Cryptocurrency Personal Property Exchanges Pre-TCJA

We’ve been discussing virtual currency, cryptocurrencies, and digital currency quite a bit lately here. That’s by design. They’ve all been in the media a …

We’ve been discussing virtual currency, cryptocurrencies, and digital currency quite a bit lately here. That’s by design. They’ve all been in the media a lot lately. That’s largely due to the increased tax collection efforts by the IRS. Many bitcoin holders started out with the impression that they were “outside the system”. Despite those impressions, though, the IRS has made it abundantly clear that this isn’t the case.

Now, the IRS is looking at cryptocurrency investors and their cryptocurrency transactions with focused attention. The IRS is just like any other person or entity. That is, it doesn’t want to waste its time and energy. And this means that it wisely directs its attention to those who have the most resources. Many bitcoin holders have massive tax liabilities to the IRS. The media is focusing on them. The IRS doesn’t want to lose its slice of the pie. Accordingly, we’re now we’re seeing it exert increased efforts to use the tax law to move in that direction.

Personal Property Classification

The IRS’ classification of cryptocurrency as “personal property” for a tax year has some interesting implications. One implication is that cryptocurrencies may have been eligible in “personal property” 1031 exchanges prior to the Tax Cuts & Jobs Act (TCJA). This issue is moot now, though, because the TCJA eliminated all personal property exchanges. But we may also see reviews of exchanges which occurred before the TCJA was implemented. In this post, we will go over the basics of personal property exchanges and then discuss some of the issues which may come up when pre-tax reform crypto exchanges are examined by the IRS in an audit. We’ll look at issues like potential short term capital gains taxes.

Personal Property Exchanges Pre-TCJA

Prior to the TCJA, taxpayers were able to exchange personal property held for business or investment purposes under Section 1031 in like kind exchanges. Many intermediaries specialized in personal property exchanges, and those intermediaries went out of business the moment that the TCJA took effect. Common exchange items, pre-TCJA, were for assets like business jets, cars owned by rental agencies, precious metals and antique cars. The rules for exchanging personal property were a bit different than the rules for real estate. The like-kind requirement, for instance, was interpreted more narrowly, as personal property had to be matched, according to “asset class.” This meant that a business jet couldn’t be exchanged for gold, for instance.

Before the TCJA, many crypto holders asked the question: does Section 1031 apply to bitcoin and other cryptocurrency? Is Form 8824 a required attachment to a Form 1040 personal income tax return? ? In light of the IRS position in Notice 2014-21, the logical response appears to be “yes.” If bitcoin and other cryptocurrency is taxable, then they should also be eligible for tax deferral. But, in light of the novelty of cryptocurrency, it’s likely that crypto exchange gains or losses occurring pre-TCJA will be reviewed by the IRS.

Review of Pre-TCJA Crypto Exchanges

If the IRS does review crypto exchanges occurring in the pre-TCJA era, what will be the outcome? These exchanges would seem to touch on key legal requirements, such as the like-kind requirement. If a person exchanges bitcoin for another cryptocurrency, such as Ethereum, does that satisfy the like-kind requirement? The answer seems to be yes, as they are both “cryptocurrency” and have similar features. But, what if there is a bitcoin exchange for another currency altogether, such as Japanese Yen or Mexican Pesos? If cryptocurrency is classed as property, then a logical argument can be made that it should also be in the same asset class as other currency. This could even mean that cryptocurrency exchanged for U.S. dollars could qualify for tax deferral. We won’t know the answer until we know the asset class which cryptocurrency falls into. That, in turn, will require an IRS ruling.

As we know, exchanges are documented at the time of their occurrence, in order to be valid. Accordingly, crypto holders cannot retroactively go back and try to claim that a particular transaction was an “exchange” after the fact. If someone sells their rental property and then later tries to use that property in an exchange, they will fail. That’s because that property became ineligible the moment it was sold without a contract with an intermediary. But clearly we can see that many issues come up when we discuss cryptocurrency in the context of Section 1031. If personal property exchanges return, and there’s a chance that they might, we’ll undoubtedly see cryptocurrency figure prominently in the debate.

Contact MC&C to Learn More Today

So there you have it. We may see a few crypto exchanges scrutinized by the IRS to see if those exchanges qualified under the old rules. If this does happen, the outcome will be interesting. There’s a chance that personal property exchanges may again be recognized in the future; so crypto exchanges may return. Who knows, we may even see this issue lobbied for by cryptocurrency enthusiasts during the next tax law change.

At Mackay, Caswell & Callahan, P.C., we try hard to stay on the cutting-edge of tax law. We do this by keeping up with current issues and reviewing current cases. We’ll continue to keep a focus on the evolving cryptocurrency tax treatment. That’s because we know that this is a key topic, both in the media, and the tax world, today. In addition to helping clients who have crypto tax debt, we handle cases involving New York income tax debt, sales tax debt, OICs, installments, and other tax matters. If you have a tax case and need assistance, don’t hesitate to reach out to us. Contact us and one of our top New York City tax attorneys will review your issue right away.

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Anaplan, Inc. filed 10-Q

Anaplan, Inc. filed 10-Q with SEC. Read ‘s full filing at 000156459019034375. In April 2018, the Company entered into a syndicated loan agreement …

Anaplan, Inc. filed 10-Q with SEC. Read ‘s full filing at 000156459019034375.

In April 2018, the Company entered into a syndicated loan agreement with Wells Fargo to provide a secured revolving credit facility that allows the Company to borrow up to $40.0 million, subject to an accounts receivable borrowing base, for general corporate purposes through April 2020. Any advances drawn on the credit facility will incur interest at a rate equal to (i) the highest of (A) the prime rate, (B) the federal funds rate plus 0.5%, and (C) the one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due on April 30, 2020. This syndicated loan agreement was subsequently amended in September 2018. As of July 31, 2019 and January 31, 2019, the Company had not drawn down any amounts under this agreement. The Company was in compliance with the financial covenants contained in the agreement as of July 31, 2019 and January 31, 2019.

