evbg-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-37874

 

Everbridge, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

26-2919312

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

25 Corporate Drive, Suite 400

Burlington, Massachusetts

 

01803

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (818) 230-9700

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

EVBG

 

Nasdaq Global Select Market

 

As of May 1, 2019, the registrant had 32,925,760 shares of common stock issued and outstanding

 

 

 

 


 

EVERBRIDGE, INC. AND SUBSIDIARIES

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

3

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

Item 4.

Controls and Procedures

 

40

 

 

 

 

PART II.

OTHER INFORMATION

 

41

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

41

 

 

 

 

Item 4.

Mine Safety Disclosures

 

41

 

 

 

 

Item 5.

Other Information

 

41

 

 

 

 

Item 6.

Exhibits

 

42

 

 

 

Signatures

 

43

 

 

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited).

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

 

 

 

As of

March 31,

2019

 

 

As of

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

235,256

 

 

$

59,978

 

Restricted cash

 

 

93

 

 

 

90

 

Short-term investments

 

 

22,955

 

 

 

45,541

 

Accounts receivable, net

 

 

35,416

 

 

 

41,107

 

Prepaid expenses

 

 

9,123

 

 

 

4,890

 

Deferred costs

 

 

6,822

 

 

 

6,503

 

Other current assets

 

 

2,771

 

 

 

4,406

 

Total current assets

 

 

312,436

 

 

 

162,515

 

Property and equipment, net

 

 

5,977

 

 

 

4,650

 

Capitalized software development costs, net

 

 

13,442

 

 

 

12,893

 

Goodwill

 

 

48,395

 

 

 

48,382

 

Intangible assets, net

 

 

21,577

 

 

 

23,197

 

Deferred costs

 

 

10,575

 

 

 

10,265

 

Other assets

 

 

14,221

 

 

 

278

 

Total assets

 

$

426,623

 

 

$

262,180

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,927

 

 

$

2,719

 

Accrued payroll and employee related liabilities

 

 

18,313

 

 

 

17,108

 

Accrued expenses

 

 

4,500

 

 

 

5,565

 

Deferred revenue

 

 

95,325

 

 

 

92,738

 

Note payable

 

 

367

 

 

 

427

 

Other current liabilities

 

 

4,829

 

 

 

1,490

 

Total current liabilities

 

 

129,261

 

 

 

120,047

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent

 

 

3,078

 

 

 

2,898

 

Convertible senior notes

 

 

95,298

 

 

 

94,097

 

Deferred tax liabilities

 

 

1,057

 

 

 

1,032

 

Other long term liabilities

 

 

13,499

 

 

 

1,948

 

Total liabilities

 

 

242,193

 

 

 

220,022

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001, 10,000,000 shares authorized, no shares issued or outstanding as of

  March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 32,882,089 and 29,700,192

   shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

33

 

 

 

30

 

Additional paid-in capital

 

 

351,247

 

 

 

194,866

 

Accumulated deficit

 

 

(161,804

)

 

 

(147,670

)

Accumulated other comprehensive loss

 

 

(5,046

)

 

 

(5,068

)

Total stockholders’ equity

 

 

184,430

 

 

 

42,158

 

Total liabilities and stockholders’ equity

 

$

426,623

 

 

$

262,180

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Revenue

 

$

42,819

 

 

$

30,519

 

Cost of revenue

 

 

13,981

 

 

 

9,660

 

Gross profit

 

 

28,838

 

 

 

20,859

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

20,071

 

 

 

15,776

 

Research and development

 

 

11,485

 

 

 

8,171

 

General and administrative

 

 

10,558

 

 

 

7,844

 

Total operating expenses

 

 

42,114

 

 

 

31,791

 

Operating loss

 

 

(13,276

)

 

 

(10,932

)

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest and investment income

 

 

1,177

 

 

 

456

 

Interest expense

 

 

(1,635

)

 

 

(1,572

)

Other expense, net

 

 

(106

)

 

 

(198

)

Total other income (expense), net

 

 

(564

)

 

 

(1,314

)

Loss before income taxes

 

 

(13,840

)

 

 

(12,246

)

Provision for income taxes

 

