Accordingly, we recorded a one-time non-cash profit from revenue taxes of$49.4 million associated to the discharge of the valuation allowance for almost all of our federal and states deferred tax belongings. 41 -------------------------------------------------------------------------------- Our efficient tax price was 19.7%, 3.1%, and (482.9%) in fiscal years 2021, 2020 and 2019. The change within the efficient tax price in fiscal 12 months 2019 was primarily because of the launch of the valuation allowance associated tothe United States federal and state deferred tax belongings with the exception ofCalifornia analysis and growth tax credit and the profit of extra share-based compensation tax deductions.
Selected Quarterly Financial Data
The following desk units forth our unaudited quarterly condensed consolidated statements of operations for the eight quarters endedJune 30, 2021 . We have ready the statements of operations for every of these quarters on the identical foundation because the audited consolidated monetary statements included elsewhere in this report and, within the opinion of administration, every assertion of operations consists of all changes, consisting solely of regular recurring changes, essential for the truthful assertion of the outcomes of operations for these durations. This info must be learn at the side of the audited consolidated monetary statements and associated notes included elsewhere on this report. These quarterly working outcomes usually are not essentially indicative of our working outcomes for any future interval. Three Months Ended June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, 2021 2021 2020 2020 2020 2020 2019 2019 (In
1000’s, besides per share knowledge)
(unaudited)
Net income$ 151,198 $ 153,052 $ 134,968 $
139,269
Costs of income
132,623 132,665 120,437
122,231 105,147 114,210 105,318 113,189
Gross revenue
18,575 20,387 14,531
17,038 11,814 14,453 12,783 13,425
Operating bills:
Product growth
4,568 4,905 4,980
4,891 4,001 3,250 3,399 3,556
Sales and advertising and marketing
2,688 2,768 2,892
2,643 1,805 2,116 2,592 2,363
General and
administrative
6,339 6,460 6,890 6,581 6,789 5,076 5,498 5,825 Operating revenue (loss) 4,980 6,254 (231 ) 2,923 (781 ) 4,011 1,294 1,681 Interest revenue - 5 12 22 61 43 54 72 Interest expense (349 ) (301 ) (307 ) (339 ) (130 ) (177 ) (177 ) (212 ) Other (expense) revenue, web (35 ) (28 ) 34 16,689 2,722 10,491 (9 ) (257 ) Income (loss) earlier than revenue taxes 4,596 5,930 (492 )
19,295 1,872 14,368 1,162 1,284
(Provision for) profit
from revenue taxes
(1,225 ) (893 ) 958
(4,614 ) (370 ) (449 ) 387 (152 )
Net revenue
$ 3,371 $ 5,037 $ 466 $
14,681
Net revenue per share: (1) Basic$ 0.06 $ 0.09 $ 0.01 $ 0.28 $ 0.03 $ 0.27 $ 0.03 $ 0.02 Diluted$ 0.06 $ 0.09 $ 0.01 $ 0.27 $ 0.03 $ 0.26 $ 0.03 $ 0.02 Other Financial Data: Adjusted EBITDA$ 14,242 $ 15,411 $ 10,032 $ 12,503 $ 8,398 $ 9,332 $ 9,063 $ 9,436
(1) Net revenue per share for the 4 quarters of every fiscal 12 months could not sum to
the overall for the fiscal 12 months consequently of the totally different quantity of shares
excellent throughout every interval.
Adjusted EBITDA
We embody adjusted EBITDA on this report as a result of (i) we search to handle our enterprise to a stage of adjusted EBITDA as a proportion of web income, (ii) is used internally by administration for planning functions, together with preparation of inside budgets; to allocate assets; to guage the effectiveness of operational methods and capital expenditures in addition to the capability to service debt, (iii) it's a key foundation upon which administration assesses our working efficiency, (iv) it's one of the first metrics buyers use in evaluating Internet advertising and marketing corporations, (v) it's a think about figuring out compensation, (vi) it is a component of sure monetary covenants beneath our historic borrowing preparations, and (vii) it's a issue that assists buyers within the evaluation of ongoing working tendencies. We outline adjusted EBITDA as web revenue much less curiosity and different expense, web, provision for (profit from) revenue 42
--------------------------------------------------------------------------------
taxes, depreciation expense, amortization expense, stock-based compensation
expense, acquisition and divestiture prices, achieve on divestitures of companies,
web, strategic overview prices, litigation settlement expense, tax settlement
expense, and restructuring prices.