The United States and the U.K. were the only two countries that represented more than 10% of the Company’s revenue in any period. Revenue in the United States comprised of $48.9 million and 58%, and $92.1 million and 57% in the three and six months ended July 31, 2019, respectively, and $32.9 million and 57%, and $62.0 million and 57% in the three and six months ended July 31, 2018, respectively. Revenue in the U.K. comprised of $10.0 million and 12%, and $19.6 million and 12% in the three and six months ended July 31, 2019, respectively, and $8.1 million and 14%, and $15.4 million and 14% in the three and six months ended July 31, 2018, respectively.

As of July 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $516.2 million, which consists of both billed consideration in the amount of $167.0 million and unbilled consideration in the amount of $349.2 million that the Company expects to recognize as revenue. The Company expects to recognize 29% of this amount as revenue in the remainder of fiscal year ending January 31, 2020 and 94% between August 1, 2019 and January 31, 2022.

As of January 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $440.0 million, which consists of both billed consideration in the amount of $150.8 million and unbilled consideration in the amount of $289.2 million that the Company expects to recognize as subscription revenue. The Company expects to recognize 53% of this amount as revenue in the fiscal year ending January 31, 2020 and 98% over the three years ending January 31, 2022.

We derive the substantial majority of our revenue from subscriptions for users on our platform. Our initial subscription term is typically two to three years, although some customers commit for shorter periods. We generally bill our customers annually in advance. We also offer professional services, including consulting, implementation, and training, but are increasingly leveraging our partners to provide these services. During the three months ended July 31, 2019 and 2018, subscription revenue was $73.6 million and $49.6 million, respectively, representing a year-over-year subscription revenue growth rate of 48%. During the three months ended July 31, 2019 and 2018, services revenue was $10.9 million and $8.2 million, respectively. Our subscription revenue as a percentage of total revenue was 87% and 86% in the three months ended July 31, 2019 and 2018, respectively. During the six months ended July 31, 2019 and 2018, subscription revenue was $138.7 million and $94.5 million, respectively, representing a year-over-year subscription revenue growth rate of 47%. During the six months ended July 31, 2019 and 2018, services revenue was $21.7 million and $14.8 million, respectively. Our subscription revenue as a percentage of total revenue was 86% in the six months ended July 31, 2019 and 2018.

During the three months ended July 31, 2019 and 2018, our total revenue was $84.5 million and $57.8 million, respectively. Approximately 42% and 43% of our revenue was generated from outside of the United States in the three months ended July 31, 2019 and 2018, respectively. During the six months ended July 31, 2019 and 2018, our total revenue was $160.4 million and $109.4 million, respectively. Approximately 43% of our revenue was generated from outside of the United States in the six months ended July 31, 2019 and 2018. Our net loss was $40.6 million and $21.0 million in the three months ended July 31, 2019 and 2018, respectively, and $77.8 million and $47.2 million in the six months ended July 31, 2019 and 2018, respectively.

We believe that our focus on customer success allows us to retain and expand the subscription revenue generated from our existing customers, and is an indicator of the long-term value of our customer relationships for Anaplan as a whole. We track our performance in this area by measuring our dollar-based net expansion rate, which compares our annual recurring revenue from the same set of customers across comparable periods. The dollar-based net expansion rate was 121% and 123% as of July 31, 2019 and January 31, 2019, respectively.

International sales. Our total revenue generated outside of the United States during the three and six months ended July 31, 2019 was approximately 42% and 43%, respectively, and the three and six months ended July 31, 2018, was approximately 43%, of our total revenue. We believe global demand for our platform will continue to increase as organizations experience the benefits that our platform can provide to international enterprises with complex planning needs spanning multiple geographies. Accordingly, we believe there is significant opportunity to grow our international business. We have invested, and plan to continue to invest, ahead of this potential demand in personnel, marketing, and access to data center capacity to support our international growth.

Subscription revenue accounted for 87% and 86% for the three and six months ended July 31, 2019, respectively, and 86% for the three and six months ended July 31, 2018. Subscription revenue is driven primarily by the number of customers, the number of users at each customer, the price of user subscriptions, and renewal rates.

Total revenue was $84.5 million in the three months ended July 31, 2019 compared to $57.8 million in the three months ended July 31, 2018, an increase of $26.7 million, or 46%. Total revenue was $160.4 million in the six months ended July 31, 2019 compared to $109.4 million in the six months ended July 31, 2018, an increase of $51.0 million, or 47%.

Subscription revenue was $73.6 million, or 87% of total revenue, in the three months ended July 31, 2019, compared to $49.6 million, or 86% of total revenue, in the three months ended July 31, 2018, an increase of $24.0 million, or 48%. Subscription revenue was $138.7 million, or 86% of total revenue, in the six months ended July 31, 2019, compared to $94.5 million, or 86% of total revenue, in the six months ended July 31, 2018, an increase of $44.2 million, or 47%. The increase in subscription revenue was primarily driven by successfully expanding sales to existing customers and the acquisition of new customers in the three and six months ended July 31, 2019.

Professional services revenue was $10.9 million in the three months ended July 31, 2019 compared to $8.2 million in the three months ended July 31, 2018, an increase of $2.7 million, or 33%. Professional services revenue was $21.7 million in the six months ended July 31, 2019 compared to $14.8 million in the six months ended July 31, 2018, an increase of $6.9 million, or 46%. The increase in professional services revenue was primarily driven by sales of our professional services resulting from the growth of our customer base.

Total cost of revenue was $22.5 million in the three months ended July 31, 2019 compared to $16.0 million in the three months ended July 31, 2018, an increase of $6.5 million, or 41%. Total cost of revenue was $44.1 million in the six months ended July 31, 2019 compared to $30.0 million in the six months ended July 31, 2018, an increase of $14.1 million, or 47%.

