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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, 2020

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

Securities registered pursuant to Section 12(b) of the Securities Act:

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

EVBG

 

The Nasdaq Stock Market

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

 

  

  

Smaller 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  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

As of May 4, 2020, the registrant had 34,358,105 shares of common stock issued and outstanding.

 

 

 

 

 


 

EVERBRIDGE, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

3

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

34

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

 

Item 4.

Controls and Procedures

 

48

 

 

 

 

PART II.

OTHER INFORMATION

 

49

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

 

Item 1A.

Risk Factors

 

49

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

52

 

 

 

 

Item 4.

Mine Safety Disclosures

 

52

 

 

 

 

Item 5.

Other Information

 

52

 

 

 

 

Item 6.

Exhibits

 

53

 

 

 

Signatures

 

54

 

 

 

 

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)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

498,387

 

 

$

531,575

 

Restricted cash

 

 

4,756

 

 

 

4,737

 

Accounts receivable, net

 

 

70,760

 

 

 

68,642

 

Prepaid expenses

 

 

9,949

 

 

 

6,675

 

Deferred costs and other current assets

 

 

18,468

 

 

 

13,501

 

Total current assets

 

 

602,320

 

 

 

625,130

 

Property and equipment, net

 

 

7,107

 

 

 

6,284

 

Capitalized software development costs, net

 

 

14,394

 

 

 

14,287

 

Goodwill

 

 

141,727

 

 

 

91,421

 

Intangible assets, net

 

 

83,869

 

 

 

67,100

 

Restricted cash

 

 

3,353

 

 

 

3,350

 

Prepaid expenses

 

 

2,707

 

 

 

2,009

 

Deferred costs and other assets

 

 

31,602

 

 

 

27,715

 

Total assets

 

$

887,079

 

 

$

837,296

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,971

 

 

$

7,808

 

Accrued payroll and employee related liabilities

 

 

26,884

 

 

 

22,248

 

Accrued expenses

 

 

7,648

 

 

 

4,496

 

Deferred revenue

 

 

141,858

 

 

 

129,995

 

Contingent liabilities

 

 

2,530

 

 

 

 

Other current liabilities

 

 

6,667

 

 

 

4,819

 

Total current liabilities

 

 

192,558

 

 

 

169,366

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent

 

 

3,673

 

 

 

3,471

 

Convertible senior notes

 

 

435,718

 

 

 

430,282

 

Deferred tax liabilities

 

 

5,472

 

 

 

2,002

 

Other long-term liabilities

 

 

16,150

 

 

 

11,863

 

Total liabilities

 

 

653,571

 

 

 

616,984

 

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, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 34,348,008 and 33,848,627

   shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

34

 

 

 

34

 

Additional paid-in capital

 

 

471,046

 

 

 

425,945

 

Accumulated deficit

 

 

(225,305

)

 

 

(199,920

)

Accumulated other comprehensive loss

 

 

(12,267

)

 

 

(5,747

)

Total stockholders’ equity

 

 

233,508

 

 

 

220,312

 

Total liabilities and stockholders’ equity

 

$

887,079

 

 

$

837,296

 

 

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,

 

 

 

2020

 

 

2019

 

Revenue

 

$

58,900

 

 

$

42,819

 

Cost of revenue

 

 

20,889

 

 

 

13,981

 

Gross profit

 

 

38,011

 

 

 

28,838

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

29,588

 

 

 

20,071

 

Research and development

 

 

14,172

 

 

 

11,485

 

General and administrative

 

 

15,911

 

 

 

10,558

 

Total operating expenses

 

 

59,671

 

 

 

42,114

 

Operating loss

 

 

(21,660

)

 

 

(13,276

)

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest and investment income

 

 

1,573

 

 

 

1,177

 

Interest expense

 

 

(5,922

)

 

 

(1,635

)

Other expense, net

 

 

(77

)

 

 

(106

)

Total other income (expense), net

 

 

(4,426

)

 

 

(564

)

Loss before income taxes

 

 

(26,086

)

 

 

(13,840

)

