evbg-10q_20170930.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, 2017

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, 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

 

  (Do not check if a small reporting company)

  

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  ☒

As of November 1, 2017, the registrant had 28,254,691 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, 2017 and December 31, 2016

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2017

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

24

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

Item 4.

Controls and Procedures

 

38

 

 

 

 

PART II.

OTHER INFORMATION

 

39

 

 

 

 

Item 1.

Legal Proceedings

 

39

 

 

 

 

Item 1A.

Risk Factors

 

39

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

39

 

 

 

 

Item 4.

Mine Safety Disclosures

 

39

 

 

 

 

Item 5.

Other Information

 

39

 

 

 

 

Item 6.

Exhibits

 

41

 

 

 

Signatures

 

42

 

 

 

 

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,

2017

 

 

As of

December 31,

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,628

 

 

$

60,765

 

Restricted cash

 

 

297

 

 

 

 

Short-term investments

 

 

24,029

 

 

 

 

Accounts receivable, net

 

 

22,273

 

 

 

17,812

 

Prepaid expenses

 

 

3,564

 

 

 

1,770

 

Other current assets

 

 

2,780

 

 

 

2,536

 

Total current assets

 

 

76,571

 

 

 

82,883

 

Property and equipment, net

 

 

2,844

 

 

 

2,923

 

Capitalized software development costs, net

 

 

9,672

 

 

 

8,792

 

Goodwill

 

 

31,343

 

 

 

9,676

 

Intangible assets, net

 

 

9,499

 

 

 

3,940

 

Other assets

 

 

190

 

 

 

108

 

Total assets

 

$

130,119

 

 

$

108,322

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,223

 

 

$

2,434

 

Accrued payroll and employee related liabilities

 

 

9,778

 

 

 

7,456

 

Accrued expenses

 

 

2,003

 

 

 

1,957

 

Deferred revenue

 

 

63,040

 

 

 

51,388

 

Contingent liabilities

 

 

1,705

 

 

 

 

Other current liabilities

 

 

614

 

 

 

548

 

Total current liabilities

 

 

80,363

 

 

 

63,783

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent

 

 

1,455

 

 

 

1,246

 

Deferred tax liabilities

 

 

594

 

 

 

494

 

Other long term liabilities

 

 

533

 

 

 

447

 

Total liabilities

 

 

82,945

 

 

 

65,970

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

  September 30, 2017 and December 31, 2016, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 28,203,369 and 27,150,674

   shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

 

28

 

 

 

27

 

Additional paid-in capital

 

 

150,614

 

 

 

132,246

 

Accumulated deficit

 

 

(103,488

)

 

 

(89,618

)

Accumulated other comprehensive income (loss)

 

 

20

 

 

 

(303

)

Total stockholders’ equity

 

 

47,174

 

 

 

42,352

 

Total liabilities and stockholders’ equity

 

$

130,119

 

 

$

108,322

 

 

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

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Revenue

 

$

27,312

 

 

$

19,932

 

 

$

75,177

 

 

$

55,566

 

Cost of revenue

 

 

8,076

 

 

 

6,173

 

 

 

22,969

 

 

 

17,324

 

Gross profit

 

 

19,236

 

 

 

13,759

 

 

 

52,208

 

 

 

38,242

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

11,626

 

 

 

8,605

 

 

 

33,589

 

 

 

25,659

 

Research and development

 

 

5,626

 

 

 

3,917

 

 

 

16,082

 

 

 

10,560

 

General and administrative

 

 

6,375

 

 

 

3,666

 

 

 

16,640

 

 

 

10,252

 

Total operating expenses

 

 

23,627

 

 

 

16,188

 

 

 

66,311

 

 

 

46,471

 

Operating loss

 

 

(4,391

)

 

 

(2,429

)

 

 

(14,103

)

 

 

(8,229

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and investment income

 

 

106

 

 

 

 

 

 

234

 

 

 

 

Interest expense

 

 

(2

)

 

 

(195

)

 

 

(5

)

 

 

(506

)

Other income (expense), net

 

 

(23

)

 

 

30

 

 

 

(61

)

 

 

2

 

Total other income (expense), net

 

 

81

 

 

 

(165

)

 

 

168

 

 

 

(504

)

Loss before income taxes

 

 

(4,310

)

 

 

(2,594

)

 

 

(13,935

)

 