We use adjusted EBITDA as a key efficiency measure as a result of we consider it facilitates working efficiency comparisons from interval to interval by excluding potential variations attributable to variations in capital constructions (affecting curiosity expense), tax positions (such because the impression of adjustments in efficient tax charges or fluctuations in everlasting variations or discrete quarterly gadgets), non-recurring costs and sure different gadgets that we don't consider are indicative of our core working actions (reminiscent of acquisition and divestiture associated expense, achieve or loss on divestitures of companies, strategic overview prices, litigation settlement expense, tax settlement expense, restructuring prices, and different expense, web) and the non-cash impression of depreciation expense, amortization expense and stock-based compensation expense. In addition, we consider adjusted EBITDA and comparable measures are extensively utilized by buyers, securities analysts, scores businesses and different events in our {industry} as a measure of monetary efficiency, debt-service capabilities and as a metric for analyzing firm valuations. Our use of adjusted EBITDA has limitations as an analytical instrument, and it shouldn't be thought of in isolation or as an alternative to evaluation of our outcomes as reported beneath GAAP. Some of these limitations are:
• adjusted EBITDA doesn’t replicate our money expenditures for capital
tools or different contractual commitments;
• though depreciation and amortization are non-cash costs, the belongings
being depreciated and amortized could have to get replaced sooner or later, and
adjusted EBITDA doesn’t replicate money capital expenditure necessities for
such replacements;
• adjusted EBITDA doesn’t replicate adjustments in, or money necessities for, our
working capital wants; • adjusted EBITDA doesn't think about the possibly dilutive impression of
issuing stock-based compensation to our administration staff and staff;
• ought to we enter into borrowing preparations sooner or later, adjusted EBITDA
doesn’t replicate the curiosity expense or the money necessities that could be
essential to service curiosity or principal funds on such indebtedness;
• adjusted EBITDA doesn’t replicate sure tax funds which will symbolize a
discount in money obtainable to us; and
• different corporations, together with corporations in our {industry}, could calculate
adjusted EBITDA measures in a different way, which reduces their usefulness as a
comparative measure.
Due to those limitations, adjusted EBITDA shouldn't be thought of as a measure of discretionary money obtainable to us to spend money on the expansion of our enterprise. When evaluating our efficiency, adjusted EBITDA must be thought of alongside different monetary efficiency measures, together with varied money stream metrics, web revenue (loss) and our different GAAP outcomes. 43 --------------------------------------------------------------------------------
The following desk presents a reconciliation of adjusted EBITDA to web revenue,
probably the most comparable GAAP measure, for every of the durations indicated:
Three Months Ended June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, 2021 2021 2020 2020 2020 2020 2019 2019 (In 1000's) (unaudited) Net revenue$ 3,371 $ 5,037 $ 466 $ 14,681 $ 1,502 $ 13,919 $ 1,549 $ 1,132 Interest and different expense, web 384 324 261 243 106 462 132 397
Provision for (profit from) revenue taxes 1,225 893 (958 ) 4,614 370 449 (387 ) 152 Depreciation and amortization 4,191 3,874 4,003 4,133 2,959 2,851 2,854 2,812 Stock-based compensation expense 4,442 4,856 5,555 4,780 5,500 1,869 4,700 4,648 Acquisition and divestiture prices 45 160 330 276 634 40 16 295 Gain on divestitures of companies, web - - - (16,615 ) (2,759 ) (10,819 ) - - Strategic overview prices - - - - 68 63 199 - Litigation settlement expense 231 - - - 15 80 - - Tax settlement expense 310 - - - - - - - Restructuring prices 43 267 375 391 3 418 - - Adjusted EBITDA$ 14,242 $ 15,411 $ 10,032 $
12,503
Net income$ 151,198 $ 153,052 $ 134,968 $ 139,269 $ 116,961 $ 128,663 $ 118,101 $ 126,614 Net revenue as a proportion of web income 2 % 3 % - % 11 % 1 % 11 % 1 % 1 % Adjusted EBITDA as a proportion of web income 9 % 10 % 7 % 9 % 7 % 7 % 8 % 7 % We search to handle our enterprise to a stage of adjusted EBITDA as a proportion of web income. We achieve this on a fiscal 12 months foundation by various our operations to steadiness income development and prices all through the fiscal 12 months. We don't search to handle our enterprise to a stage of adjusted EBITDA on a quarterly foundation and we count on our adjusted EBITDA margins to range from quarter to quarter.