 

(294

)

 

 

(96

)

Net loss

 

$

(14,134

)

 

$

(12,342

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.44

)

 

$

(0.43

)

Diluted

 

$

(0.44

)

 

$

(0.43

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

32,271,067

 

 

 

28,434,678

 

Diluted

 

 

32,271,067

 

 

 

28,434,678

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

EVERBRIDGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Net loss

 

$

(14,134

)

 

$

(12,342

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of taxes

 

 

22

 

 

 

(267

)

Total comprehensive loss

 

$

(14,112

)

 

$

(12,609

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated—

other

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

Total

 

Balance at December 31, 2018

 

 

29,700,192

 

 

$

30

 

 

$

194,866

 

 

$

(147,670

)

 

$

(5,068

)

 

$

42,158

 

Issuance of common stock, net of cost

 

 

2,645,000

 

 

 

3

 

 

 

138,836

 

 

 

 

 

 

 

 

 

138,839

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,849

 

 

 

 

 

 

 

 

 

7,849

 

Vesting of restricted stock units

 

 

16,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units withheld to

   settle employee tax withholding liability

 

 

(5,301

)

 

 

 

 

 

(333

)

 

 

 

 

 

 

 

 

(333

)

Exercise of stock options

 

 

501,083

 

 

 

 

 

 

8,746

 

 

 

 

 

 

 

 

 

8,746

 

Issuance of shares under employee

   stock purchase plan

 

 

24,266

 

 

 

 

 

 

1,283

 

 

 

 

 

 

 

 

 

1,283

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

22

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,134

)

 

 

 

 

 

(14,134

)

Balance at March 31, 2019

 

 

32,882,089

 

 

$

33

 

 

$

351,247

 

 

$

(161,804

)

 

$

(5,046

)

 

$

184,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated—

other

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

Total

 

Balance at December 31, 2017

 

 

28,330,460

 

 

$

28

 

 

$

164,995

 

 

$

(109,252

)

 

$

220

 

 

$

55,991

 

Cumulative effect of adoption of

   ASU 2014-09, net of taxes

 

 

 

 

 

 

 

 

 

 

 

9,097

 

 

 

 

 

 

9,097

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,694

 

 

 

 

 

 

 

 

 

6,694

 

Vesting of restricted stock units

 

 

222,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units withheld to

   settle employee tax withholding liability

 

 

(27,771

)

 

 

 

 

 

(1,022

)

 

 

 

 

 

 

 

 

(1,022

)

Exercise of stock options

 

 

153,744

 

 

 

1

 

 

 

1,465

 

 

 

 

 

 

 

 

 

1,466

 

Issuance of shares under employee

   stock purchase plan

 

 

44,193

 

 

 

 

 

 

881

 

 

 

 

 

 

 

 

 

881

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(267

)

 

 

(267

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,342

)

 

 

 

 

 

(12,342

)

Balance at March 31, 2018

 

 

28,723,250

 

 

$

29

 

 

$

173,013

 

 

$

(112,497

)

 

$

(47

)

 

$

60,498

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,134

)

 

$

(12,342

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,705

 

 

 

2,638

 

Amortization of deferred costs

 

 

1,598

 

 

 

1,233

 

Loss on disposal of assets

 

 

 

 

 

84

 

Deferred income taxes

 

 

41

 

 

 

34

 

Accretion of interest on convertible senior notes

 

 

1,201

 

 

 

1,134

 

Non-cash investment income

 

 

(189

)

 

 

(159

)

Provision for (benefit from) doubtful accounts and sales reserve

 

 

148

 

 

 

(192

)

Stock-based compensation

 

 

7,785

 

 

 

6,586

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,543

 

 

 

9,595

 

Prepaid expenses

 

 

(4,233

)

 

 

(1,651

)

Deferred costs

 

 

(2,227

)

 

 

(2,223

)

Other assets

 

 

2,153

 

 

 

(2,018

)

Accounts payable

 

 

4,112

 

 

 

702

 

Accrued payroll and employee related liabilities

 

 

1,205

 

 

 

4,402

 

Accrued expenses

 

 

(1,065

)

 

 