Cost of subscription revenue was $12.2 million in the three months ended July 31, 2019 compared to $8.8 million in the three months ended July 31, 2018, an increase of $3.4 million, or 39%. The increase in cost of subscription revenue was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $1.8 million, including stock-based compensation, and an increase in amortization of our finance leases of $1.0 million.

Cost of subscription revenue was $23.3 million in the six months ended July 31, 2019 compared to $16.6 million in the six months ended July 31, 2018, an increase of $6.7 million, or 41%. The increase in cost of subscription revenue was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $3.2 million, including stock-based compensation, and an increase in amortization of our finance leases of $1.9 million.

Cost of professional services revenue was $10.3 million in the three months ended July 31, 2019 compared to $7.2 million in the three months ended July 31, 2018, an increase of $3.1 million, or 44%. The increase in cost of professional services revenue was primarily due to an increase in the partner implementation costs related to an increase in partner activity of $1.9 million, and an increase in salary and bonuses, and benefits costs of $1.1 million, including stock-based compensation.

Cost of professional services revenue was $20.8 million in the six months ended July 31, 2019 compared to $13.4 million in the six months ended July 31, 2018, an increase of $7.4 million, or 55%. The increase in cost of professional services revenue was primarily due to an increase in the partner implementation costs related to an increase in partner activity of $4.2 million, and an increase in salary and bonuses and benefits costs of $2.4 million, including stock-based compensation.

Gross profit was $62.0 million in the three months ended July 31, 2019 compared to $41.9 million in the three months ended July 31, 2018, an increase of $20.1 million, or 48%. Gross profit was $116.3 million in the six months ended July 31, 2019 compared to $79.4 million in the six months ended July 31, 2018, an increase of $36.9 million, or 46%. The increase in gross profit was the result of the increases in our subscription revenue primarily driven by successfully expanding sales to existing customers and the acquisition of new customers in the three and six months ended July 31, 2019.

Gross margin was 73% in the three months ended July 31, 2019 compared to 72% in the three months ended July 31, 2018. Gross margin was 73% in the six months ended July 31, 2019 and 2018. The increase in gross margin year-over-year was primarily due to the increase in subscription revenue, which generates a significantly higher gross margin than our professional services revenue, as a percentage of total revenue, partially offset by a decrease in our professional services gross margins. Our gross margins can fluctuate from quarter to quarter as a result of the requirements, complexity, and timing of our customers’ implementation projects that can vary significantly.

Research and development expenses were $16.4 million in the three months ended July 31, 2019 compared to $12.2 million in the three months ended July 31, 2018, an increase of $4.2 million, or 35%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $5.2 million, including an increase in stock-based compensation of $2.2 million, partially offset by an increase in capitalized software development costs of $1.1 million.

Research and development expenses were $31.5 million in the six months ended July 31, 2019 compared to $23.8 million in the six months ended July 31, 2018, an increase of $7.7 million, or 32%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $8.9 million, including an increase in stock-based compensation of $3.8 million, partially offset by a decrease in consulting spend of $1.9 million and an increase in capitalized software development costs of $1.6 million.

Sales and marketing expenses were $64.0 million in the three months ended July 31, 2019 compared to $38.6 million in the three months ended July 31, 2018, an increase of $25.4 million, or 66%. The increase was primarily due to an increase in salary and bonuses and benefits costs related to an increase in headcount of $15.0 million, including an increase in stock-based compensation of $7.0 million, an increase in commission expenses of $2.4 million, and an increase in conference and events of $1.4 million.

Sales and marketing expenses were $120.3 million in the six months ended July 31, 2019 compared to $77.9 million in the six months ended July 31, 2018, an increase of $42.4 million, or 54%. The increase was primarily due to an increase in salary and bonuses and benefits costs related to an increase in headcount of $28.9 million, including an increase in stock-based compensation of $12.8 million, an increase in commission expenses of $5.5 million, and an increase in company events of $1.6 million.

General and administrative expenses were $22.8 million in the three months ended July 31, 2019 compared to $11.0 million in the three months ended July 31, 2018, an increase of $11.8 million, or 106%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $9.8 million, including an increase in stock-based compensation of $6.9 million.

General and administrative expenses were $42.8 million in the six months ended July 31, 2019 compared to $22.9 million in the six months ended July 31, 2018, an increase of $19.9 million, or 87%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $17.5 million, including an increase in stock-based compensation of $13.1 million.

Other income (expense), net was a gain of $0.5 million in the three months ended July 31, 2019 compared to a loss of $0.2 million in the three months ended July 31, 2018, an increase of $0.8 million, or 339%. Other income (expense), net was a gain of $0.3 million in the six months ended July 31, 2019 compared to a loss of $0.6 million in the six months ended July 31, 2018, an increase of $0.9 million, or 147%. The change was primarily due to GBP decreasing in value compared to the U.S. dollar and the related remeasurements during the periods, primarily related to our U.K. operations.

The provision for income taxes was $1.3 million in the three months ended July 31, 2019 compared to $0.9 million in the three months ended July 31, 2018, an increase of $0.4 million, or 46%. The provision for income taxes was $2.4 million in the six months ended July 31, 2019 compared to $1.5 million in the six months ended July 31, 2018, an increase of $0.9 million, or 65%. The increase in provision for income taxes was primarily related to increased income generated from intercompany cost plus arrangements in certain European and Asian countries.

In April 2018, we entered into a syndicated loan agreement with Wells Fargo to provide a secured revolving credit facility that allows us to borrow up to $40.0 million, subject to an accounts receivable borrowing base, for general corporate purposes through April 2020. Any advances drawn on the credit facility will incur interest at a rate equal to (i) the highest of (A) the prime rate, (B) the federal funds rate plus 0.5% and (C) one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due on April 30, 2020. There was a $6.0 million reduction of the available credit facility in April 2018 related to letters of credit for certain of our facility leases, which resulted in the simultaneous release of $6.0 million in restricted cash. As of July 31, 2019, the Company had not drawn down any amounts under this agreement.