Liquidity and Capital Resources
As ofJune 30, 2021 , our principal sources of liquidity consisted of money and money equivalents of$110.3 million and money we count on to generate from future operations. Our money and money equivalents are maintained in extremely liquid investments with remaining maturities of 90 days or much less on the time of buy. We consider our money equivalents are liquid and accessible. Our short-term and long-term liquidity necessities primarily come up from our working capital necessities, capital expenditures, inside software program growth prices and acquisitions once in a while. Our acquisitions in fiscal years 2021 and 2019 even have deferred buy value elements and contingent consideration which requires us to make a collection of funds following the acquisition cut-off date. Our major working money necessities embody the fee of media prices, personnel prices, prices of info know-how programs and workplace amenities. Our capability to fund these necessities will rely upon our future money flows, that are decided, partially, by future working efficiency and are, due to this fact, topic to prevailing international macroeconomic circumstances together with the impression of COVID-19, and monetary, enterprise and different elements, some of that are past our management. Even although we could not want further funds to fund anticipated liquidity necessities, we should elect to acquire debt financing or concern further fairness securities for different causes. 44 --------------------------------------------------------------------------------
We consider that our principal sources of liquidity will likely be ample to fulfill
our presently anticipated money necessities by no less than the subsequent 12 months.
The following desk summarizes our money flows for the durations indicated:
Fiscal Year Ended June 30, 2021 2020 2019 (In 1000's) Net money supplied by working actions$ 50,615 $ 47,608 $ 37,965 Net money (utilized in) supplied by investing actions (36,457 ) 8,868 (36,989 ) Net money utilized in financing actions (11,312 ) (11,632 ) (4,054 )
Net Cash Provided by Operating Activities
Cash flows from working actions are primarily the consequence of our web revenue adjusted for depreciation and amortization, profit from or provision for gross sales returns and uncertain accounts receivable, stock-based compensation expense, non-cash lease expense, positive aspects and losses on divestitures of companies, deferred revenue taxes and adjustments in working capital elements.
Cash supplied by working actions was
in comparison with
2019.
Cash supplied by working actions in fiscal 12 months 2021 consisted of web revenue of$23.6 million , adjusted for non-cash changes of$24.2 million and adjustments in working capital accounts of$2.8 million . The non-cash changes primarily consisted of stock-based compensation expense of$19.6 million , depreciation and amortization of$16.2 million , and a lower in deferred tax belongings of$5.4 million primarily because of provision for revenue taxes recorded in fiscal 12 months 2021, offset by a achieve of$16.6 million acknowledged from the divestiture of our schooling shopper vertical. The adjustments in working capital accounts had been primarily attributable to a rise in accrued liabilities of$10.6 million , a rise in accounts payable of$6.6 million , and a lower in pay as you go bills and different belongings of$6.0 million , offset by a rise in accounts receivable of$20.1 million . The will increase in accounts payable and accrued liabilities had been because of the timing of funds. The lower in pay as you go bills and different belongings was primarily because of the refund of an unamortized pay as you go expense of$5.3 million . The improve in accounts receivable was because of the timing of receipts. Cash supplied by working actions in fiscal 12 months 2020 consisted of web revenue of$18.1 million , adjusted for non-cash changes of$19.4 million and adjustments in working capital accounts of$10.1 million . The non-cash changes primarily consisted of stock-based compensation expense of$16.7 million and depreciation and amortization of$11.5 million , offset by a web disposition achieve of$13.6 million acknowledged from the enterprise divestitures accomplished in fiscal 12 months 2020. The adjustments in working capital accounts had been primarily attributable to a lower in accounts receivable of$11.4 million and a lower in different belongings, noncurrent of$5.5 million , offset by a rise in pay as you go bills and different belongings of$8.1 million . The lower in accounts receivable was because of the timing of