evbg-10q_20160930.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 September 30, 2016

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

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

As of October 31, 2016, the registrant had 27,148,042 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 September 30, 2016 and December 31, 2015

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2016 and 2015

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended
September 30, 2016 and 2015

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended
September 30, 2016 and the year ended December 31, 2015

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

18

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

Item 4.

Controls and Procedures

 

33

 

 

 

 

PART II.

OTHER INFORMATION

 

34

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

 

 

 

Item 1A.

Risk Factors

 

34

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

54

 

 

 

 

Item 4.

Mine Safety Disclosures

 

54

 

 

 

 

Item 5.

Other Information

 

54

 

 

 

 

Item 6.

Exhibits

 

55

 

 

 

Signatures

 

56

 

 

 

Exhibit Index

 

57

 

 

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

September 30,

2016

 

 

As of

December 31,

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

62,296

 

 

$

8,578

 

Accounts receivable, net

 

 

15,995

 

 

 

15,699

 

Prepaid expenses

 

 

2,559

 

 

 

1,371

 

Other current assets

 

 

3,226

 

 

 

3,972

 

Total current assets

 

 

84,076

 

 

 

29,620

 

Property and equipment, net

 

 

3,128

 

 

 

3,620

 

Capitalized software development costs, net

 

 

8,955

 

 

 

8,178

 

Goodwill

 

 

7,839

 

 

 

7,839

 

Intangible assets, net

 

 

2,738

 

 

 

4,119

 

Other assets

 

 

55

 

 

 

133

 

Total assets

 

$

106,791

 

 

$

53,509

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,967

 

 

$

3,521

 

Accrued payroll and employee related liabilities

 

 

7,620

 

 

 

6,062

 

Accrued expenses

 

 

2,348

 

 

 

1,460

 

Term loan

 

 

 

 

 

830

 

Deferred revenue

 

 

47,556

 

 

 

39,159

 

Notes payable

 

 

 

 

 

2,018

 

Other current liabilities

 

 

553

 

 

 

569

 

Total current liabilities

 

 

61,044

 

 

 

53,619

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent

 

 

1,516

 

 

 

1,308

 

Line of credit

 

 

 

 

 

9,976

 

Term loan, net of current portion

 

 

 

 

 

4,146

 

Deferred tax liabilities

 

 

94

 

 

 

345

 

Other long term liabilities

 

 

106

 

 

 

166

 

Total liabilities

 

 

62,760

 

 

 

69,560

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, no shares authorized, issued or outstanding as of

   September 30, 2016, 3,129,086 shares authorized, 3,129,084 shares issued and outstanding as of

   December 31, 2015; aggregate liquidation value of $11,357 as of December 31, 2015

 

 

 

 

 

3

 

Series A-1 preferred stock, $0.001 par value, no shares authorized, issued or outstanding as of

   September 30, 2016, 5,870,914 shares authorized, 5,225,879 issued and outstanding as of

   December 31, 2015; aggregate liquidation preference of $18,291 as of December 31, 2015

 

 

 

 

 

5

 

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

   September 30, 2016; no shares authorized, issued or outstanding as of December 31, 2015

 

 

 

 

 

 

Class A common stock, $0.001 par value, no shares authorized, issued or outstanding as of

   September 30, 2016;  1,164,497 shares authorized, 1,164,105 shares issued and outstanding as of

   December 31, 2015; aggregate liquidation preference of $1,339 as of December 31, 2015

 

 

 

 

 

1

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 27,148,042 and 11,106,926

   shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

 

 

27

 

 

 

11

 

Additional paid-in capital

 

 

131,307

 

 

 

62,274

 

Accumulated deficit

 

 

(86,990

)

 

 

(78,332

)

Accumulated other comprehensive loss

 

 

(313

)

 

 

(13

)

Total stockholders’ equity (deficit)

 

 

44,031

 

 

 

(16,051

)

Total liabilities and stockholders’ equity (deficit)

 

$

106,791

 

 

$

53,509

 

 

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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

19,932

 

 

$

15,187

 

 

$

55,566

 

 

$

42,500

 

Cost of revenue

 

 

6,173

 

 

 

5,165

 

 

 

17,324

 

 

 

14,210

 

Gross profit

 

 

13,759

 

 

 

10,022

 

 

 

38,242

 

 

 

28,290

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

8,605

 

 

 

6,761

 

 

 

25,659

 

 

 

18,098

 

Research and development

 

 

3,917

 

 

 

3,025

 

 

 

10,560

 

 

 

8,494

 

General and administrative

 

 

3,666

 

 

 

3,863

 

 

 

10,252

 

 

 

8,441

 

Total operating expenses

 

 

16,188

 

 

 

13,649

 

 

 

46,471

 

 

 

35,033

 

Operating loss

 

 

(2,429

)

 

 

(3,627

)

 

 

(8,229

)

 

 

(6,743

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

1

 

Interest expense

 

 

(195

)

 

 

(160

)

 

 

(506

)

 

 

(405

)

Other expenses, net

 

 

30

 

 

 

(20

)

 

 

2

 

 

 

(52

)

Total other expense, net

 

 

(165

)

