Audit Committee Concludes Investigation
Company Completes Financial Statement Review;
Management Provides Update on Progress of Corporate Strategy
GlobalSCAPE, Inc. (NYSE American: GSB), a worldwide leader in
the secure movement and integration of data, has reported financial
results for the three and six months ended June 30, 2017, the three
and nine months ended September 30, 2017, the year ended December
31, 2017, and the three months ended March 31, 2018. The Company
also announced the conclusion of its previously announced Audit
Committee investigation and financial statement audit, provided
restated results for the years ended December 31, 2015 and 2016 and
the three months ended March 31, 2017, and provided an update on
the Company’s direction towards delivering cloud-based MFT
technology.
2018 Operational and Financial Highlights
- Launched Enhanced File Transfer (EFT™)
Arcus, a next-generation, cloud-based (SaaS) Managed File Transfer
(MFT) platform.
- Rebranded the organization to align
with its capabilities and long-term vision, which reflects the
Company’s direction towards becoming a cloud-based software and
services provider of MFT technology.
- Maintained strong financial position
with approximately $27.5 million of cash, cash equivalents and
short and long-term investments as of March 31, 2018.
- Maintained quarterly cash dividend of
$0.015 per share of common stock.
GlobalSCAPE Financial Overview
(in millions except per share data and percentages)
FY 2015 FY 2016 Q1
2017 Q2 2017 Q3 2017
Q4 2017 FY 2017
Q1 2018 Revenue $ 30.7
$ 32.6 $ 8.4
$ 8.5 $ 8.2
$ 8.8 $
33.9 $ 7.7 Gross
Profit ($) $ 25.4 $ 26.3 $
6.9 $ 6.9 $ 6.6 $
7.3 $ 27.7 $ 6.1 Gross Profit
(%) 83% 81% 82% 81% 81%
83% 82% 79% Net Income (Loss)
$ 4.5 $ 3.6 $ 0.8
$ 0.5 $ 0.3 $ (0.2)
$ 1.4 $ (1.0) Net Income (Loss) per
Diluted Share $ 0.21 $ 0.17
$ 0.04 $ 0.02 $ 0.01
$ (0.01) $ 0.06 $ (0.04)
Adjusted EBITDA1 $ 7.3 $
6.5 $ 1.6 $ 1.0 $
0.8 $ 1.0 $ 4.4 $
(0.5)
As
of
12/31/2015 12/31/2016
3/31/2017 6/30/2017
9/30/2017 12/31/2017
12/31/2017 3/31/2018
Cash, Cash Equivalents, and Short-term Investments $
19.1 $ 11.6 $ 13.2 $
11.5 $ 14.2 $ 15.9 $
15.9 $ 16.0 Long-term Investments
$ - $ 12.8 $ 12.8
$ 12.9 $ 13.0 $ 11.5
$ 11.5 $ 11.6
1) Adjusted EBITDA is not a measure of financial performance
under GAAP. It should not be considered as a substitute for net
income presented on our consolidated statement of operations and
comprehensive income. See reconciliation of this non-GAAP measure
below.
Conclusion of Investigation and Financial Statement
Audit
In June 2017, GlobalSCAPE’s Audit Committee (the “Committee”)
began conducting an investigation into certain transactions
previously recorded in the fourth quarter of 2016. The Committee
initially discovered that for a limited number of transactions in
the fourth quarter of 2016, certain employees, who are no longer
with the organization, had circumvented the Company’s internal
controls and made undisclosed side arrangements with certain
customers. These improper arrangements had the effect of
overstating the Company’s accounts receivable and license revenue
for the fourth quarter and full year 2016. In addition to these
transactions, the Committee and management found additional
improper transactions and revenue that had been improperly
recognized totaling $345,000 for the year ended 2016. The Committee
has completed the investigation and the Company has been
implementing appropriate remedial measures.
Due to the investigation, the Company also underwent a process
to prepare, review and, where necessary, restate its financial
statements for the fiscal years ended December 31, 2015 and 2016,
the amendment of its Annual Report on Form 10-K for the year ended
December 31, 2016, the amendment of its Quarterly Report on Form
10-Q for the quarter ended March 31, 2017, and the preparation and
review of its financial statements for the quarterly periods ended
June 30, 2017, September 30, 2017, and March 31, 2018, and the year
ended December 31, 2017.