Benefit from (provision for) income taxes

 

 

701

 

 

 

(294

)

Net loss

 

$

(25,385

)

 

$

(14,134

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.74

)

 

$

(0.44

)

Diluted

 

$

(0.74

)

 

$

(0.44

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

34,075,071

 

 

 

32,271,067

 

Diluted

 

 

34,075,071

 

 

 

32,271,067

 

 

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,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(25,385

)

 

$

(14,134

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of taxes

 

 

(6,520

)

 

 

22

 

Total comprehensive loss

 

$

(31,905

)

 

$

(14,112

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated-

other

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

Total

 

Balance at December 31, 2019

 

 

33,848,627

 

 

$

34

 

 

$

425,945

 

 

$

(199,920

)

 

$

(5,747

)

 

$

220,312

 

Issuance of common stock in connection

   with acquisitions

 

 

301,941

 

 

 

 

 

 

30,434

 

 

 

 

 

 

 

 

 

30,434

 

Stock-based compensation

 

 

 

 

 

 

 

 

10,368

 

 

 

 

 

 

 

 

 

10,368

 

Vesting of restricted stock units

 

 

44,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units withheld to

   settle employee tax withholding liability

 

 

(4,483

)

 

 

 

 

 

(400

)

 

 

 

 

 

 

 

 

(400

)

Exercise of stock options

 

 

126,374

 

 

 

 

 

 

2,989

 

 

 

 

 

 

 

 

 

2,989

 

Issuance of shares under employee

   stock purchase plan

 

 

30,943

 

 

 

 

 

 

1,710

 

 

 

 

 

 

 

 

 

1,710

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,520

)

 

 

(6,520

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,385

)

 

 

 

 

 

(25,385

)

Balance at March 31, 2020

 

 

34,348,008

 

 

$

34

 

 

$

471,046

 

 

$

(225,305

)

 

$

(12,267

)

 

$

233,508

 

 

 

 

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

 

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(25,385

)

 

$

(14,134

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,656

 

 

 

3,705

 

Amortization of deferred costs

 

 

2,922

 

 

 

1,598

 

Deferred income taxes

 

 

(1,246

)

 

 

41

 

Accretion of interest on convertible senior notes

 

 

5,436

 

 

 

1,201

 

Provision for credit losses and sales reserve

 

 

925

 

 

 

148

 

Stock-based compensation

 

 

10,310

 

 

 

7,785

 

Other non-cash adjustments

 

 

 

 

 

(189

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

445

 

 

 

5,543

 

Prepaid expenses

 

 

(3,057

)

 

 

(4,233

)

Deferred costs

 

 

(4,720

)

 

 

(2,227

)

Other assets

 

 

(4,069

)

 

 

2,153

 

Accounts payable

 

 

(1,072

)

 

 

4,112

 

Accrued payroll and employee related liabilities

 

 

3,221

 

 

 

1,205

 

Accrued expenses

 

 

1,732

 

 

 

(1,065

)

Deferred revenue

 

 

5,118

 

 

 

2,767

 

Other liabilities

 

 

3,585

 

 

 

277

 

Net cash provided by operating activities

 

 

801

 

 

 

8,687

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(524

)

 

 

(2,773

)

Payments for acquisition of business, net of acquired cash

 

 

(34,941

)

 

 

 

Additions to capitalized software development costs

 

 

(2,004

)

 

 

(2,018

)

Purchase of short-term investments

 

 

 

 

 

(1,975

)

Maturities of short-term investments

 

 

 

 

 

24,750

 

Net cash provided by (used in) investing activities

 

 

(37,469

)

 

 

17,984

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering, net of costs

 

 

 

 

 

139,115

 

Proceeds from employee stock purchase plan

 

 

1,710

 

 

 

1,283

 

Proceeds from stock option exercises

 

 

2,989

 

 

 

8,746

 

Other

 

 

(531

)

 

 

(506

)

Net cash provided by financing activities

 

 

4,168

 

 

 

148,638

 

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

 

 

(666

)

 

 