1,384

 

Deferred revenue

 

 

2,767

 

 

 

(2,072

)

Other liabilities

 

 

277

 

 

 

373

 

Net cash provided by operating activities

 

 

8,687

 

 

 

7,508

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,773

)

 

 

(253

)

Purchase of cost investment

 

 

 

 

 

(308

)

Purchase of short-term investments

 

 

(1,975

)

 

 

(30,932

)

Maturities of short-term investments

 

 

24,750

 

 

 

25,500

 

Additions to intangibles

 

 

 

 

 

(136

)

Additions to capitalized software development costs

 

 

(2,018

)

 

 

(1,999

)

Net cash provided by (used in) investing activities

 

 

17,984

 

 

 

(8,128

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Restricted stock units withheld to settle employee tax withholding liability

 

 

(333

)

 

 

(1,022

)

Proceeds from public offering, net of costs

 

 

139,115

 

 

 

 

Payments on note payable

 

 

(52

)

 

 

 

Payments on finance lease obligations

 

 

(121

)

 

 

 

Payments of debt issuance costs

 

 

 

 

 

(84

)

Proceeds from employee stock purchase plan

 

 

1,283

 

 

 

881

 

Proceeds from stock option exercises

 

 

8,746

 

 

 

1,466

 

Net cash provided by financing activities

 

 

148,638

 

 

 

1,241

 

Effect of exchange rates on cash, cash equivalents and restricted cash

 

 

(28

)

 

 

(39

)

Net increase in cash, cash equivalents and restricted cash

 

 

175,281

 

 

 

582

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

60,068

 

 

 

103,051

 

Cash, cash equivalents and restricted cash—end of period

 

$

235,349

 

 

$

103,633

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

 

Taxes, net of refunds received

 

 

 

 

 

2

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Capitalized assets included in accounts payable and accrued expenses

 

 

689

 

 

 

38

 

Capitalized development costs included in accounts payable and accrued expenses

 

 

16

 

 

 

 

Stock-based compensation capitalized for software development

 

 

64

 

 

 

108

 

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

Everbridge, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Business and Nature of Operations

Everbridge, Inc., a Delaware corporation (together with its wholly-owned subsidiaries, referred to as Everbridge or the Company), is a global software company that provides critical communications and enterprise safety applications that enable customers to automate and accelerate the process of keeping people safe and businesses running during critical events. The Company’s SaaS-based platform enables the Company’s customers to quickly and reliably deliver messaging to a large group of people during critical situations. The Company’s enterprise applications, such as Mass Notification, Incident Management, IT Alerting, Safety Connection, Community Engagement, Secure Messaging, Crisis Management and Visual Command Center, automate numerous critical communications processes. The Company generates revenue primarily from subscription fees to the Company’s enterprise applications. The Company has operations in the United States, Norway, India, the Netherlands, Sweden, England and China.

 

 

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The condensed consolidated balance sheet as of December 31, 2018, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2019 or any future period.

Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update ASU, No. 2016-02, Leases, as discussed in this Note 2 and Note 16.

 

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Assets and liabilities which are subject to judgment and use of estimates include the determination of the period of benefit for deferred commissions, allowances for doubtful accounts, the fair value of assets acquired and liabilities assumed in business combinations, the recoverability of goodwill and long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, contingencies, and the valuation and assumptions underlying stock-based compensation. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engages valuation specialists to assist with management’s determination of the valuation of its fair values of assets acquired and liabilities assumed in business combinations and certain market-based performance equity awards.

8


 

Concentrations of Credit and Business Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable.

The Company maintains cash balances at several banks. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation, or FDIC, up to $250,000. From time to time, balances may exceed amounts insured by the FDIC. The Company has not experienced any losses in such amounts.

The Company’s accounts receivable are generally unsecured and are derived from revenue earned from customers primarily located in the United States, Norway, Sweden and the United Kingdom and are generally denominated in U.S. dollars, Norwegian Krone, Swedish Kronor or British Pounds. Each reporting period, the Company reevaluates each customer’s ability to satisfy credit obligations and maintains an allowance for doubtful accounts based on the evaluations. No single customer comprised more than 10% of the Company’s total revenue for the three months ended March 31, 2019 and 2018. No single customer comprised more than 10% of the Company’s total accounts receivable at March 31, 2019 and December 31, 2018.   