receipts. The lower in different belongings, noncurrent, was primarily because of a reclassification of unamortized pay as you go expense of$4.3 million from long-term to short-term as we anticipated to obtain fee inside the subsequent 12 months. The improve in pay as you go bills and different belongings was primarily because of the reclassification of$4.3 million as mentioned above, in addition to an anticipated tax refund of$3.1 million to be obtained from the California Franchise Tax Board, based mostly on a settlement reached within the third quarter of fiscal 12 months 2020. Cash supplied by working actions in fiscal 12 months 2019 consisted of web revenue of$62.5 million , adjusted for non-cash changes of$19.0 million and adjustments in working capital accounts of$5.6 million . The non-cash changes primarily consisted of a one-time non-cash profit of$49.4 million associated to our launch of the valuation allowance for almost all of our federal and states deferred tax belongings, offset by stock-based compensation expense of$14.1 million , depreciation and amortization of$9.0 million , and unhealthy debt expense of$8.7 million associated to a big former schooling shopper. The adjustments in working capital accounts had been primarily attributable to a rise in accounts receivable of$8.3 million and a lower in accrued liabilities of$3.4 million , offset by a rise in accounts payable of$4.5 million . The improve in accounts receivable is primarily because of the improve in income, the lower in accrued liabilities is primarily because of a lower in accrued efficiency incentive compensation related to the decrease achievement of efficiency goals and the rise in accounts payable is primarily because of the timing of funds.
Cash flows from investing actions usually embody capital expenditures, capitalized inside software program growth prices, acquisitions once in a while, enterprise divestitures, and funding in fairness securities. 45 --------------------------------------------------------------------------------
Cash utilized in investing actions was
in comparison with money supplied by investing actions of
2020 and money utilized in investing actions of
Cash utilized in investing actions in fiscal 12 months 2021 was primarily because of funds for the acquisitions of Modernize,Mayo Labs and FCE, web of money acquired, of$49.3 million , capital expenditures and inside software program growth prices of$5.1 million , and funding in fairness securities of$4.0 million , offset by$21.9 million of money obtained from the divestitures of our schooling shopper vertical and B2B shopper vertical. Cash supplied by investing actions in fiscal 12 months 2020 was primarily because of$15.4 million money obtained from the enterprise divestitures accomplished in fiscal 12 months 2020, web of money divested of$0.3 million , offset by capital expenditures and inside software program growth prices of$4.3 million , and a money fee of$2.0 million related to an insignificant enterprise acquisition accomplished in fiscal 12 months 2020. Cash utilized in investing actions in fiscal 12 months 2019 was primarily because of our acquisitions of AmOne, CCM and MBT in fiscal 12 months 2019 for$32.7 million , web of money acquired of$3.1 million and capital expenditures and inside software program growth prices of$4.3 million .
Cash flows from financing actions usually embody fee of withholding taxes associated to the discharge of restricted inventory, web of share settlement, proceeds from the train of inventory choices, and post-closing funds associated to enterprise acquisitions.
Cash utilized in financing actions was
in comparison with money utilized in financing actions of
2020 and
Cash utilized in financing actions in fiscal 12 months 2021 was because of the fee of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$8.0 million , and fee of post-closing funds and contingent consideration associated to acquisitions of$7.7 million , offset by proceeds from the train of inventory choices of$4.4 million . Cash utilized in financing actions in fiscal 12 months 2020 was because of the post-closing funds and contingent consideration associated to acquisitions of$9.3 million , and funds of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$6.4 million , offset by proceeds from the train of inventory choices of$4.1 million . Cash utilized in financing actions in fiscal 12 months 2019 was because of the funds of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$9.9 million and post-closing funds associated to acquisitions of$2.0 million , offset by proceeds from the train of inventory choices of$7.8 million .