 

(8,733

)

(Provision for) benefit from income taxes

 

 

79

 

 

 

(35

)

 

 

65

 

 

 

75

 

Net loss

 

$

(4,231

)

 

$

(2,629

)

 

$

(13,870

)

 

$

(8,658

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

(0.18

)

 

$

(0.50

)

 

$

(0.66

)

Diluted

 

$

(0.15

)

 

$

(0.18

)

 

$

(0.50

)

 

$

(0.66

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,100,172

 

 

 

14,772,006

 

 

 

27,719,519

 

 

 

13,124,480

 

Diluted

 

 

28,100,172

 

 

 

14,772,006

 

 

 

27,719,519

 

 

 

13,124,480

 

 

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, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Net loss

 

$

(4,231

)

 

$

(2,629

)

 

$

(13,870

)

 

$

(8,658

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of taxes

 

 

197

 

 

 

66

 

 

 

323

 

 

 

(300

)

Total comprehensive loss

 

$

(4,034

)

 

$

(2,563

)

 

$

(13,547

)

 

$

(8,958

)

 

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, 2016

 

 

27,150,674

 

 

$

27

 

 

$

132,246

 

 

$

(89,618

)

 

$

(303

)

 

$

42,352

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,872

 

 

 

 

 

 

 

 

 

4,872

 

Issuance of common stock in follow-on

   offering, net

 

 

553,825

 

 

 

1

 

 

 

9,869

 

 

 

 

 

 

 

 

 

9,870

 

Exercise of stock options

 

 

370,084

 

 

 

 

 

 

2,087

 

 

 

 

 

 

 

 

 

2,087

 

Issuance of shares under employee

   stock purchase plan

 

 

128,786

 

 

 

 

 

 

1,540

 

 

 

 

 

 

 

 

 

1,540

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

323

 

 

 

323

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,870

)

 

 

 

 

 

(13,870

)

Balance at September 30, 2017

 

 

28,203,369

 

 

$

28

 

 

$

150,614

 

 

$

(103,488

)

 

$

20

 

 

$

47,174

 

 

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,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,870

)

 

$

(8,658

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,646

 

 

 

5,675

 

Loss on disposal of assets

 

 

15

 

 

 

74

 

Deferred income taxes

 

 

62

 

 

 

(224

)

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

 

 

 

 

 

67

 

Non-cash investment income

 

 

(74

)

 

 

 

Provision for doubtful accounts and sales reserve

 

 

588

 

 

 

95

 

Stock-based compensation

 

 

4,838

 

 

 

2,127

 

Increase (decrease) in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,591

)

 

 

(391

)

Prepaid expenses

 

 

(1,552

)

 

 

(1,188

)

Other assets

 

 

(980

)

 

 

(1,743

)

Accounts payable

 

 

820

 

 

 

251

 

Accrued payroll and employee related liabilities

 

 

2,263

 

 

 

1,558

 

Accrued expenses

 

 

(54

)

 

 

305

 

Deferred revenue

 

 

7,801

 

 

 

8,605

 

Other liabilities

 

 

467

 

 

 

(18

)

Net cash provided by operating activities

 

 

4,379

 

 

 

6,535

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(1,337

)

 

 

(739

)

Proceeds from sale leaseback transaction

 

 

794

 

 

 

 

Payments for acquisition of business, net of acquired cash

 

 

(21,235

)

 

 

 

Change in restricted cash

 

 

(294

)

 

 

 

Purchase of short-term investments

 

 

(29,955

)

 

 

 

Maturities of short-term investments

 

 

6,000

 

 

 

 

Additions to capitalized software development costs

 

 

(4,586

)

 

 

(4,294

)

Net cash used in investing activities

 

 

(50,613

)

 

 

(5,033

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

 

 

 

9,500

 

Payments on line of credit

 

 

 

 

 

(19,500

)

Payment on term loan

 

 

 

 

 

(5,000

)

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

 

 

 

 

 

(19

)

Principal payments on capital leases

 

 

 

 

 

(58

)

Proceeds from public offering, net of underwriters discount and commissions

 

 

10,444

 

 

 

69,750

 

Payments of public offering costs

 

 

(872

)

 

 

(1,372

)

Payments of debt issuance costs

 

 

(40

)

 

 

 

Payment of contingent consideration

 

 

(3,750

)

 

 

 