The financial statement audit is now complete, and the final
results include:
- A $741,000 reduction of fourth quarter
and full year 2016 revenue, including $396,000 relating to the
circumvention of the Company’s internal controls first reported in
August 2017 with the remainder relating to additional improper
transactions and improper revenue recognition.
- A $676,000 reduction of accounts
receivable as of December 31, 2016, compared to the $403,000
initially reported.
More detailed information is set forth in the Company’s Annual
Report on Form 10-K/A for the year ended December 31, 2016 filed
with the Securities and Exchange Commission on June 14, 2018 and
the other periodic reports filed with the Securities and Exchange
Commission on June 14, 2018.
The Company also disclosed in its filings with the Securities
and Exchange Commission that it had identified one or more material
weaknesses in its internal control over financial reporting and its
disclosure controls and procedures. The Company has been
implementing a number of ongoing remedial measures in order to
remedy these weaknesses. These measures include:
- Developing more detailed revenue
recognition practices and policies;
- Strengthening the Company’s overall
controls, and disclosure processes and systems; and,
- Implementing financial accounting and
reporting literacy training for the Company’s accounting, finance
and sales teams.
Corporate Strategy Update
In June 2017, GlobalSCAPE introduced a data integration product
which we intended to sell under the brand name Kenetix. We licensed
the technology for this product from a third party. This product is
a cloud-based, integration-as-a-service, or iPaaS, solution used to
connect applications, microservices, application program interfaces
(or API’s), and data and processes, within and between
organizations. We have experienced issues with this third-party
technology. As such, GlobalSCAPE has determined to suspend both
sales and marketing of the product as we evaluate options and
ascertain whether the licensor can effectively address the issues.
This decision does not change the Company’s overall strategy, which
is to:
- Continue to invest in, and drive growth
of, the Company’s EFT platform;
- Transition to cloud/SaaS-based services
through the sale of EFT Arcus; and,
- Continue to explore, evaluate and
integrate with adjacent technologies to accelerate its product
portfolio and revenue growth.
Management Commentary from Matt Goulet, President and CEO of
GlobalSCAPE
“Despite the significant distractions that came with the
investigation, we enhanced our solutions; bolstered our leadership
team; rolled out EFT Arcus, our cloud-based MFT platform; grew our
cash balance; and maintained our dividend. Our business continues
to remain robust, and we believe we have a solid plan in place to
execute our key initiatives and build operational momentum.
“One of the key initiatives we’re focused on is growing our core
MFT business and transitioning GlobalSCAPE into a cloud-based MFT
software and services company. In January 2018, we rebranded the
organization and launched EFT Arcus, which was a significant
milestone for GlobalSCAPE and a major push to the cloud. EFT Arcus
complements our traditional on-premises license model and creates
new opportunities with potential customers who we would not have
previously attracted—who are looking to migrate to the cloud or
adopt a hybrid model—and expands our leadership position in the MFT
market.
“Industry analysts at OVUM estimate that cloud share for the MFT
market is growing at 3X compared to on-premises MFT. What’s more,
this growth rate is expected to increase to 3.5X by 2021. Overall,
we’re excited to be making this significant first step toward
becoming a leading cloud-based MFT software and services company,
and we believe this milestone is just the beginning.
“It’s important to note that throughout the investigation and
audit process, our growth strategy and long-term outlook didn’t
materially change. Although we’ve suspended marketing the Kenetix
product while we evaluate options and ascertain whether the
licensor can effectively address the issues, we remain focused on
investing in, and driving growth of, our core EFT platform, while
continuing to push towards cloud and SaaS-based services through
EFT Arcus. We’ll also continue to explore, evaluate and integrate
with adjacent technologies to accelerate our overall growth. As we
look to build on our forward progress, these key growth drivers,
coupled with our long-term strategy and enhanced leadership team,
have guided us before the investigation, and are guiding us even
more now. We remain optimistic about staying ahead of the
industry’s shift to the cloud, and our ability to capture a larger
share of the MFT market.
“In summary, I’m pleased with how the entire team has carried
itself during what was a very challenging time in our history. The
initiatives we implemented during the past twelve months have
helped instill in GlobalSCAPE the kind of product strength,
leadership, channel support and operating efficiencies needed to
help us build on our market status as one of the leading providers
helping customers securely move and enhance the value of their
data. We’re excited to build on our momentum and to make a bigger
impact in the secure data movement space, whether that’s
on-premises, in the cloud, or both. We’ve come out of this process
more driven and focused than ever, which we believe will translate
to stronger growth and profitability—both now and over the
long-term.”
About GlobalSCAPE
GlobalSCAPE, Inc. (NYSE American: GSB) is a pioneer in securing
and automating the movement and integration of data seamlessly in,
around and outside your business, between people and places, in and
out of the cloud. GlobalSCAPE provides technology that automates
your work and secures your data, while giving visibility to those
who need it. GlobalSCAPE makes business flow brilliantly. For more
information, visit http://www.globalscape.com or follow the blog
and Twitter updates.
Safe Harbor Statement
This press release 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. The words
“would,” “exceed,” “should,” “anticipates,” “believe,” “expect,”
and variations of such words and similar expressions identify
forward-looking statements, but their absence does not mean that a
statement is not a forward-looking statement. These forward-looking
statements are based upon the Company’s current expectations and
are subject to a number of risks, uncertainties and assumptions.
The Company undertakes no obligation to update any forward-looking
statements, whether as a result of new information, future events
or otherwise. Among the important factors that could cause actual
results to differ significantly from those expressed or implied by
such forward-looking statements are risks that are detailed in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2017 filed with the SEC on June 14, 2108; the discovery of
additional information relevant to the internal investigation; the
conclusions of the Company’s Audit Committee (and the timing of the
conclusions) concerning matters relating to the internal
investigation; the timing of the review by, and the conclusions of,
GlobalSCAPE’s independent registered public accounting firm
regarding the internal investigation and GlobalSCAPE’s financial
statements; the possibility that additional errors may be
identified; the risk that the completion and filing of the
Company’s reports to be filed with the SEC will take longer than
expected; pending litigation and other proceedings and the
possibility of further legal proceedings adverse to GlobalSCAPE
resulting from the restatement or related matters; and the costs
associated with the restatement and the investigation.
Use of Non-GAAP Measures
The Company utilizes Adjusted EBITDA (Earnings Before Interest,
Taxes, Total Other Income/Expense, Depreciation, Amortization,
other than amortization of capitalized software development costs,
and Share-Based Compensation Expense) to provide a view of income
and expenses that is supplemental and secondary to the primary
assessment of net income as presented in the consolidated statement
of operations and comprehensive income.
Adjusted EBITDA is not a measure of financial performance under
GAAP. It should not be considered as a substitute for net income
presented on our consolidated statement of operations and
comprehensive income. Adjusted EBITDA has limitations as an
analytical tool and when assessing our operating performance.
Adjusted EBITDA should not be considered in isolation or without a
simultaneous reading and consideration of our consolidated
financial statements prepared in accordance with GAAP.
GlobalSCAPE, Inc. Adjusted EBITDA (in thousands)
FY 2015
FY 2016 Q1 2017
Q2 2017 Q3 2017
Q4 2017 FY 2017 Q1
2018 Net Income (Loss) $ 4,526
$ 3,585 $ 831
$ 457 $ 276
$ (194 ) $ 1,370 $
(935 ) Add (subtract) items to determine adjusted
EBITDA: Income tax expense (benefit) 1,861
1,801 411 265 194 677 $
1,547 (232 ) Interest (income) expense,
net (78 ) (159 ) (70
) (77 ) (75 ) (75
) $ (297 ) (76 )
Depreciation and amortization: Total depreciation and
amortization 1,553 2,045 541 516
547 540 $ 2,144 594
Amortization of capitalized software development costs
(1,283 ) (1,777 ) (474 )
(446 ) (484 ) (479 )
$ (1,883 ) (534 )
Stock-based compensation expense 711 1,014
337 335 381 513 $ 1,566
671
Adjusted EBITDA $
7,290 $ 6,509
$ 1,576 $
1,050 $ 839
$ 982 $
4,447 $ (512 )
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version on businesswire.com: https://www.businesswire.com/news/home/20180614005285/en/
GlobalSCAPEPress Contact:Lisa Kilpatrick,
210-308-8267PR@globalscape.comorInvestor Relations
Contact:Matt Glover or Najim Mostamand, CFA,
949-574-3860IR@globalscape.com
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