(28

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(33,166

)

 

 

175,281

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

539,662

 

 

 

60,068

 

Cash, cash equivalents and restricted cash—end of period

 

$

506,496

 

 

$

235,349

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Taxes, net of refunds received

 

$

184

 

 

$

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Capitalized assets included in accounts payable and accrued expenses

 

 

226

 

 

 

689

 

Capitalized development costs included in accounts payable and accrued expenses

 

 

13

 

 

 

16

 

Common stock issued in connection with acquisitions

 

 

30,434

 

 

 

 

Contingent consideration in connection with acquisitions

 

 

2,530

 

 

 

 

Purchase accounting payable, net

 

 

464

 

 

 

 

Stock-based compensation capitalized for software development

 

 

58

 

 

 

64

 

 

See accompanying notes to condensed consolidated financial statements.

7


 

EVERBRIDGE, INC. AND SUBSIDIARIES

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 enterprise software applications that automate and accelerate organizations’ operational response to critical events in order to keep people safe and businesses running. 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, Safety Connection, IT Alerting, Visual Command Center, Public Warning, Crisis Management, Community Engagement, Risk Intelligence and Secure Messaging, automate numerous critical event management 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, Netherlands, Sweden, England, Germany 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 (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. 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, 2019.

The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by U.S. 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, statements of stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2020 or any future period.

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 U.S. 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, relative stand-alone selling price for identified performance obligations in our revenue transactions, allowances for credit losses, the fair value of assets acquired and liabilities assumed in business combinations, the fair value of contingent consideration, 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 convertible senior notes, and certain market-based performance equity awards. There have been significant changes to the global economic situation as a consequence of the COVID-19 pandemic. The global outbreak has caused instability and volatility in multiple markets where the Company conducts business which could cause changes to estimates as a result of the financial circumstances. Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the timing of revenue recognition resulting from potential implementation delays, evaluating the recoverability of long-lived assets with finite useful lives for impairment and estimates of credit losses for accounts receivables and contract assets. No impairments were recorded as of the balance sheet date; however, due to significant uncertainty surrounding the situation, management's judgment regarding this could change in the future. As of the date of issuance of these financial statements, the Company’s results of operations have not been significantly impacted by the COVID-19 pandemic; however, the Company continues to monitor the situation.

8


 

Concentrations of Credit and Business Risk

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

The Company maintains cash and cash equivalent balances at several banks. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (“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, Netherlands, Sweden and the United Kingdom and are generally denominated in U.S. dollars, Norwegian Krone, Euro, Swedish Kronor or British Pounds. Each reporting period, the Company reevaluates each customer’s ability to satisfy credit obligations and maintains an allowance for credit risk based on the evaluations. No single customer comprised more than 10% of the Company’s total revenue for the three months ended March 31, 2020 and 2019. No single customer comprised more than 10% of the Company’s total accounts receivable as of March 31, 2020 and 2019.   

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 equivalents consist of funds deposited into money market funds. Cash and cash equivalents are recorded at cost, which approximates fair value.

Restricted Cash

The Company’s restricted cash balance primarily consists of cash held at a financial institution for collateral against performance on the Company’s customer contracts and certain other cash deposits for specific purposes.

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. All held-to-maturity securities have maturity dates within one year.

Significant Accounting Policies

Except for the accounting policies for credit losses that were updated, as set forth below, as a result of adopting Accounting Standards Update (“ASU”) No. 2016-13 (as amended through November 2019), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the accounting policies for the implementation, set-up, and other upfront costs incurred in a cloud computing arrangement, as set forth below, as a result of adopting ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, 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, 2019 filed with the SEC on February 28, 2020, 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 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

 

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

9


 

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 event management, 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.

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.

Software License Revenues

On occasion the Company may sell software and related post contract support for on premise usage as well as professional services which is outside of the Company’s core business. The Company’s on premise license transactions are perpetual in nature and are recognized at a point in time when made available to the customer.

Contracts with Multiple Performance Obligations

Most 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, pricing when certain services are sold on a standalone basis, the applications sold, customer demographics, geographic locations, and the volume of services and users.