Payments on notes payable

 

 

 

 

 

(2,018

)

Proceeds from employee stock purchase plan

 

 

1,540

 

 

 

 

Proceeds from option exercises

 

 

2,087

 

 

 

748

 

Proceeds from exercise of warrants

 

 

 

 

 

25

 

Net cash provided by financing activities

 

 

9,409

 

 

 

52,056

 

Effect of exchange rates on cash and cash equivalents

 

 

(312

)

 

 

160

 

Net (decrease) increase in cash and cash equivalents

 

 

(37,137

)

 

 

53,718

 

Cash and cash equivalents—beginning of period

 

 

60,765

 

 

 

8,578

 

Cash and cash equivalents—end of period

 

$

23,628

 

 

$

62,296

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

488

 

Taxes, net of refunds received

 

 

25

 

 

 

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Capitalized assets included in accounts payable and accrued expenses

 

 

24

 

 

 

132

 

Deferred offering costs in accounts payable and accrued expenses

 

 

 

 

 

885

 

Debt issuance costs included in accounts payable and accrued expenses

 

 

100

 

 

 

 

Stock-based compensation capitalized for software development

 

 

34

 

 

 

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 event management 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, CareConverge, Crisis Commander and Visual Command Center, automate numerous critical event management and enterprise safety processes. The Company generates revenue primarily from subscription fees to the Company’s enterprise applications. The Company has operations in the United States, Sweden, the United Kingdom and China.

Initial and Follow-On 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 April 2017, the Company completed a follow-on public offering in which the Company sold 553,825 shares of its common stock, which included 26,825 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $19.85 per share. In addition, 3,162,164 shares of the Company’s common stock were sold by selling stockholders of the Company, which included 73,000 shares sold pursuant to the exercise of employee stock options by certain selling stockholders. The Company received net proceeds of $9.9 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company. The Company did not receive any proceeds from the sales by the selling stockholders.

 

 

(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, 2016.

The condensed consolidated balance sheet as of December 31, 2016, 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 2017 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.

8


 

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.

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 located in the United States, Sweden and the United Kingdom and are generally denominated in U.S. dollars, 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 or accounts receivable for the three or nine months ended September 30, 2017 and 2016.  

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 September 30, 2017, $19.5 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. 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 $24.0 million and none at September 30, 2017 and December 31, 2016, respectively, were classified as held-to-maturity and primarily comprised of U.S. treasury and U.S. agency securities. All held-to-maturity securities at September 30, 2017 have maturity dates within one year.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Recently Issued Accounting Guidance Not Yet Adopted

In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or (“ASU”), ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. This guidance must be applied on a prospective basis. The Company expects to adopt this guidance for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This guidance narrows the definition of a business. This standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. This guidance must be applied prospectively to transactions occurring within the period of adoption. The Company expects to adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cash flows.

9


 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. As a result, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, and the new guidance is to be applied retrospectively. The Company does not expect the adoption of this guidance to have a material impact on its cash flows.

In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company's treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.

In February 2016, the FASB issued ASU 2016-02, Leases, 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 also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Adoption of the ASU is modified retrospective. We are still in the process of evaluating the ASU but currently plan to adopt the ASU on January 1, 2019

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new revenue recognition standard will be effective for the Company effective January 1, 2018. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

The Company currently anticipates adopting the standard using the modified retrospective method.

 

The Company is continuing to assess the impact of adopting ASU 2014-09 on its financial position, results of operations and related disclosures and has not yet determined whether the effect of the revenue portion will be material. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company may adjust its implementation plan accordingly.

 

The Company believes that the new standard will impact the following policies and disclosures:

 

allocation of subscription and support revenue across different platforms and to professional services revenue;

 

required disclosures including information about the transaction price and when the Company expects to recognize revenue; and

 

accounting for deferred sales commissions including costs that qualify for deferral and the amortization period.

The sales commission accounting under the new standard is significantly different than the Company's current commission capitalization policy. The new standard will result in additional types of costs being capitalized. Additionally, all amounts capitalized are expected to be amortized over a period that is longer than the Company's current policy of amortizing the deferred amounts over the specific revenue contract terms. While the Company has not yet finalized its assessment of the impact will have on its financial position and results of operations, the Company believes it will be material.

 

The Company does not expect the adoption of ASU 2014-09 to have any impact on its operating cash flows.