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, and Singapore Dollar. Impacts to our operations from changes in foreign currency have been fairly limited to date and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we will monitor our foreign currency exposure to determine when we should begin a hedging program. A majority of our agreements have been and we expect will continue to be denominated in U.S. dollars. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have had a material effect on operating results for the six months ended July 31, 2019 and 2018.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of July 31, 2019, we had cash and cash equivalents of $356.0 million, which consisted primarily of bank deposits. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates would not have had a material impact on our operating results for the six months ended July 31, 2019 and 2018.

The GDPR significantly increases the level of sanctions for non-compliance from those in existing EU data protection law. EU data protection authorities will have the power to impose administrative fines for violations of the GDPR of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding financial year, whichever is higher, and actual or alleged violations of the GDPR may also lead to damages claims by data controllers and data subjects. We have taken and will continue to take steps to cause our processes to be compliant with applicable portions of the GDPR, but the rules and regulations under the GDPR may not be fully articulated and we cannot assure you that our steps will be compliant. Our efforts to comply with the GDPR or other new data protection laws and regulations may cause us to incur substantial operational costs, require us to modify our data handling practices), and may otherwise adversely impact our business, financial condition and operating results.

Furthermore, under the Tax Cuts and Jobs Act of 2017, or Tax Reform Act, although the treatment of tax losses generated in taxable years ending before December 31, 2017, has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 may be utilized to offset no more than 80% of taxable income annually. The reduced availability of net operating losses in future taxable years could adversely affect our potential profitability.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an ‘ownership change.’ Such an ‘ownership change’ generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. We do not believe that our IPO and concurrent private placement resulted in an ownership change, or if they did, we do not believe they will trigger any material limitation on the use of our tax attributes for purposes of Section 382 of the Code. However, the extent of such limitations for prior years, if any, has not yet been determined. Future changes in our stock ownership, however, could also cause an ‘ownership change.’ It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our potential profitability.

Our executive officers, directors, and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately a majority of our common stock, assuming no exercise of outstanding options and no settlement of outstanding restricted stock units. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This provision may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from engaging in a business combination with us even if the business combination would be beneficial to our existing stockholders. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

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HURCO COMPANIES INC filed on Sep 06 10-Q

… rates based on, at our option, either (i) a LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per annum, …

HURCO COMPANIES INC filed 10-Q with SEC. Read ‘s full filing at 000114420419043785.

On January 2, 2019, the Compensation Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of restricted shares and performance stock units (‘PSUs’) under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were approximately 25% time-based vesting and approximately 75% performance-based vesting. The three-year performance period for the PSUs is fiscal 2019 through fiscal 2021.

On January 2, 2019, the Compensation Committee also granted a total target number of 30,943 PSUs to our executive officers designated as ‘PSU – TSR’. These PSUs were weighted as approximately 40% of the overall 2019 executive long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal 2019-2021, relative to the total shareholder return of the companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200% of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the PSUs – TSR was $40.72 per PSU and was calculated using the Monte Carlo approach.

On January 2, 2019, the Compensation Committee also granted a total target number of 30,557 PSUs to our executive officers designated as ‘PSU – ROIC’. These PSUs were weighted as approximately 35% of the overall 2019 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period of fiscal 2019-2021. Participants will have the ability to earn between 50% of the target number of the PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for achieving maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $36.08 per share.

Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month LIBOR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an annual rate of 0.75%.

In December 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the ‘Tax Reform Act’) was enacted. The Tax Reform Act lowered the U.S. corporate tax rate from 35% to 21%, implemented a territorial tax system from a worldwide system, imposed a tax on deemed repatriation of earnings of foreign subsidiaries, and added provisions related to Global Intangible Low Taxed Income (‘GILTI’) and Foreign-Derived Intangible Income (‘FDII’), among other provisions.

We recorded income tax expense during the nine months of fiscal 2019 of $6.1 million compared to $8.7 million for the same period in fiscal 2018. Our effective tax rate for the nine months of fiscal 2019 was 28%, compared to 40% in the corresponding prior year period.

The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations. During the nine months of fiscal 2019, approximately 51% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines. Additionally, approximately 12% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater price pressures.

Sales and Service Fees. Sales and service fees for the third quarter of fiscal 2019 were $58.5 million, a decrease of $20.3 million, or 26%, compared to the corresponding prior year period and included an unfavorable currency impact of $1.9 million, or 2%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Sales in the Americas for the third quarter of fiscal 2019 increased by 8% compared to the corresponding period in fiscal 2018. The increase in sales for the third quarter fiscal 2019 was primarily attributable to sales of vertical milling machines from a U.S. machine tool distributor acquired by Hurco in the fourth quarter of fiscal 2018 located in California, one of the largest machine tool markets in the U.S., and increased customer demand for Hurco, Milltronics and Takumi vertical milling machines in the U.S. European sales for the third quarter of fiscal 2019 decreased by 31% compared to the corresponding period in fiscal 2018. Sales for the third quarter of fiscal 2019 included an unfavorable currency impact of 4% when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease in European sales for the third quarter of fiscal 2019 was primarily attributable to a reduced volume of shipments of Hurco vertical milling machines in Germany and the United Kingdom. Asian Pacific sales for the third quarter of fiscal 2019 decreased by 53% compared to the corresponding period in fiscal 2018. The decrease in Asian Pacific sales for the third quarter of fiscal 2019 was primarily attributable to decreased shipments of Hurco vertical milling machines and Takumi bridge mill machines in China and an unfavorable currency impact of 2% when translating foreign sales to U.S. dollars for financial reporting purposes.