Off-Balance Sheet Arrangements
During the durations offered, we didn't have any materials relationships with unconsolidated entities or monetary partnerships, reminiscent of entities usually known as structured finance or particular function entities, which might have been established for the aim of facilitating off-balance sheet preparations or different contractually slim or restricted functions.
Contractual Obligations
The following desk units forth funds due beneath our contractual obligations as ofJune 30, 2021 : Total Less than 1 Year 1-3 Years 3-5 Years (In 1000's) Operating leases (1)$ 16,621 $ 6,432$ 9,432 $ 757 Post-closing fee associated to acquisitions (2) 34,954 10,262 14,966 9,726 Contingent consideration associated to acquisitions (2) 5,432 2,584 2,848 - Total$ 57,007 $ 19,278$ 27,246 $ 10,483
(1) We lease varied workplace amenities, together with our company headquarters in
escalation provisions and tenant enchancment allowances. 46
-------------------------------------------------------------------------------- InFebruary 2010 , we entered right into a lease settlement for our company headquarters situated at950 Tower Lane ,Foster City, California with an expiration date inOctober 2018 and an choice to increase the time period of the lease twice by one further 12 months. InApril 2018 , the lease settlement was amended to lengthen the lease time period byOctober 31, 2023 . Under the amended lease settlement, in the course of the first 12 months of the prolonged lease time period, the month-to-month base hire was abated for the primary eight months and elevated to$0.2 million for the remaining 4 months. During the second 12 months of the prolonged lease time period, the month-to-month base hire was abated for the primary 5 months and elevated to$0.3 million for the remaining seven months. Subsequently, after every 12-month anniversary, the month-to-month base hire will increase by roughly 3%. We have an choice to increase the time period of the lease for a further 5 years followingOctober 31, 2023 .
(2) In accordance with the phrases of the acquisitions accomplished in fiscal years
2021 and 2019, we’re required to make post-closing funds and contingent
consideration funds. See Note 6, Acquisitions, to our consolidated
monetary statements for extra info on the post-closing funds and
contingent consideration funds associated to our enterprise acquisitions.
The above desk doesn’t embody roughly
tax liabilities for uncertainty in revenue taxes because of the truth that we’re
unable to fairly estimate the timing of these potential future funds.
Critical Accounting Policies and Estimates
We have ready our consolidated monetary statements in conformity with accounting ideas usually accepted inthe United States of America ("GAAP"). In doing so, we're required to make estimates and assumptions that have an effect on the reported quantities of belongings and liabilities, disclosure of contingent belongings and liabilities on the date of the monetary statements and reported quantities of income and bills in the course of the reporting interval. Actual outcomes could differ considerably from these estimates. Some of the estimates and assumptions we're required to make relate to issues which can be inherently unsure as they pertain to future occasions. We base these estimates and assumptions on historic expertise or on varied different elements that we consider to be affordable and acceptable beneath the circumstances. On an ongoing foundation, we rethink and consider our estimates and assumptions. Additionally, COVID-19 is an element which can trigger precise outcomes to vary from estimates. COVID-19 is contributing to a basic slowdown within the international financial system and could have an effect on our enterprise, outcomes of operations, monetary situation, and future strategic plans. At this time, the extent to which the COVID-19 could impression our monetary situation or outcomes of operations is unsure. We refer to those estimates and assumptions as crucial accounting insurance policies and estimates. We consider that the crucial accounting insurance policies listed under contain our extra vital judgments, estimates and assumptions and, due to this fact, may have the best potential impression on our consolidated monetary statements. In addition, we consider {that a} dialogue of these insurance policies is critical to perceive and consider the consolidated monetary statements contained on this report.
See Note 2, Summary of Significant Accounting Principles, to our consolidated
monetary statements for additional info on our crucial and different
vital accounting insurance policies.
