evbg-10q_20180930.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, 2018

OR

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

For the transition period from                      to                     

Commission File Number: 001-37874

 

Everbridge, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

26-2919312

(State or other jurisdiction of

incorporation or organization)

 

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

 

 

 

25 Corporate Drive, Suite 400

Burlington, Massachusetts

 

01803

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

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  ☒

As of November 1, 2018, the registrant had 29,651,516 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, 2018 and December 31, 2017

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2018

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

31

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

45

 

 

 

 

Item 4.

Controls and Procedures

 

46

 

 

 

 

PART II.

OTHER INFORMATION

 

47

 

 

 

 

Item 1.

Legal Proceedings

 

47

 

 

 

 

Item 1A.

Risk Factors

 

47

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

48

 

 

 

 

Item 4.

Mine Safety Disclosures

 

48

 

 

 

 

Item 5.

Other Information

 

48

 

 

 

 

Item 6.

Exhibits

 

49

 

 

 

Signatures

 

50

 

 

 

 

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, 2018

 

 

As of

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,271

 

 

$

102,754

 

Restricted cash

 

 

23

 

 

 

297

 

Short-term investments

 

 

26,856

 

 

 

42,908

 

Accounts receivable, net

 

 

37,033

 

 

 

31,699

 

Prepaid expenses

 

 

5,353

 

 

 

2,563

 

Deferred costs

 

 

5,842

 

 

 

2,429

 

Other current assets

 

 

3,426

 

 

 

811

 

Total current assets

 

 

154,804

 

 

 

183,461

 

Property and equipment, net

 

 

2,918

 

 

 

2,796

 

Capitalized software development costs, net

 

 

12,734

 

 

 

10,005

 

Goodwill

 

 

53,132

 

 

 

31,328

 

Intangible assets, net

 

 

22,000

 

 

 

8,634

 

Deferred costs

 

 

8,747

 

 

 

 

Other assets

 

 

253

 

 

 

189

 

Total assets

 

$

254,588

 

 

$

236,413

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,141

 

 

$

2,446

 

Accrued payroll and employee related liabilities

 

 

14,531

 

 

 

11,111

 

Accrued expenses

 

 

3,090

 

 

 

1,825

 

Deferred revenue

 

 

82,263

 

 

 

70,090

 

Note payable

 

 

432

 

 

 

 

Contingent liabilities

 

 

 

 

 

682

 

Other current liabilities

 

 

1,242

 

 

 

808

 

Total current liabilities

 

 

105,699

 

 

 

86,962

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, noncurrent

 

 

6,376

 

 

 

2,982

 

Convertible senior notes

 

 

92,916

 

 

 

89,481

 

Deferred tax liabilities

 

 

885

 

 

 

482

 

Other long term liabilities

 

 

989

 

 

 

515

 

Total liabilities

 

 

206,865

 

 

 

180,422

 

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, 2018 and December 31, 2017, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 29,625,465 and 28,330,460

   shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

29

 

 

 

28

 

Additional paid-in capital

 

 

187,909

 

 

 

164,995

 

Accumulated deficit

 

 

(137,865

)

 

 

(109,252

)

Accumulated other comprehensive income (loss)

 

 

(2,350

)

 

 

220

 

Total stockholders’ equity

 

 

47,723

 

 

 

55,991

 

Total liabilities and stockholders’ equity

 

$

254,588

 

 

$

236,413

 

 

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, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

Revenue

 

$

38,925

 

 

$

27,312

 

 

$

105,266

 

 

$

75,177

 

Cost of revenue

 

 

12,296

 

 

 

8,076

 

 

 

33,488

 

 

 

22,969

 

Gross profit

 

 

26,629

 

 

 

19,236

 

 

 

71,778

 

 

 

52,208

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

16,348

 

 

 

11,626

 

 

 

51,303

 

 

 

33,589

 

Research and development

 

 

10,350

 

 

 

5,626

 

 

 

30,548

 

 

 

16,082

 

General and administrative

 

 

7,130

 

 

 

6,375

 

 

 

23,609

 

 

 

16,640

 

Total operating expenses

 

 

33,828

 

 

 

23,627

 

 

 

105,460

 

 

 