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. As of March 31, 2019, $218.5 million of the Company’s cash equivalents were invested in money market funds and U.S. government securities.

Short-Term Investments

Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. Treasury and U.S. agency securities, with maturities over three months from the date of purchase and less than 12 months from the date of the balance sheet. Debt securities, money market funds and U.S. agency bonds that the Company has the ability and positive intent to hold to maturity are carried at amortized cost, which approximates fair value. Short-term investments of $23.0 million and $45.5 million at March 31, 2019 and December 31, 2018, respectively, were classified as held-to-maturity and primarily comprised of U.S. treasury and U.S. government and agency securities. All held-to-maturity securities at March 31, 2019 have maturity dates within one year.

Significant Accounting Policies

Except for the accounting policies for leases that were updated, as set forth below, as a result of adopting ASU No. 2016-02, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 1, 2019, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Revenue Recognition

The Company derives its revenues primarily from subscription services and professional services. Revenues are recognized when control of these services is transferred to the Company’s customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription Services Revenues

Subscription services revenues primarily consist of fees that provide customers access to one or more of the Company’s hosted applications for critical communications and enterprise safety applications, with routine customer support. Revenue is generally recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. All services are recognized using an output measure of progress looking at time elapsed as the contract generally provides the customer equal benefit throughout the contract period. The Company’s subscription contracts are generally two years or longer in length, billed annually in advance, and non-cancelable.

9


 

Professional Services Revenues

Professional services revenues primarily consist of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts revenue is recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time based on the proportion performed.

Contracts with Multiple Performance Obligations

Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis for those performance obligations with stable observable prices and then the residual method applied for any performance obligation that has pricing, which is highly variable. The Company determines the standalone selling prices based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors, including the value of the Company’s contracts, the applications sold, customer demographics, geographic locations, and the number and types of users within the Company’s contracts.

Returns

The Company does not offer rights of return for its products and services in the normal course of business. 

Customer Acceptance

The Company’s contracts with customers generally do not include customer acceptance clauses.

Trade and Other Receivables

Trade and other receivables are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for doubtful accounts, which is not material. Other receivables represent unbilled receivables related to subscription and professional services contracts.

Deferred Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized on a straight-line basis over a period of benefit that the Company has determined to be four years. The Company has determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Sales commissions attributed to renewals are not material. Amortization of deferred commissions is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations.

Deferred Revenue

Deferred revenue consists of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred. Deferred revenue that will be realized during the succeeding 12 month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.

Recently Adopted Accounting Pronouncements

ASU No. 2016-02

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to require lessees to recognize most leases on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use (ROU) asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing and potential uncertainty of cash flows related to leases. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting.

10


 

 

The Company adopted the new standard on January 1, 2019 using the modified retrospective approach. The Company has elected to apply the transition method that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the consolidated financial statements and recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. The Company also elected the “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

Results for reporting periods beginning after January 1, 2019 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new lease standard, on January 1, 2019, the Company capitalized ROU assets of $14.7 million and $16.9 million of lease liabilities, within the Company’s condensed consolidated balance sheets upon adoption. Additionally, the Company reversed its deferred rent liability of $2.2 million, which upon adoption became a component of the right-of-use asset. The adoption of this standard did not have an impact on the Company’s condensed consolidated statement of operations or cash flows and did not result in a cumulative catch-up adjustment to the opening balance of retained earnings.

 

ASU No. 2018-02

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017. The new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted. The Company adopted ASU 2018-02 effective January 1, 2019. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements.

 

ASU No. 2018-07

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share Based Payments. The guidance expands stock-based compensation to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted. The Company will adopt ASU 2018-07 effective January 1, 2019. The adoption of this standard did not have an impact on our condensed consolidated financial statements.

 

Recently Issued Accounting Guidance Not Yet Adopted

 

ASU 2018-13

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. Adoption of this guidance is required for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact of adopting this new standard on its financial statements.