Revenue Recognition
We generate our income primarily from charges earned by the supply of certified inquiries reminiscent of clicks, leads, calls, purposes, or clients. We acknowledge income after we switch management of promised items or providers to our shoppers in an quantity that displays the consideration to which we count on to be entitled in change for these items or providers. We acknowledge income pursuant to the five-step framework contained in ASC 606, Revenue from Contracts with Customers: (i) determine the contract with a shopper; (ii) determine the efficiency obligations within the contract, together with whether or not they're distinct in the context of the contract; (iii) decide the transaction value, together with the constraint on variable consideration; (iv) allocate the transaction value to the efficiency obligations within the contract; and (v) acknowledge income when (or as) the Company satisfies the efficiency obligations. As half of figuring out whether or not a contract exists, likelihood of assortment is assessed on a client-by-client foundation on the outset of the contract. Clients are subjected to a credit score overview course of that evaluates the shoppers' monetary place and the flexibility and intention to pay. If it's decided from the outset of an association that the shopper doesn't have the flexibility or intention to pay, we are going to conclude {that a} contract doesn't exist and will repeatedly reassess our analysis till we're capable of conclude {that a} contract does exist. Generally, our contracts specify the interval of time as one month, however in some cases the time period could also be longer. However, for many of our contracts with shoppers, both social gathering can terminate the contract at any time with out penalty. Consequently, enforceable rights and obligations solely exist on a day-to-day foundation, leading to particular person each day contracts in the course of the specified time period of the contract or till one social gathering terminates the contract previous to the top of the specified time period. 47 -------------------------------------------------------------------------------- We have assessed the providers promised in our contracts with shoppers and have recognized one efficiency obligation, which is a collection of distinct providers. Depending on the shopper's wants, these providers consist of a specified or an limitless quantity of clicks, leads, calls, purposes, clients, and so on. (hereafter collectively known as "advertising and marketing outcomes") to be delivered over a interval of time. We fulfill these efficiency obligations over time because the providers are supplied. We don't promise to offer some other vital items or providers to our shoppers. Transaction value is measured based mostly on the consideration that we count on to obtain from a contract with a shopper. Our contracts with shoppers comprise variable consideration as the worth for a person advertising and marketing consequence varies on a day-to-day foundation relying on the market-driven quantity a shopper has dedicated to pay. However, as a result of we make sure the acknowledged interval of our contracts doesn't usually span a number of reporting durations, the contractual quantity inside a interval is predicated on the quantity of advertising and marketing outcomes delivered inside the interval. Therefore, the transaction value for any given interval is mounted and no estimation of variable consideration is required. If a advertising and marketing consequence delivered to a shopper doesn't meet the contractual necessities related to that advertising and marketing consequence, our contracts permit for shoppers to return a advertising and marketing consequence usually inside 5-10 days of having obtained the advertising and marketing consequence. Such returns are factored into the quantity billed to the shopper on a month-to-month foundation and consequently lead to a discount to income in the identical month the advertising and marketing result's delivered. No warranties are provided to our shoppers. We don't allocate transaction value as now we have just one efficiency obligation and our contracts don't usually span a number of durations. Taxes collected from shoppers and remitted to governmental authorities usually are not included in income. We elected to make use of the sensible expedient which permits us to file gross sales commissions as expense as incurred when the amortization interval would have been one 12 months or much less. We invoice shoppers month-to-month in arrears for the advertising and marketing outcomes delivered throughout the previous month. Our customary fee phrases are 30-60 days. Consequently, we wouldn't have vital financing elements in our preparations. Separately from the agreements that now we have with shoppers, now we have agreements with Internet search corporations, third-party publishers and strategic companions that we have interaction with to generate focused advertising and marketing outcomes for our shoppers. We obtain a payment from our shoppers and individually pay a payment to the Internet search corporations, third-party publishers and strategic companions. We consider whether or not we are the principal (i.e., report income on a gross foundation) or agent (i.e., report income on a web foundation). In doing so, we first consider whether or not we management the items or providers earlier than they're transferred to the shoppers. If we management the items or providers earlier than they're transferred to the shoppers, we're the principal within the transaction. As a consequence, the charges paid by our shoppers are acknowledged as income and the charges paid to our Internet search corporations, third-party publishers and strategic companions are included in value of income. If we don't management the products or providers earlier than they're transferred to the shoppers, we're the agent within the transaction and acknowledge income on a web foundation. We have one subsidiary, CCM, which supplies efficiency advertising and marketing company and know-how providers to shoppers in monetary providers, schooling and different markets, recognizing income on a web foundation. Determining whether or not we management the items or providers earlier than they're transferred to the shoppers could require judgment.