66,311

 

Operating loss

 

 

(7,199

)

 

 

(4,391

)

 

 

(33,682

)

 

 

(14,103

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and investment income

 

 

460

 

 

 

106

 

 

 

1,316

 

 

 

234

 

Interest expense

 

 

(1,592

)

 

 

(2

)

 

 

(4,736

)

 

 

(5

)

Other expense, net

 

 

(33

)

 

 

(23

)

 

 

(237

)

 

 

(61

)

Total other (expense) income, net

 

 

(1,165

)

 

 

81

 

 

 

(3,657

)

 

 

168

 

Loss before income taxes

 

 

(8,364

)

 

 

(4,310

)

 

 

(37,339

)

 

 

(13,935

)

(Provision for) benefit from income taxes

 

 

(86

)

 

 

79

 

 

 

(371

)

 

 

65

 

Net loss

 

$

(8,450

)

 

$

(4,231

)

 

$

(37,710

)

 

$

(13,870

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.29

)

 

$

(0.15

)

 

$

(1.30

)

 

$

(0.50

)

Diluted

 

$

(0.29

)

 

$

(0.15

)

 

$

(1.30

)

 

$

(0.50

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,460,156

 

 

 

28,100,172

 

 

 

28,918,304

 

 

 

27,719,519

 

Diluted

 

 

29,460,156

 

 

 

28,100,172

 

 

 

28,918,304

 

 

 

27,719,519

 

 

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, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

Net loss

 

$

(8,450

)

 

$

(4,231

)

 

$

(37,710

)

 

$

(13,870

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of taxes

 

 

81

 

 

 

197

 

 

 

(2,570

)

 

 

323

 

Total comprehensive loss

 

$

(8,369

)

 

$

(4,034

)

 

$

(40,280

)

 

$

(13,547

)

 

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, 2017

 

 

28,330,460

 

 

$

28

 

 

$

164,995

 

 

$

(109,252

)

 

$

220

 

 

$

55,991

 

Cumulative effect of adoption of

   ASU 2014-09, net of taxes

 

 

 

 

 

 

 

 

 

 

 

9,097

 

 

 

 

 

 

9,097

 

Stock-based compensation

 

 

 

 

 

 

 

 

20,257

 

 

 

 

 

 

 

 

 

20,257

 

Vesting of restricted stock units

 

 

671,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units withheld to

   settle employee tax withholding liability

 

 

(154,469

)

 

 

 

 

 

(7,921

)

 

 

 

 

 

 

 

 

(7,921

)

Exercise of stock options

 

 

703,826

 

 

 

1

 

 

 

8,820

 

 

 

 

 

 

 

 

 

8,821

 

Issuance of shares under employee

   stock purchase plan

 

 

74,517

 

 

 

 

 

 

1,758

 

 

 

 

 

 

 

 

 

1,758

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,570

)

 

 

(2,570

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(37,710

)

 

 

 

 

 

(37,710

)

Balance at September 30, 2018

 

 

29,625,465

 

 

$

29

 

 

$

187,909

 

 

$

(137,865

)

 

$

(2,350

)

 

$

47,723

 

 

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,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(37,710

)

 

$

(13,870

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,172

 

 

 

7,646

 

Amortization of deferred costs

 

 

3,928

 

 

 

4,140

 

Loss on disposal of assets

 

 

112

 

 

 

15

 

Deferred income taxes

 

 

101

 

 

 

62

 

Accretion of interest on convertible senior notes

 

 

3,435

 

 

 

 

Non-cash investment income

 

 

(308

)

 

 

(74

)

Provision for doubtful accounts and sales reserve

 

 

158

 

 

 

588

 

Change in fair value of contingent consideration

 

 

(250

)

 

 

 

Stock-based compensation

 

 

20,007

 

 

 

4,838

 

Increase (decrease) in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,524

 

 

 

(3,591

)

Prepaid expenses

 

 

(2,439

)

 

 

(1,552

)

Deferred costs

 

 

(6,991

)

 

 

216

 

Other assets

 

 

(1,584

)

 

 

(5,336

)

Accounts payable

 

 

(113

)

 

 

820

 

Accrued payroll and employee related liabilities

 

 