Sales of computerized machine tools and computer control systems and software decreased by 29% and 16%, respectively, for the third quarter of fiscal 2019, compared to the corresponding period in fiscal 2018, due mainly to a reduced volume of shipments of Hurco vertical milling machines and Takumi bridge mill machines. Sales of service parts decreased in the third quarter of fiscal 2019 by 8%, compared to the corresponding period in fiscal 2018, primarily due to a reduction in aftermarket sales of service parts for all three product lines, Hurco, Takumi and Milltronics. Service fees increased in the third quarter of fiscal 2019 by 2%, compared to the corresponding period in fiscal 2018. The increase was primarily attributable to aftermarket service from the newly acquired distributor.

Orders. Orders for the third quarter of fiscal 2019 were $53.0 million, a decrease of $23.0 million, or 30%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $1.8 million, or 2%, when translating foreign orders to U.S. dollars.

Orders in the Americas for the third quarter of fiscal 2019 decreased by 8%, compared to the corresponding period in fiscal 2018, due primarily to decreased customer demand in the U.S. for Hurco vertical milling machines, partially offset by an increase in orders for Takumi vertical milling machines and vertical milling machines sold by the newly acquired distributor. European orders for the third quarter of fiscal 2019 decreased by 39%, compared to the corresponding prior year period, and included an unfavorable currency impact of 4% when translating foreign orders to U.S. dollars. The year-over-year decrease in orders was driven primarily by decreased customer demand for Hurco vertical milling machines in Germany, the United Kingdom and France, as well as a decrease in customer demand for electro-mechanical components and accessories manufactured by LCM. Asian Pacific orders for the third quarter of fiscal 2019 decreased by 37%, compared to the corresponding prior year period and included an unfavorable currency impact of 2% when translating foreign orders to U.S. dollars. The decrease in orders for the third quarter of fiscal 2019 was mainly the result of decreased customer demand for Hurco vertical milling machines in India and Southeast Asia and Takumi bridge mill machines in China.

Gross Profit. Gross profit for the third quarter of fiscal 2019 was $17.2 million, or 29% of sales, compared to $24.5 million, or 31% of sales, for the corresponding prior year period. The gross profit for the third quarter of fiscal 2019 remained generally stable at approximately 30%, despite the reduction in sales volume year over year, due to an increased mix of larger, higher-priced vertical milling machine sales and margin contribution from vertical milling machine sales from the newly acquired distributor.

Operating Expenses. Selling, general and administrative expenses for the third quarter of fiscal 2019 were $12.6 million, or 22% of sales, compared to $15.2 million, or 19% of sales, in the corresponding period in fiscal 2018, and included a favorable currency impact of $278,000 when translating foreign expenses to U.S. dollars for financial reporting purposes. The decrease in year-over-year selling, general and administrative expenses was primarily related to decreased variable employee compensation and other operating expense reductions implemented during the year, partially offset by increased operating expenses associated with the newly acquired distributor.

Income Taxes. The effective tax rate for the third quarter of fiscal 2019 was 25%, compared to 28% in the corresponding prior year period. The year-over-year decrease in the effective tax rate for the third quarter was primarily due to a shift in taxable income and loss among the various geographic regions.

Sales and Service Fees. Sales and service fees for the nine months of fiscal 2019 were $203.4 million, a decrease of $14.2 million, or 7%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $7.3 million, or 3%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Sales in the Americas for the nine months of fiscal 2019 increased by 19%, compared to the corresponding period in fiscal 2018. The increase in sales for the nine months of fiscal 2019 was primarily attributable to sales of vertical milling machines from the newly acquired distributor, and increased customer demand for Hurco, Milltronics and Takumi vertical milling machines in the U.S. European sales for the nine months of fiscal 2019 decreased by 14%, compared to the corresponding period in fiscal 2018. Sales for the nine months of fiscal 2019 included an unfavorable currency impact of 5%, when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease in European sales for the nine months of fiscal 2019 was primarily attributable to a reduced volume of shipments of Hurco vertical milling machines in Germany and the United Kingdom. Asian Pacific sales for the nine months of fiscal 2019 decreased by 28%, compared to the corresponding period in fiscal 2018. The decrease in Asian Pacific sales for nine months of fiscal 2019 was primarily attributable to decreased shipments of Hurco vertical milling machines and Takumi bridge mill machines in China and an unfavorable currency impact of 3% when translating foreign sales to U.S. dollars for financial reporting purposes.

Sales of computerized machine tools for the nine months of fiscal 2019 decreased by 8%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of 3% when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease was primarily attributable to a reduced volume of shipments of Hurco and Takumi machines in Europe and China. Sales of computer control systems and software increased by 4%, compared to the corresponding period in fiscal 2018, due mainly to an increase in aftermarket software sales in France and the Americas. Sales of service parts and service fees increased in the nine months of fiscal 2019 by 4% each, compared to the corresponding period in fiscal 2018, due primarily to sales of aftermarket sales and service by the newly acquired distributor.

Orders. Orders for the nine months of fiscal 2019 were $188.2 million, a decrease of $44.6 million, or 19%, compared to the corresponding period in fiscal 2018, and included an unfavorable currency impact of $7.2 million, or 3%, when translating foreign orders to U.S. dollars.

Orders in the Americas for the nine months of fiscal 2019 increased by 3% due to increased customer demand for Takumi vertical milling machines and vertical milling machines sold by the newly acquired distributor. European orders for the nine months of fiscal 2019 decreased by 28%, compared to the corresponding prior year period, and included an unfavorable currency impact of 4% when translating foreign orders to U.S. dollars. The year-over-year decrease in orders were driven primarily by decreased customer demand for Hurco vertical milling machines in Germany, the United Kingdom and France, as well as a decrease in customer demand for electro-mechanical components and accessories manufactured by LCM. Asian Pacific orders for the nine months of fiscal 2019 decreased by 25%, compared to the corresponding prior year period and included an unfavorable currency impact of 4% when translating foreign orders to U.S. dollars. The year-over-year decrease in orders was primarily due to decreased customer demand for Hurco and Takumi machines in China and India.