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 credit risk, which is not material. Other receivables represent unbilled receivables related to subscription and professional services contracts, net of an allowance for credit losses, which is not material. On January 1, 2020, the Company adopted ASU 2016-13 (as amended through March 2020), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See Recently Adopted Accounting Pronouncements below.

Deferred Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription-related commissions 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. Sales commissions attributable to professional services are expensed within twelve months of selling the service to the customer. 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 and are not commensurate with initial and growth sales. Amortization of deferred commissions is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations.

10


 

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 2016-13

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 (as amended through March 2020), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables, contract assets and held-to-maturity debt securities, which requires the Company to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands disclosure requirements.

The Company adopted the standard on January 1, 2020 using the modified retrospective approach. Adoption of ASU 2016-13 resulted in changes to the Company’s accounting policies for trade and other receivables and contract assets. Upon adoption of ASU 2016-13 the Company evaluates trade receivables and contract assets on a collective (i.e., pool) basis if they share similar risk characteristics.

Based on the results of the Company’s evaluation, the adoption of ASU 2016-13 did not have a material impact on the Company’s net loss for the quarter ended March 31, 2020. Adoption of the standard had no impact on total cash provided from or used in operating, financing, or investing activities in the Company’s condensed consolidated statements of cash flows.

Accounts receivable includes trade accounts receivables from the Company’s customers, net of an allowance for credit risk. Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company’s contract assets relate to services performed which were not billed, net of an allowance for credit risk. Allowance for credit risk for accounts receivables and contract assets is established based on various factors including credit profiles of the Company’s customers, historical payments and current economic trends. The Company reviews its allowance for accounts receivables and contract assets by assessing individual accounts receivable or unbilled contract assets over a specific aging and amount. All other balances are pooled based on historical collection experience. The estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that affect the collectability. Accounts receivable and contract assets are written-off on a case by case basis, net of any amounts that may be collected. See Note 3.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. The guidance includes retrospective and prospective basis application dependent on the requirements of specific amendments. The Company adopted ASU 2018-13 on January 1, 2020 on a prospective basis. The adoption of this standard did not have an impact on the Company’s condensed consolidated 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, related to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement (“CCA”). Under the new guidance, implementation costs associated with a CCA for a hosting arrangement that is a service contract are accounted for consistent with existing internal-use software implementation guidance. ASU 2018-15 also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The Company adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

11


 

Recently Issued Accounting Guidance Not Yet Adopted

ASU 2020-01

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. ASU 2020-01 addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. Observable transactions that require a company to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with FASB Accounting Standards Codification (“ASC”) 321, Investments – Equity Securities, should be considered immediately before applying or upon discontinuing the equity method. Certain non-derivative forward contracts or purchased call options to acquire equity securities generally will be measured using the fair value principles of ASC 321 before settlement or exercise and consideration shall not be given to how entities will account for the resulting investments on eventual settlement or exercise. ASU 2020-01 is effective for the Company beginning in the first quarter of 2021 and early adoption is permitted. ASU 2020-01 should be applied prospectively. The Company is currently assessing the impact this standard will have on the Company’s condensed consolidated financial statements.

Other accounting standard updates effective for interim and annual periods beginning after December 31, 2019 are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

(3) Accounts Receivable and Contract Assets, Net

On January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective approach. See Note 2. The cumulative effect of initially applying ASU 2016-13 had an immaterial impact on the Company’s opening balance of accumulated deficit.

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

 

 

 

As of

 

 

As of

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Accounts receivable amortized cost

 

$

72,513

 

 

$

69,767

 

Allowance for credit losses

 

 

(1,753

)

 

 

(1,125

)

Net accounts receivable

 

$

70,760

 

 

$

68,642

 

 

The following table summarizes the changes in the allowance for credit losses for accounts receivable (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Balance, beginning of period

 

$

(1,125

)

 

$

(711

)

Provision for expected credit losses

 

 

(743

)

 

 

(148

)

Write-offs

 

 

115