2,109

 

 

 

2,263

 

Accrued expenses

 

 

(621

)

 

 

(54

)

Deferred revenue

 

 

7,237

 

 

 

7,801

 

Other liabilities

 

 

457

 

 

 

467

 

Net cash (used in) provided by operating activities

 

 

(776

)

 

 

4,379

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(855

)

 

 

(1,337

)

Proceeds from sale leaseback

 

 

 

 

 

794

 

Payments for acquisition of business, net of acquired cash

 

 

(35,857

)

 

 

(21,235

)

Purchase of short-term investments

 

 

(57,709

)

 

 

(29,955

)

Maturities of short-term investments

 

 

74,069

 

 

 

6,000

 

Additions to intangibles

 

 

(184

)

 

 

 

Additions to capitalized software development costs

 

 

(6,722

)

 

 

(4,586

)

Net cash used in investing activities

 

 

(27,258

)

 

 

(50,319

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Restricted stock units withheld to settle employee tax withholding liability

 

 

(7,921

)

 

 

 

Principal payments on capital leases

 

 

(61

)

 

 

 

Payment of contingent consideration

 

 

(431

)

 

 

(3,750

)

Payment on note payable

 

 

(59

)

 

 

 

Proceeds from follow on offering, net

 

 

 

 

 

10,444

 

Payments of public offering costs

 

 

 

 

 

(872

)

Payments of debt issuance costs

 

 

(84

)

 

 

(40

)

Proceeds from employee stock purchase plan

 

 

1,758

 

 

 

1,540

 

Proceeds from stock option exercises

 

 

8,821

 

 

 

2,087

 

Net cash provided by financing activities

 

 

2,023

 

 

 

9,409

 

Effect of exchange rates on cash and cash equivalents

 

 

(746

)

 

 

(309

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(26,757

)

 

 

(36,840

)

Cash, cash equivalents and restricted cash—beginning of period

 

 

103,051

 

 

 

60,765

 

Cash, cash equivalents and restricted cash—end of period

 

$

76,294

 

 

$

23,925

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

771

 

 

$

 

Taxes, net of refunds received

 

 

43

 

 

 

25

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Capitalized assets included in accounts payable and accrued expenses

 

 

278

 

 

 

24

 

Debt issuance costs included in accounts payable and accrued expenses

 

 

 

 

 

100

 

Note payable issued for asset acquisition

 

 

52

 

 

 

 

Stock-based compensation capitalized for software development

 

 

250

 

 

 

34

 

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

Everbridge, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Business and Nature of Operations

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

 

 

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The condensed consolidated balance sheet as of December 31, 2017, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.

Certain reclassifications have been made to conform prior-year amounts to the current-year presentation.

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 2018 or any future period.

Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update ASU, No. 2014-09, Revenue from Contracts with Customers, as discussed in this Note 2 and Note 15.

 

Principles of Consolidation

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

Use of Estimates

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

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

8


 

Concentrations of Credit and Business Risk

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

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

The Company’s accounts receivable are generally unsecured and are derived from revenue earned from customers primarily located in the United States, Norway, Sweden and the United Kingdom and are generally denominated in U.S. dollars, Norwegian Krone, Swedish Kronor or British Pounds. Each reporting period, the Company reevaluates each customer’s ability to satisfy credit obligations and maintains an allowance for doubtful accounts based on the evaluations. No single customer comprised more than 10% of the Company’s total revenue or accounts receivable for the three and nine months ended September 30, 2018 and 2017.  

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, 2018, $47.8 million of the Company’s cash equivalents were invested in money market funds.

Short-Term Investments

Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. Treasury and U.S. agency securities, with maturities over three months from the date of purchase and less than 12 months from the date of the balance sheet. Debt securities, money market funds and U.S. agency bonds that the Company has the ability and positive intent to hold to maturity are carried at amortized cost, which approximates fair value. Short-term investments of $26.9 million and $42.9 million at September 30, 2018 and December 31, 2017, respectively, were classified as held-to-maturity and primarily comprised of U.S. treasury and U.S. government and agency securities. All held-to-maturity securities at September 30, 2018 have maturity dates within one year.