 

ASU 2018-15

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, a new standard on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement (CCA). Under the new guidance, customers will assess if a CCA includes a software license and if a CCA does include a software license, implementation and set-up costs will be accounted for consistent with existing internal-use software implementation guidance. Implementation costs associated with a CCA that do not include a software license would be expensed to operating expenses. The standard also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.

 

 

Other accounting standard updates effective for interim and annual periods beginning after December 31, 2018 are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

11


 

 

(3) Accounts Receivable, Net

Accounts receivable, net is as follows (in thousands):

 

 

 

As of

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accounts receivable

 

$

36,226

 

 

$

41,818

 

Allowance for doubtful accounts

 

 

(810

)

 

 

(711

)

Net accounts receivable

 

$

35,416

 

 

$

41,107

 

 

Bad debt expense was an expense of $0.1 million and credit of $0.2 million for the three months ended March 31, 2019 and 2018, respectively.  

The following table summarizes the changes in the allowance for doubtful accounts (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Balance, beginning of period

 

$

(711

)

 

$

(863

)

(Additions) reductions

 

 

(148

)

 

 

192

 

Write-offs

 

 

49

 

 

 

34

 

Balance, end of period

 

$

(810

)

 

$

(637

)

 

The following table summarizes the changes in the sales reserve (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Balance, beginning of period

 

$

(200

)

 

$

(100

)

Additions

 

 

 

 

 

 

Write-offs

 

 

 

 

 

22

 

Balance, end of period

 

$

(200

)

 

$

(78

)

 

 

 

(4) Property and Equipment, Net

Property and equipment consisted of the following (in thousands):

 

 

 

Useful life

in years

 

 

As of  March 31, 2019

 

 

As of  December 31, 2018

 

Furniture and equipment

 

 

5

 

 

$

1,686

 

 

$

1,189

 

Leasehold improvements

 

 

5

 

 

 

3,763

 

 

 

2,776

 

System hardware

 

 

5

 

 

 

1,476

 

 

 

1,404

 

Office computers

 

 

3

 

 

 

4,019

 

 

 

3,745

 

Computer and system software

 

 

3

 

 

 

1,409

 

 

 

1,385

 

 

 

 

 

 

 

 

12,353

 

 

 

10,499

 

Less accumulated depreciation and amortization

 

 

 

 

 

 

(6,376

)

 

 

(5,849

)

Property and equipment, net

 

 

 

 

 

$

5,977

 

 

$

4,650

 

 

Depreciation and amortization expense for property and equipment was $0.5 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively.   

 

 

12


 

(5) Capitalized Software Development Costs, Net

Capitalized software development costs consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

As of  March 31, 2019

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

43,629

 

 

3 years

 

$

(30,187

)

 

$

13,442

 

Total capitalized software development costs

 

$

43,629

 

 

 

 

$

(30,187

)

 

$

13,442

 

 

 

 

 

 

 

 

 

 

As of  December 31, 2018

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

45,677

 

 

3 years

 

$

(32,784

)

 

$

12,893

 

Total capitalized software development costs

 

$

45,677

 

 

 

 

$

(32,784

)

 

$

12,893

 

 

The Company capitalized software development costs of $2.1 million and $2.1 million for the three months ended March 31, 2019 and 2018, respectively.

Amortization expense for capitalized software development costs was $1.5 million and $1.4 million for the three months ended March 31, 2019 and 2018, respectively.  Amortization of capitalized software development costs is classified within cost of revenue in the consolidated statements of operations.

The expected amortization of capitalized software development costs, as of March 31, 2019, for each of the following years is as follows (in thousands):

 

 

 

Amounts

 

2019 (for the remaining nine months)

 

$

4,372

 

2020

 

 

4,137

 

2021

 

 

3,653

 

2022

 

 

1,280

 

 

 

$

13,442

 

 

 

(6) Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.

Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. For the three months ended March 31, 2019 and year ended December 31, 2018, no impairments were identified.

13


 

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018 by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

 

 

 

As of  March 31, 2019

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

Total Fair

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Value

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

218,495

 

 

 

 

 

 

 

 

$

218,495

 

U.S. treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

 

 

 

15,716