Gross Profit. Gross profit for the nine months of fiscal 2019 was $61.0 million, or 30% of sales, compared to $64.0 million, or 29% of sales, for the corresponding prior year period. The gross profit for the nine months of fiscal 2019 remained generally stable at approximately 30%, despite the reduction in sales volume year over year, due to an increased mix of larger, higher-priced vertical milling machine sales and margin contribution from vertical milling machine sales from the newly acquired distributor.

Operating Expenses. Selling, general and administrative expenses for the nine months of fiscal 2019 were $40.6 million, or 20% of sales, compared to $41.4 million, or 19% of sales, in the prior year period and included a favorable currency impact of $1.2 million when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year decrease in selling, general and administrative expenses was primarily related to decreased variable employee compensation and other operating expense reductions implemented during the year, partially offset by increased operating expenses associated with the newly acquired distributor.

Income Taxes. The effective tax rate for the nine months of fiscal 2019 was 28%, compared to 40% in the corresponding prior year period. The year-over-year decrease in the effective tax rate for the nine months was primarily due to one-time charges of $2.9 million related to the Tax Cuts and Jobs Act of 2017 recorded in the first quarter of fiscal 2018. The impact of these one-time charges increased the effective tax rate by approximately 39% for the first quarter of fiscal 2018.

At July 31, 2019, we had cash and cash equivalents of $66.1 million, compared to $77.2 million at October 31, 2018. Approximately 60% of the $66.1 million of cash and cash equivalents is denominated in U.S. Dollars. The balance is attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

In the nine months of fiscal 2019, we derived approximately 63% of our revenues from customers located outside of the Americas. All of our computerized machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

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Voices In the blogs: Hard lessons

New Notice 6174-A and how the IRS sees noncompliance on virtual currency transactions as a threat to the tax system. Federal Tax Crimes …

Scholarships and taxes; delay in ASU 842; landmark documentaries; and other highlights from our favorite tax bloggers.

Hard lessons

  • Turbotax (https://blog.turbotax.intuit.com/): If you have a client who’s a college student and not lucky enough to attend a commencement speech given by a generous billionaire, said client probably relies on scholarships and grants to whittle down the price tag of higher education. A look at what those scholarships and grants do to tax situations.
  • TaxMama (http://taxmama.com): What to tell them about using the IRS Interactive Tax Assistant for tax answers year-round.
  • The Wandering Tax Pro (http://wanderingtaxpro.blogspot.com/): Many first-time home-buyers take a distribution from their 401(k) plan to help fund the down payment for the purchase of the home — “and, unfortunately, they tell their tax professional about it after it has been done.” Why the distribution is a bad idea, and some possible workarounds.
  • Taxbuzz (https://www.taxbuzz.com/blog): What to remind them about the expiration of ITINs.
  • Intuit Proconnect (https://proconnect.intuit.com): The ABCs of QBI.

Influencers

  • TaxProf (https://taxprof.typepad.com/taxprof_blog/): A look at the Up-C, an increasingly popular form of IPO that generates significant tax benefits as compared with a traditional IPO. These benefits, the driving force behind the Up-C, have generally gone uncontested and are achieved by taking a form-over-substance approach to the Up-C for tax purposes. Governmental officials had never directly addressed the Up-C until recently….
  • Procedurally Taxing (https://procedurallytaxing.com): Guest blogger Margaret Zehren Moores, deputy director of advocacy and programs at Legal Services of Greater Miami, continues the series of reflections on the impact of Nina Olson.
  • Tax, Society & Culture (http://taxpol.blogspot.com/): Spurred by a recent Twitter thread, the blogger has unveiled a list of tax documentaries (the movies are readily available online).
  • Summing It Up (http://blog.freedmaxick.com/summing-it-up): The Financial Accounting Standards Board has proposed a one-year delay in the effective date of ASU 842, “Leases for non-public business entities.” The latest look at 842, the proposed delay and what both might mean for your clients.
  • Tax Girl (https://www.forbes.com/sites/kellyphillipserb/): National Ice Cream Day, as well as National Ice Cream Month (the blogger isn’t kidding), are official holidays designated by then-President Reagan following a joint resolution from Congress. The resolution, S.J.Res.298, was signed into law on July 2, 1984. Plus here’s a sprinkle of tax facts.

Information please

  • Tax Foundation (https://taxfoundation.org/blog): A preliminary look at 2018 tax data highlights, the first numbers on the effects of the Tax Cuts and Jobs Act, provides aggregate information by income group on a range of topics — and, overall, the data seems to match expectations about the changes.
  • Taxjar (http://blog.taxjar.com/): This month marks a little over a year since the landmark Wayfair decision — and July’s been a busy time for the recent uptick in states removing transactional thresholds and increasing the revenue amount necessary to trigger nexus.
  • Avalara (https://www.avalara.com/us/en/blog): Ohio joins the nexus party. Florida, Kansas and Missouri will soon be the only three states that have a general sales tax and don’t have economic nexus — and Kansas is on track to enforce economic nexus starting in October.
  • Sagenext (https://www.thesagenext.com/blog): The rich become richer and the poor poorer. The demographic proudly in agreement with the claim can neither be classified as rich nor poor. It usually comes down to the middle-class.