Significant Accounting Policies

Except for the accounting policies for revenue recognition and deferred commissions that were updated, as set forth below, as a result of adopting ASU No. 2014-09, 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, 2017 filed with the SEC on March 12, 2018, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Revenue Recognition

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

The Company determines revenue recognition through the following steps:

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

Identification of the performance obligations in the contract;

Determination of the transaction price;

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

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

Subscription Services Revenues

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

9


 

Professional Services Revenues

Professional services revenues primarily consist of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts are billed on a time and materials basis and 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 of the contract performed.

Contracts with Multiple Performance Obligations

Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. 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 its contracts, the applications sold, customer demographics, geographic locations, and the number and types of users within its contracts.

Returns

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

Customer Acceptance

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

Trade and Other Receivables

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

Deferred Costs

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

Deferred Revenue

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

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

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, the Company refers to Topic 606 and Subtopic 340-40 as the "new revenue standard" or “ASC 606.”

10


 

The Company adopted the requirements of the new revenue standard as of January 1, 2018, utilizing the modified retrospective method of transition. Adoption of the new revenue standard resulted in changes to the Company’s accounting policies for revenue recognition and deferred commissions as detailed below. The Company applied the new standard using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed.

Based on the results of the Company’s evaluation, the adoption of the new revenue standard did not have a material impact on its revenue for the three or nine months ended September 30, 2018. The primary impact of adopting the new revenue standard relates to the deferral of incremental commission costs of obtaining subscription contracts. Under Topic 605, the Company deferred only direct and incremental commission costs to obtain a contract and amortized those costs over one year. Under the new revenue standard, the Company defers all incremental commission costs to obtain the contract. The Company amortizes these costs over a period of benefit that the Company has determined to be four years. Adoption of the new revenue standard had no impact on total cash provided from or used in operating, financing, or investing activities in the Company’s consolidated statements of cash flows. For details on the impact of the Company’s adoption of the new revenue standard, see Note 15.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update provide new guidance to determine when an integrated set of assets and activities (collectively referred to as a ‘‘set’’) is not a business. The new guidance requires that, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new guidance reduces the number of transactions that need to be evaluated as a business. The Company adopted this amendment as of January 1, 2018. The adoption of ASU 2017-01 did not have a material impact on the Company's financial statements for the three or nine months ended September 30, 2018.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), which requires that a statement of cash flows explain the change during the period for the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for the fiscal year beginning January 1, 2018. The Company adopted ASU No. 2016-18 retrospectively, effective January 1, 2018. The adoption of ASU 2016-08 did not have a material impact on the Company's financial statements for the period ended September 30, 2018 and September 30, 2017, respectively.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (Topic 230), which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The Company adopted this guidance during the first quarter of 2018, and there was no significant effect of the standard on its condensed consolidated financial statements.

Recently Issued Accounting Guidance Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, to require lessees to recognize the assets and liabilities on the balance sheet for the rights and obligations created by most leases and continue to recognize expenses on the income statements over the lease term. It will also require disclosure designed to give financial statement users information on the amount, timing, and uncertainly of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. As a result of this new standard, the Company expects to record a lease commitment liability and corresponding right-of-use asset for our leases designated as operating leases in Note 16, “Commitments and Contingencies,” upon adoption.  The Company currently plans to adopt the standard using the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, the Company plans to initially apply the new leasing rules on January 1, 2019, and recognize the cumulative effect of initially applying the standard as an adjustment to the Company’s opening balance of retained earnings, rather than at the earliest comparative period presented in the financial statements. While the Company is still in the process of determining the effect that the new standard will have on its financial position and results of operations, the Company expects to recognize additional assets and corresponding liabilities on its consolidated balance sheets, as a result of its operating lease portfolio as it exists at the date the Company adopts the new standard on January 1, 2019.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017. The new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted. The Company will adopt ASU 2018-02 effective January 1, 2019. The Company does not expect the adoption of this standard to have a material effect on its financial position, results of operations or cash flows.