Stock-Based Compensation
We measure and file the expense associated to stock-based transactions based mostly on the truthful worth of the stock-based fee awards as decided on the date of grant. The truthful worth of restricted inventory models with a service situation ("service-based RSU") is set based mostly on the closing value of our frequent inventory on the date of grant. For inventory choices, now we have chosen and used the Black-Scholes choice pricing mannequin to estimate the truthful worth. The truthful worth of restricted inventory models with a service and efficiency situation ("performance-based RSU") is set based mostly on the closing value of our frequent inventory on the date of grant. Grant date as outlined by ASC 718 is set when the elements that comprise the efficiency targets have been absolutely established. If a grant date has not been established, the compensation expense related to the performance-based RSU is re-measured at every reporting date based mostly on the closing value of our frequent inventory at every reporting date till the grant date has been established. For restricted inventory models with a service and market situation ("market-based RSU"), now we have chosen and used the Monte Carlo simulation mannequin to estimate the truthful worth on the date of grant. In making use of these fashions, our willpower of truthful worth is affected by assumptions concerning a quantity of subjective variables. These variables embody, however usually are not restricted to, the anticipated inventory value volatility over the time period of the award and the workers' precise and projected inventory choice train and pre-vesting employment termination behaviors. We estimate the anticipated volatility of our frequent inventory based mostly on our historic volatility over the anticipated time period of the award. We haven't any historical past or expectation of paying dividends on our frequent inventory. The risk-free rate of interest is predicated on theU.S. Treasury yield for a time period in step with the anticipated time period of the award. 48 -------------------------------------------------------------------------------- We acknowledge stock-based compensation expense for choices and service-based RSUs utilizing the straight-line methodology, and for performance-based RSUs and market-based RSUs utilizing the graded vesting methodology, based mostly on awards in the end anticipated to vest. We estimate future forfeitures on the date of grant. On an annual foundation, we assess adjustments in our estimate of anticipated forfeitures based mostly on current forfeiture exercise. The impact of changes made to forfeiture charges, if any, is acknowledged within the interval that the change is made.
Business Combinations
We account for enterprise combos utilizing the acquisition methodology, which requires that the overall consideration for every of the acquired enterprise be allotted to the belongings acquired and liabilities assumed based mostly on their estimated truthful values on the acquisition date. The extra of the acquisition value over the truthful values of these identifiable belongings and liabilities is recorded as goodwill. During the measurement interval, which can be as much as one 12 months from the acquisition date, we could file changes to the belongings acquired and liabilities assumed with the corresponding offset to goodwill. In figuring out the truthful worth of belongings acquired and liabilities assumed in a enterprise mixture, we used the revenue method to worth our most vital acquired belongings. Significant assumptions regarding our estimates within the revenue method embody base income, income development price web of shopper attrition, projected gross margin, low cost charges, projected working bills and the future efficient revenue tax charges. The valuations of our acquired companies have been carried out by a third-party valuation specialist beneath our administration's supervision. We consider that the estimated truthful worth assigned to the belongings acquired and liabilities assumed are based mostly on affordable assumptions and estimates that market contributors would use. However, such assumptions are inherently unsure and precise outcomes may differ from these estimates. Future adjustments in our assumptions or the interrelationship of these assumptions could negatively impression future valuations. In future measurements of truthful worth, antagonistic adjustments in discounted money stream assumptions may lead to an impairment of goodwill or intangible belongings that might require a non-cash cost to the consolidated statements of operations and could have a cloth impact on our monetary situation and working outcomes. Acquisition associated prices usually are not thought of half of the consideration, and are expensed as working bills as incurred. Contingent consideration, if any, is measured at truthful worth initially on the acquisition date in addition to subsequently on the finish of every reporting interval till settlement on the finish of the evaluation interval. We embody the outcomes of operations of the companies acquired as of the start of the acquisition dates.