Crime and crime again

  • Boyum & Barenscheer (https://myboyum.com/blog/): According to the Association of Certified Fraud Examiners, organizations victimized by fraud lose a median $130,000. But construction companies, in particular, are even harder hit. What can you do to protect your construction clients?
  • IRS Mind (https://www.irsmind.com/): Dum De Dum Dum Dept: “We have information that you have or had one or more accounts containing virtual currency….” New Notice 6174-A and how the IRS sees noncompliance on virtual currency transactions as a threat to the tax system.
  • Federal Tax Crimes (http://federaltaxcrimes.blogspot.com/): In United States v. Rankin, the defendant was charged with multiple (to say the least) violations including tax perjury and obstruction, convicted on all counts and sentenced to five years. A look at the issue of the lesser included offense.
  • Don’t Mess with Taxes (http://dontmesswithtaxes.typepad.com/): The $700 million deal reached by Equifax and federal and state agencies has brought ID theft back into the public consciousness. Except it never left: “Every day, we’re bombarded by warnings about how crooks are constantly trying to steal our personal information so they can use it to take our money and take over our lives. That’s a message the Internal Revenue Service is still working to get out to taxpayers and tax professionals alike. Its latest effort is a six-point tax security checklist.”
  • Tax Vox (https://www.taxpolicycenter.org/taxvox): The most recent IRS estimate of the gross annual tax gap is $458 billion. Another $52 billion gets paid late, either voluntarily or through IRS Collections; some $406 billion never shows. Thus, the IRS is under pressure from Congress to close the tax gap. The IRS can do a better job, but only if Congress gives it the resources it needs.
Jeff Stimpson

Jeff Stimpson

Jeff Stimpson is a veteran freelance journalist who previously served as editor of The Practical Accountant.

For reprint and licensing requests for this article, click here.


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Anaplan, Inc. filed on June 10, 2019 10-Q Form

Anaplan, Inc. revealed 10-Q form on June 10, 2019. In April 2018, the Company entered into a syndicated loan agreement with Wells Fargo to provide …

Anaplan, Inc. revealed 10-Q form on June 10, 2019.

In April 2018, the Company entered into a syndicated loan agreement with Wells Fargo to provide a secured revolving credit facility that allows the Company to borrow up to $40.0 million, subject to an accounts receivable borrowing base, for general corporate purposes through April 2020. Any advances drawn on the credit facility will incur interest at a rate equal to (i) the highest of (A) the prime rate, (B) the federal funds rate plus 0.5%, and (C) the one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due on April 30, 2020. This syndicated loan agreement was subsequently amended in September 2018. As of April 30, 2019 and January 31, 2019, the Company had not drawn down any amounts under this agreement. The Company was in compliance with the financial covenants contained in the agreement as of April 30, 2019 and January 31, 2019.

The United States and the U.K. were the only two countries that represented more than 10% of the Company’s revenue in any period, comprised of $43.3 million and 57%, and $29.1 million and 56% for the United States in the three months ended April 30, 2019 and 2018, respectively, and $9.5 million and 13%, and $7.3 million and 14% for the U.K. in the three months ended April 30, 2019 and 2018, respectively.

As of April 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $473.1 million, which consists of both billed consideration in the amount of $162.2 million and unbilled consideration in the amount of $310.9 million that the Company expects to recognize as subscription revenue. The Company expects to recognize 42% of this amount as revenue in the remainder of fiscal year ending January 31, 2020 and 97% over the three years ending January 31, 2022.

As of January 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $440.0 million, which consists of both billed consideration in the amount of $150.8 million and unbilled consideration in the amount of $289.2 million that the Company expects to recognize as subscription revenue. The Company expects to recognize 53% of this amount as revenue in the fiscal year ending January 31, 2020 and 98% over the three years ending January 31, 2022.

We derive the substantial majority of our revenue from subscriptions for users on our platform. Our initial subscription term is typically two to three years, although some customers commit for shorter periods. We generally bill our customers annually in advance. We also offer professional services, including consulting, implementation, and training, but are increasingly leveraging our partners to provide these services. During the three months ended April 30, 2019 and 2018, subscription revenue was $65.1 million and $44.9 million, respectively, representing a year-over-year subscription revenue growth rate of 45%. During the three months ended April 30, 2019 and 2018, services revenue was $10.7 million and $6.6 million, respectively. Our subscription revenue as a percentage of total revenue was 86% and 87% in the three months ended April 30, 2019 and 2018, respectively.

During the three months ended April 30, 2019 and 2018, our total revenue was $75.8 million and $51.6 million, respectively. Approximately 43% and 44% of our revenue was generated from outside of the United States in the three months ended April 30, 2019 and 2018, respectively. Our net loss was $37.2 million and $26.2 million in the three months ended April 30, 2019 and 2018, respectively.

We believe that our focus on customer success allows us to retain and expand the subscription revenue generated from our existing customers, and is an indicator of the long-term value of our customer relationships for Anaplan as a whole. We track our performance in this area by measuring our dollar-based net expansion rate, which compares our annual recurring revenue from the same set of customers across comparable periods. The dollar-based net expansion rate was 123% as of both of April 30, 2019 and January 31, 2019.

International sales. Our revenue generated outside of the United States during the three months ended April 30, 2019 and 2018, was approximately 43% and 44%, respectively, of our total revenue. We believe global demand for our platform will continue to increase as organizations experience the benefits that our platform can provide to international enterprises with complex planning needs spanning multiple geographies. Accordingly, we believe there is significant opportunity to grow our international business. We have invested, and plan to continue to invest, ahead of this potential demand in personnel, marketing, and access to data center capacity to support our international growth.

Subscription revenue accounted for 86% and 87% for the three months ended April 30, 2019 and 2018, respectively. Subscription revenue is driven primarily by the number of customers, the number of users at each customer, the price of user subscriptions, and renewal rates.

Total revenue was $75.8 million in the three months ended April 30, 2019 compared to $51.6 million in the three months ended April 30, 2018, an increase of $24.2 million, or 47%.

Subscription revenue was $65.1 million, or 86% of total revenue, in the three months ended April 30, 2019, compared to $44.9 million, or 87% of total revenue, in the three months ended April 30, 2018. The increase of $20.2 million, or 45%, in subscription revenue was primarily driven by successfully expanding sales to existing customers and the acquisition of new customers in the three months ended April 30, 2019.

Professional services revenue was $10.7 million in the three months ended April 30, 2019 compared to $6.6 million in the three months ended April 30, 2018. The increase of $4.1 million, or 62%, in professional services revenue was primarily driven by sales of our professional services resulting from the growth of our customer base.

Total cost of revenue was $21.6 million in the three months ended April 30, 2019 compared to $14.0 million in the three months ended April 30, 2018, an increase of $7.6 million, or 54%.