 

 

(180

)

 

 

(504

)

 

 

(456

)

Loss before income taxes

 

 

(2,594

)

 

 

(3,807

)

 

 

(8,733

)

 

 

(7,199

)

(Provision for) benefit from income taxes

 

 

(35

)

 

 

186

 

 

 

75

 

 

 

374

 

Net loss

 

$

(2,629

)

 

$

(3,621

)

 

$

(8,658

)

 

$

(6,825

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

(0.30

)

 

$

(0.66

)

 

$

(0.56

)

Diluted

 

$

(0.18

)

 

$

(0.30

)

 

$

(0.66

)

 

$

(0.56

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,772,006

 

 

 

12,255,240

 

 

 

13,124,480

 

 

 

12,254,520

 

Diluted

 

 

14,772,006

 

 

 

12,255,240

 

 

 

13,124,480

 

 

 

12,254,520

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

2016

 

 

September 30,

2015

 

 

September 30,

2016

 

 

September 30,

2015

 

Net loss

 

$

(2,629

)

 

$

(3,621

)

 

$

(8,658

)

 

$

(6,825

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of taxes

 

 

66

 

 

 

62

 

 

 

(300

)

 

 

1

 

Total comprehensive loss

 

$

(2,563

)

 

$

(3,559

)

 

$

(8,958

)

 

$

(6,824

)

 

See the accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands)

(unaudited)

 

 

 

Series A

preferred stock

 

 

Series A-1

preferred stock

 

 

Common stock

 

 

Class A

common stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated—

other

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Par value

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

Total

 

Balance at December 31, 2014

 

 

3,129,084

 

 

$

3

 

 

 

5,225,879

 

 

$

5

 

 

 

11,237,257

 

 

$

11

 

 

 

1,164,105

 

 

$

1

 

 

$

62,203

 

 

$

(67,508

)

 

$

(42

)

 

$

(5,327

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,023

 

 

 

 

 

 

 

 

 

 

 

 

1,522

 

 

 

 

 

 

 

 

 

1,522

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(173,913

)

 

 

 

 

 

 

 

 

 

 

 

(1,500

)

 

 

 

 

 

 

 

 

(1,500

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,559

 

 

 

 

 

 

 

 

 

 

 

 

49

 

 

 

 

 

 

 

 

 

49

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

29

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,824

)

 

 

 

 

 

(10,824

)

Balance at December 31, 2015

 

 

3,129,084

 

 

$

3

 

 

 

5,225,879

 

 

$

5

 

 

 

11,106,926

 

 

$

11

 

 

 

1,164,105

 

 

$

1

 

 

$

62,274

 

 

$

(78,332

)

 

$

(13

)

 

$

(16,051

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,165

 

 

 

 

 

 

 

 

 

2,165

 

Issuance of common stock in initial

   public offering, net of

   issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,250,000

 

 

 

6

 

 

 

 

 

 

 

 

 

66,096

 

 

 

 

 

 

 

 

 

66,102

 

Conversion of convertible preferred

   stock and Class A common stock

   into common stock

 

 

(3,129,084

)

 

 

(3

)

 

 

(5,225,879

)

 

 

(5

)

 

 

9,519,068

 

 

 

9

 

 

 

(1,164,105

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Cashless exercise of warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161,336

 

 

 

1

 

 

 

 

 

 

 

 

 

747

 

 

 

 

 

 

 

 

 

748

 

Exercise of warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,029

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

(300

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,658

)

 

 

 

 

 

(8,658

)

Balance at September 30, 2016

 

 

 

 

$

 

 

 

 

 

$

 

 

 

27,148,042

 

 

$

27

 

 

 

 

 

$

 

 

$

131,307

 

 

$

(86,990

)

 

$

(313

)

 

$

44,031

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


 

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,658

)

 

$

(6,825

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,675

 

 

 

4,244

 

Loss on disposal of assets

 

 

74

 

 

 

 

Deferred income taxes

 

 

(224

)

 

 

 

Accretion of interest on notes payable

 

 

 

 

 

105

 

Non-cash interest expense on line of credit and term loan

 

 

67

 

 

 

4

 

Provision for doubtful accounts

 

 

95

 

 

 

331

 

Stock-based compensation

 

 

2,127

 

 

 

900

 

Increase (decrease) in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(391

)

 

 

(1,098

)

Prepaid expenses

 

 

(1,188

)

 

 

(1,009

)

Other assets

 

 

(1,743

)

 

 

(734

)

Accounts payable

 

 

251

 

 

 

1,043

 

Accrued payroll and employee related liabilities

 

 

1,558

 

 

 

472

 

Accrued expenses

 

 

305

 

 

 

(346

)

Deferred revenue

 

 

8,605

 

 

 

6,953

 

Other liabilities

 

 

(18

)

 

 

53

 

Net cash provided by operating activities

 

 

6,535

 

 

 

4,093

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(739

)

 

 

(2,330

)

Additions to capitalized software development costs

 

 

(4,294

)

 

 

(3,647

)

Change in restricted cash

 

 

 

 

 

(77

)

Net cash used in investing activities

 

 

(5,033

)

 