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

11


 

 

 

(3) Accounts Receivable, Net

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

 

 

 

As of

 

 

As of

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Accounts receivable

 

$

37,853

 

 

$

32,662

 

Allowance for doubtful accounts

 

 

(820

)

 

 

(963

)

Net accounts receivable

 

$

37,033

 

 

$

31,699

 

 

Bad debt expense was $0.1 million and $0.2 million for the three months ended September 30, 2018 and 2017, respectively. Bad debt expense was $0.1 million and $0.6 million for the nine months ended September 30, 2018 and 2017, 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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Balance, beginning of period

 

$

(716

)

 

$

(610

)

 

$

(863

)

 

$

(374

)

Additions

 

 

(134

)

 

 

(195

)

 

 

(25

)

 

 

(484

)

Write-offs

 

 

30

 

 

 

11

 

 

 

68

 

 

 

64

 

Balance, end of period

 

$

(820

)

 

$

(794

)

 

$

(820

)

 

$

(794

)

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Balance, beginning of period

 

$

(209

)

 

$

(116

)

 

$

(100

)

 

$

(45

)

Additions

 

 

 

 

 

(24

)

 

 

(133

)

 

 

(104

)

Write-offs

 

 

69

 

 

 

15

 

 

 

93

 

 

 

24

 

Balance, end of period

 

$

(140

)

 

$

(125

)

 

$

(140

)

 

$

(125

)

 

As a result of the adoption of the new revenue standard, the Company reclassified its sales reserve from a current asset to a current liability within the consolidated financial statements, effective January 1, 2018.

 

(4) Property and Equipment, Net

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

 

 

 

Useful life

in years

 

 

As of  September 30, 2018

 

 

As of  December 31, 2017

 

Furniture, equipment and leasehold improvements

 

 

5

 

 

$

1,956

 

 

$

1,854

 

System hardware

 

 

5

 

 

 

1,404

 

 

 

1,623

 

Office computers

 

 

3

 

 

 

3,574

 

 

 

2,586

 

Computer and system software

 

 

3

 

 

 

1,385

 

 

 

1,193

 

 

 

 

 

 

 

 

8,319

 

 

 

7,256

 

Less accumulated depreciation and amortization

 

 

 

 

 

 

(5,401

)

 

 

(4,460

)

Property and equipment, net

 

 

 

 

 

$

2,918

 

 

$

2,796

 

 

Depreciation and amortization expense for property and equipment was $0.5 million and $0.4 million for the three months ended September 30, 2018 and 2017, respectively. Depreciation and amortization expense for property and equipment was $1.4 million and $1.5 million for the nine months ended September 30, 2018 and 2017, respectively.  

 

 

12


 

(5) Capitalized Software Development Costs

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

 

 

 

 

 

 

 

 

 

As of  September 30, 2018

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

43,915

 

 

3 years

 

$

(31,181

)

 

$

12,734

 

Total capitalized software development costs

 

$

43,915

 

 

 

 

$

(31,181

)

 

$

12,734

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

Gross

carrying

amount

 

 

Amortization

period

 

Accumulated

amortization

 

 

Net

carrying

amount

 

Capitalized software development costs

 

$

36,899

 

 

3 years

 

$

(26,894

)

 

$

10,005

 

Total capitalized software development costs

 

$

36,899

 

 

 

 

$

(26,894

)

 

$

10,005

 

 

The Company capitalized software development costs of $7.0 million and $4.6 million for the nine months ended September 30, 2018 and 2017, respectively.  The Company capitalized software development costs of $2.7 million and $1.5 million for the three months ended September 30, 2018 and 2017, respectively.

Amortization expense for capitalized software development costs was $1.5 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively. Amortization expense for capitalized software development was $4.3 million and $3.7 million for the nine months ended September 30, 2018 and 2017, 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, 2018, for each of the following years is as follows (in thousands):

 

 

 

Amounts

 

2018 (for the remaining three months)

 

$

1,751

 

2019

 

 

5,775

 

2020

 

 

3,778

 

2021

 

 

1,430

 

 

 

$

12,734

 

 

 

(6) Fair Value Measurements

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

Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. For the nine months ended September 30, 2018 and year ended December 31, 2017, no impairments were identified.

13


 

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017 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, 2018

 

 

 

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

 

$

47,747

 

 

 

 

 

 

 

 

$

47,747

 

U.S. treasury securities

 

 

 

 

 

14,987

 

 

 

 

&nb