Cost of subscription revenue was $11.1 million in the three months ended April 30, 2019 compared to $7.8 million in the three months ended April 30, 2018, an increase of $3.3 million, or 42%. The increase in cost of subscription revenue was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $1.5 million, including stock-based compensation, and an increase in amortization of our finance leases of $0.9 million.

Cost of professional services revenue was $10.5 million in the three months ended April 30, 2019 compared to $6.2 million in the three months ended April 30, 2018, an increase of $4.3 million, or 68%. The increase in cost of professional services revenue was primarily due to an increase in the partner implementation costs related to an increase in partner activity of $2.3 million, and an increase in salary and bonuses, and benefits costs of $1.3 million, including stock-based compensation.

Gross profit was $54.3 million in the three months ended April 30, 2019 compared to $37.5 million in the three months ended April 30, 2018, an increase of $16.8 million, or 45%. The increase in gross profit was the result of the increases in our subscription revenue primarily driven by successfully expanding sales to existing customers and the acquisition of new customers in the three months ended April 30, 2019.

Gross margin was 72% in the three months ended April 30, 2019 compared to 73% in the three months ended April 30, 2018. The decrease in gross margin was primarily due to the decrease in subscription revenue, which generates a significantly higher gross margin than our professional services revenue, as a percentage of total revenue, and a decrease in our professional services gross margins. Our gross margins can fluctuate from quarter to quarter as a result of the requirements, complexity, and timing of our customers’ implementation projects that can vary significantly.

Research and development expenses were $15.1 million in the three months ended April 30, 2019 compared to $11.7 million in the three months ended April 30, 2018, an increase of $3.4 million, or 29%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $3.8 million, including an increase in stock-based compensation of $1.6 million, partially offset by a decrease in consulting spend of $1.2 million.

Sales and marketing expenses were $56.3 million in the three months ended April 30, 2019 compared to $39.3 million in the three months ended April 30, 2018, an increase of $17.0 million, or 43%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $14.0 million, including an increase in stock-based compensation of $5.7 million, and an increase in commission expenses of $2.8 million.

General and administrative expenses were $20.0 million in the three months ended April 30, 2019 compared to $11.8 million in the three months ended April 30, 2018, an increase of $8.2 million, or 69%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $7.7 million, including an increase in stock-based compensation of $6.2 million.

Interest income, net increased by $1.2 million, or 1,306%, in the three months ended April 30, 2019. The increase in interest income, net was primarily due to higher average cash and cash equivalents balances in the three months ended April 30, 2019 compared to the three months ended April 30, 2018.

Other expense, net was a loss of $0.2 million in the three months ended April 30, 2019 compared to a loss of $0.4 million in the three months ended April 30, 2018, a decrease of $0.2 million, or 40%. The change was primarily due to foreign currencies increasing in value compared to the U.S. dollar and the related remeasurements during the periods, primarily related to our U.K. operations.

The provision for income taxes was $1.1 million in the three months ended April 30, 2019 compared to $0.6 million in the three months ended April 30, 2018, an increase of $0.5 million, or 97%. The increase in provision for income taxes was primarily related to increased income generated from intercompany cost plus arrangements in certain European and Asian countries.

In April 2018, we entered into a syndicated loan agreement with Wells Fargo to provide a secured revolving credit facility that allows us to borrow up to $40.0 million, subject to an accounts receivable borrowing base, for general corporate purposes through April 2020. Any advances drawn on the credit facility will incur interest at a rate equal to (i) the highest of (A) the prime rate, (B) the federal funds rate plus 0.5% and (C) one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due on April 30, 2020. There was a $6.0 million reduction of the available credit facility in April 2018 related to letters of credit for certain of our facility leases, which resulted in the simultaneous release of $6.0 million in restricted cash. As of April 30, 2019, the Company had not drawn down any amounts under this agreement.

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, and Singapore Dollar. Impacts to our operations from changes in foreign currency have been fairly limited to date and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we will monitor our foreign currency exposure to determine when we should begin a hedging program. A majority of our agreements have been and we expect will continue to be denominated in U.S. dollars. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have had a material effect on operating results for the three months ended April 30, 2019 and 2018.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of April 30, 2019, we had cash and cash equivalents of $332.7 million, which consisted primarily of bank deposits. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates would not have had a material impact on our operating results for the three months ended April 30, 2019 and 2018.

The GDPR significantly increases the level of sanctions for non-compliance from those in existing EU data protection law. EU data protection authorities will have the power to impose administrative fines for violations of the GDPR of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding financial year, whichever is higher, and actual or alleged violations of the GDPR may also lead to damages claims by data controllers and data subjects. We have taken and will continue to take steps to cause our processes to be compliant with applicable portions of the GDPR, but the rules and regulations under the GDPR may not be fully articulated and we cannot assure you that our steps will be compliant. Our efforts to comply with the GDPR or other new data protection laws and regulations may cause us to incur substantial operational costs, require us to modify our data handling practices), and may otherwise adversely impact our business, financial condition and operating results.

Furthermore, under the Tax Cuts and Jobs Act of 2017, or Tax Reform Act, although the treatment of tax losses generated in taxable years ending before December 31, 2017, has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 may be utilized to offset no more than 80% of taxable income annually. The reduced availability of net operating losses in future taxable years could adversely affect our potential profitability.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” Such an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. We do not believe that our IPO and concurrent private placement resulted in an ownership change, or if they did, we do not believe they will trigger any material limitation on the use of our tax attributes for purposes of Section 382 of the Code. However, the extent of such limitations for prior years, if any, has not yet been determined. Future changes in our stock ownership, however, could also cause an “ownership change.” It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our potential profitability.

Our executive officers, directors, and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately a majority of our common stock, assuming no exercise of outstanding options and no settlement of outstanding restricted stock units. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This provision may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from engaging in a business combination with us even if the business combination would be beneficial to our existing stockholders. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

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