 

(6,054

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

9,500

 

 

 

5,000

 

Payments on line of credit

 

 

(19,500

)

 

 

(5,000

)

Payments of issuance costs relating to line of credit and term loan

 

 

(19

)

 

 

(59

)

Principal payments on capital leases

 

 

(58

)

 

 

(74

)

Proceeds from initial public offering, net of underwriters discounts and commissions

 

 

69,750

 

 

 

 

Payments of initial public offering costs

 

 

(1,372

)

 

 

(1,143

)

Payments on notes payable

 

 

(2,018

)

 

 

 

(Payments) proceeds from term loan

 

 

(5,000

)

 

 

5,000

 

Proceeds from warrant exercises

 

 

25

 

 

 

 

Proceeds from option exercises

 

 

748

 

 

 

34

 

Repurchase of common stock

 

 

 

 

 

(1,500

)

Net cash provided by financing activities

 

 

52,056

 

 

 

2,258

 

Effect of exchange rates on cash and cash equivalents

 

 

160

 

 

 

(29

)

Net increase in cash and cash equivalents

 

 

53,718

 

 

 

268

 

Cash—beginning of year

 

 

8,578

 

 

 

4,412

 

Cash—end of year

 

$

62,296

 

 

$

4,680

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

488

 

 

$

183

 

Taxes

 

 

 

 

 

124

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

 

Capitalized assets included in accounts payable and accrued expenses

 

 

132

 

 

 

46

 

Deferred offering costs in accounts payable and accrued expenses

 

 

885

 

 

 

1,366

 

Stock-based compensation capitalized for software development

 

 

38

 

 

 

 

 

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 automate numerous critical communications processes such as Mass Notification, Incident Management, IT Alerting, Safety Connection, Community Engagement, Secure Messaging and Internet of Things. The Company generates revenue primarily from subscription fees to the Company’s enterprise applications. The Company has operations in the United States, the United Kingdom and China.

Initial Public Offering

On September 21, 2016, the Company completed an initial public offering (“IPO”) in which the Company sold 6,250,000 shares of its common stock at the public offering price of $12.00 per share. The Company received net proceeds of $66.1 million, after deducting underwriting discounts and commissions and offering expenses paid and payable by the Company, from sales of its shares in the IPO.  In connection with the closing of the IPO, all shares of Class A common stock then outstanding were converted into 1,164,105 shares of common stock and all shares of convertible preferred stock then outstanding were converted into 8,354,963 shares of common stock, in each case on a one-to-one basis.

As of September 30, 2016, 27,148,042 shares of the Company’s common stock were outstanding.

 

 

(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 final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on September 16, 2016 (the “Prospectus”).

The condensed consolidated balance sheet as of December 31, 2015, 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 and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2016 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.

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Assets and liabilities which are subject to judgment and use of estimates include 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 engaged 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, for all periods prior to the completion of the IPO, the valuation of the Company’s common stock.

Concentrations of Credit and Business Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash 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 located in the United States and the United Kingdom and are generally denominated in U.S. dollars 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 or accounts receivable for the three months ended September 30, 2016 and 2015. No single customer comprised more than 10% of the Company’s total revenue or accounts receivable for the nine months ended September 30, 2016 and 2015.

Significant Accounting Policies

There have been no changes to our significant accounting policies described in the Prospectus.

Recently Issued Accounting Guidance, Not Yet Adopted

In August 2016, the Financial Accounting Standards Board ("FASB") issued new accounting guidance: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company has elected not to early adopt. The Company is evaluating the impact of adopting this new accounting standard on its consolidated financial statements.

In March 2016, the FASB Accounting Standards Updates (“ASU”) No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. This standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements and related disclosures.

In February, 2016, the FASB issued ASU No. 2016-02, “Leases”. The standard will affect all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For public companies, the new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. For leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. While the Company expects the adoption of this standard to result in an increase to the reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its condensed consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This new guidance will replace most existing U.S. GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred, by one year, the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, this guidance will be effective for the

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Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted beginning January 1, 2017. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing”, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients”, which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as the effective date and transition requirements for ASU 2014-09. The Company is evaluating the impact that these ASUs will have on its condensed consolidated financial statements and related disclosures and has not yet selected a transition method.

 

 

(3) Accounts Receivable, Net

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

 

 

 

As of

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

16,392

 

 

$

16,080

 

Allowance for doubtful accounts

 

 

(397

)

 

 

(381

)

Net accounts receivable

 

$

15,995

 

 

$

15,699

 

 

Bad debt expense was $0.1 million and $0.1 million for the three and nine months ended September 30, 2016, respectively, and $0.2 million and $0.2 million for the three and nine months ended September 30, 2015, respectively.

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Balance, beginning of period

 

$

422

 

 

$

357

 

 

$

381

 

 

$

282

 

Additions

 

 

8

 

 

 

242

 

 

 

95

 

 

 

331

 

Write-offs

 

 

(33

)

 

 

(121

)

 

 

(79

)

 

 

(135

)

Balance, end of period

 

$

397

 

 

$

478

 

 

$

397

 

 

$

478

 

 

 

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(4) Property and Equipment

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