We conduct a take a look at for the impairment of goodwill on the reporting unit stage on no less than an annual foundation and at any time when there are occasions or adjustments in circumstances that might extra seemingly than not scale back the estimated truthful worth of a reporting unit under its carrying worth. Application of the goodwill impairment take a look at requires judgment, together with the identification of reporting models, assigning belongings and liabilities to reporting models, assigning goodwill to reporting models, and figuring out the truthful worth of every reporting unit. Significant judgments required to estimate the truthful worth of reporting models embody estimating future money flows and figuring out acceptable low cost charges, development charges, an acceptable management premium and different assumptions. Changes in these estimates and assumptions may materially have an effect on the willpower of truthful worth for every reporting unit which may set off impairment. We carry out our annual goodwill impairment take a look at onApril 30 and conduct a qualitative evaluation to find out whether or not it's essential to carry out a quantitative goodwill impairment take a look at. In assessing the qualitative elements, we think about the impression of key elements reminiscent of adjustments within the basic financial circumstances together with the impression of COVID-19, adjustments in {industry} and aggressive surroundings, inventory value, precise income efficiency in comparison with earlier years, forecasts and money stream technology. We had one reporting unit for functions of allocating and testing goodwill for fiscal years 2021 and 2020. Based on the outcomes of the qualitative evaluation accomplished as ofApril 30, 2021 and 2020, there have been no indicators of impairment.
Long-Lived Assets
We consider long-lived belongings, reminiscent of property and tools and bought intangible belongings with finite lives, for impairment at any time when occasions or adjustments in circumstances point out that the carrying worth of an asset is probably not recoverable. If essential, a quantitative take a look at is carried out that requires the software of judgment when assessing the truthful worth of an asset. When we determine an impairment, we scale back the carrying quantity of the asset to its estimated truthful worth based mostly on a reduced money stream method or, when obtainable and acceptable, to comparable market values. As ofApril 30, 2021 and 2020, we evaluated our long-lived belongings and concluded there have been no indicators of impairment. 49 --------------------------------------------------------------------------------
Income Taxes
We account for revenue taxes utilizing an asset and legal responsibility method to file deferred taxes. Our deferred revenue tax belongings symbolize non permanent variations between the monetary assertion carrying quantity and the tax foundation of current belongings and liabilities that can lead to deductible quantities in future years, together with web working loss carry forwards. Deferred tax belongings and liabilities are measured utilizing the presently enacted tax charges that apply to taxable revenue in impact for the years wherein these tax belongings and liabilities are anticipated to be realized or settled. Valuation allowances are supplied when essential to scale back deferred tax belongings to the quantity anticipated to be realized. We frequently assess the realizability of our deferred tax belongings. Judgment is required to decide whether or not a valuation allowance is critical and the quantity of such valuation allowance, if acceptable. We think about all obtainable proof, each optimistic and destructive, to find out, based mostly on the burden of obtainable proof, whether or not it's extra seemingly than not that some or all of the deferred tax belongings is not going to be realized. In evaluating the necessity, or continued want, for a valuation allowance we think about, amongst different issues, the character, frequency and severity of present and cumulative taxable revenue or losses, forecasts of future profitability, and the length of statutory carryforward durations. Our judgment concerning future profitability could change because of future market circumstances together with the impression of COVID-19, adjustments inU.S. or worldwide tax legal guidelines and different elements. We acknowledge tax advantages from an unsure tax place solely whether it is extra seemingly than not, based mostly on the technical deserves of the place, that the tax place will likely be sustained on examination by the tax authorities. The tax advantages acknowledged within the monetary statements from such positions are then measured based mostly on the biggest profit that has a better than 50% probability of being realized upon final settlement.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our consolidated
monetary statements for info with respect to current accounting
pronouncements and the impression of these pronouncements on our consolidated
monetary statements.
© Edgar Online, supply