 

 

10


 

(3) Accounts Receivable, Net

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

 

 

 

As of

 

 

As of

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Accounts receivable

 

$

23,192

 

 

$

18,231

 

Allowance for doubtful accounts and sales reserve

 

 

(919

)

 

 

(419

)

Net accounts receivable

 

$

22,273

 

 

$

17,812

 

 

Bad debt expense and sales credits reserve were $0.2 million and $0.6 million for the three and nine months ended September 30, 2017, respectively, and $0.1 million and $0.1 million for the three and nine months ended September 30, 2016, 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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Balance, beginning of period

 

$

(610

)

 

$

(377

)

 

$

(374

)

 

$

(336

)

Additions

 

 

(195

)

 

 

(8

)

 

 

(484

)

 

 

(95

)

Write-offs

 

 

11

 

 

 

33

 

 

 

64

 

 

 

79

 

Balance, end of period

 

$

(794

)

 

$

(352

)

 

$

(794

)

 

$

(352

)

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Balance, beginning of period

 

$

(116

)

 

$

(45

)

 

$

(45

)

 

$

(45

)

Additions

 

 

(24

)

 

 

 

 

 

(104

)

 

 

 

Write-offs

 

 

15

 

 

 

 

 

 

24

 

 

 

 

Balance, end of period

 

$

(125

)

 

$

(45

)

 

$

(125

)

 

$

(45

)

 

 

(4) Property and Equipment

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

 

 

 

Useful life

in years

 

 

As of  September 30, 2017

 

 

As of  December 31, 2016

 

Furniture and equipment

 

 

5

 

 

$

1,794

 

 

$

928

 

System hardware

 

 

5

 

 

 

1,623

 

 

 

3,320

 

Office computers

 

 

3

 

 

 

2,285

 

 

 

1,777

 

Computer and system software

 

 

3

 

 

 

1,186

 

 

 

1,478

 

 

 

 

 

 

 

 

6,888

 

 

 

7,503

 

Less accumulated depreciation and amortization

 

 

 

 

 

 

(4,044

)

 

 

(4,580

)

Property and equipment, net

 

 

 

 

 

$

2,844

 

 

$

2,923

 

 

Depreciation and amortization expense for property and equipment was $0.4 million and $1.5 million for the three and nine months ended September 30, 2017, respectively, and $0.4 million and $1.2 million for the three and nine months ended September 30, 2016, respectively. 

 

 

11


 

(5) Capitalized Software Development Costs

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

 

 

 

 

 

 

 

 

 

As of  September 30, 2017

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

35,278

 

 

3 years

 

$

(25,606

)

 

$

9,672

 

Total capitalized software development costs

 

$

35,278

 

 

 

 

$

(25,606

)

 

$

9,672

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

30,658

 

 

3 years

 

$

(21,866

)

 

$

8,792

 

Total capitalized software development costs

 

$

30,658

 

 

 

 

$

(21,866

)

 

$

8,792

 

 

The Company capitalized software development costs of $4.6 million and $5.5 million for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.

Amortization expense for capitalized software development costs was $1.2 million and $3.7 million for the three and nine months ended September 30, 2017, respectively, and $1.3 million and $3.6 million for the three and nine months ended September 30, 2016, 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 September 30, 2017, for each of the following years is as follows (in thousands):

 

 

 

Amounts

 

2017 (for the remaining three months)

 

$

1,475

 

2018

 

 

4,384

 

2019

 

 

3,127

 

2020

 

 

686

 

 

 

$

9,672

 

 

 

(6) Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, capital leases 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 nine months ended September 30, 2017 and year ended December 31, 2016, no impairments were identified.

12


 

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016 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  September 30, 2017

 

 

 

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

 

$

9,957

 

 

 

 

 

 

 

 

$

9,957

 

     U.S. treasury securities

 

 

 

 

 

2,498

 

 

 

 

 

 

 

2,498

 

     U.S. government and agency securities

 

 

 

 

 

6,999

 

 

 

 

 

 

6,999

 

  Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     U.S. treasury securities

 

 

 

 

 

7,289

 

 

 

 

 

 

7,289

 

     U.S. government and agency securities

 

 

 

 

 

16,740

 

 

 

 

 

 

16,740

 

Total financial assets

 

$

9,957

 

 

$

33,526

 

 

$

 

 

$

43,483

 

Liabilities: