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HUBS 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults on Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 hubs-ex101_391.htm
EX-10.2 hubs-ex102_390.htm
EX-31.1 hubs-ex311_8.htm
EX-31.2 hubs-ex312_6.htm
EX-32.1 hubs-ex321_7.htm

Hubspot Earnings 2017-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 hubs-10q_20170331.htm FORM 10-Q hubs-10q_20170331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED March 31, 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 001-36680

 

HubSpot, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-2632791

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

25 First Street, 2nd Floor

Cambridge, Massachusetts, 02141

(Address of principal executive offices)

(888) 482-7768

(Registrant’s telephone number, including area code)

 

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, 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 smaller reporting company)

  

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.    YES      NO  

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

There were 36,555,873 shares of the registrant’s Common Stock issued and outstanding as of April 27, 2017.

 

 

 

 

 


 

HUBSPOT, INC.

Table of Contents

 

Part I — Financial Information

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements:

 

 

 

Unaudited Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

4

 

 

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016

5

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

 

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

15

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

 

Controls and Procedures

24

 

Part II — Other Information

 

 

 

 

Item 1.

 

Legal Proceedings

25

Item 1A.

 

Risk Factors

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

 

Default Upon Senior Securities

42

Item 4.

 

Mine Safety Disclosures

42

Item 5.

 

Other Information

42

Item 6.

 

Exhibits

43

Signatures

 

 

 

EX-31.1

 

CERTIFICATION OF THE CEO PURSUANT TO SECTION 302

 

EX-31.2

 

CERTIFICATION OF THE CFO PURSUANT TO SECTION 302

 

EX-32.1

 

CERTIFICATION OF THE CEO AND CFO PURSUANT TO SECTION 906

 

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross margin and operating expenses;

 

maintaining and expanding our customer base and increasing our average subscription revenue per customer;

 

the impact of competition in our industry and innovation by our competitors;

 

our anticipated growth and expectations regarding our ability to manage our future growth;

 

our predictions about industry and market trends;

 

our ability to anticipate and address the evolution of technology and the technological needs of our customers, to roll-out upgrades to our existing software platform and to develop new and enhanced applications to meet the needs of our customers;

 

our ability to maintain our brand and inbound marketing thought leadership position;

 

the impact of our corporate culture and our ability to attract, hire and retain necessary qualified employees to expand our operations;

 

the anticipated effect on our business of litigation to which we are or may become a party;

 

our ability to successfully acquire and integrate companies and assets; and

 

our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

 

3


 

PART I — Financial Information

 

 

ITEM 1.

Financial Statements

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,786

 

 

$

59,702

 

Short-term investments

 

 

53,001

 

 

 

54,648

 

Accounts receivable — net of allowance for doubtful accounts of $748 at March 31, 2017 and $617 at December 31, 2016

 

 

34,935

 

 

 

38,984

 

Deferred commission expense

 

 

9,550

 

 

 

9,025

 

Restricted cash

 

 

-

 

 

 

162

 

Prepaid hosting costs

 

 

2,234

 

 

 

5,299

 

Prepaid expenses and other current assets

 

 

10,263

 

 

 

8,433

 

Total current assets

 

 

179,769

 

 

 

176,253

 

Long-term investments

 

 

37,846

 

 

 

35,718

 

Property and equipment, net

 

 

34,697

 

 

 

30,201

 

Capitalized software development costs, net

 

 

7,072

 

 

 

6,523

 

Restricted cash

 

 

4,940

 

 

 

321

 

Other assets

 

 

1,184

 

 

 

966

 

Goodwill

 

 

9,773

 

 

 

9,773

 

Total assets

 

$

275,281

 

 

$

259,755

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,257

 

 

$

4,350

 

Accrued compensation costs

 

 

8,717

 

 

 

11,415

 

Other accrued expenses

 

 

18,187

 

 

 

15,237

 

Capital lease obligations

 

 

790

 

 

 

796

 

Deferred rent

 

 

249

 

 

 

159

 

Deferred revenue

 

 

104,432

 

 

 

95,426

 

Total current liabilities

 

 

135,632

 

 

 

127,383

 

Capital lease obligations, net of current portion

 

 

288

 

 

 

275

 

Deferred rent, net of current portion

 

 

11,643

 

 

 

10,079

 

Deferred revenue, net of current portion

 

 

1,139

 

 

 

1,171

 

Asset retirement obligations

 

 

611

 

 

 

591

 

Other long-term liabilities

 

 

1,625

 

 

 

1,556

 

Total liabilities

 

 

150,938

 

 

 

141,055

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

379,459

 

 

 

365,444

 

Accumulated other comprehensive loss

 

 

(708

)

 

 

(864

)

Accumulated deficit

 

 

(254,444

)

 

 

(245,916

)

Total stockholders’ equity

 

 

124,343

 

 

 

118,700

 

Total liabilities and stockholders’ equity

 

$

275,281

 

 

$

259,755

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


 

HubSpot, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Subscription

 

$

77,503

 

 

$

54,936

 

Professional services and other

 

 

4,749

 

 

 

4,024

 

Total revenue

 

 

82,252

 

 

 

58,960

 

Cost of revenues:

 

 

 

 

 

 

 

 

Subscription

 

 

11,409

 

 

 

8,910

 

Professional services and other

 

 

5,663

 

 

 

5,061

 

Total cost of revenues

 

 

17,072

 

 

 

13,971

 

Gross profit

 

 

65,180

 

 

 

44,989

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

13,370

 

 

 

9,804

 

Sales and marketing

 

 

46,672

 

 

 

35,198

 

General and administrative

 

 

13,138

 

 

 

9,848

 

Total operating expenses

 

 

73,180

 

 

 

54,850

 

Loss from operations

 

 

(8,000

)

 

 

(9,861

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

303

 

 

 

179

 

Interest expense

 

 

(52

)

 

 

(87

)

Other expense

 

 

(128

)

 

 

(333

)

Total other income (expense)

 

 

123

 

 

 

(241

)

Loss before income tax provision

 

 

(7,877

)

 

 

(10,102

)

Income tax provision

 

 

(198

)

 

 

(52

)

Net loss

 

$

(8,075

)

 

$

(10,154

)

Net loss per share, basic and diluted

 

$

(0.22

)

 

$

(0.29

)

Weighted average common shares used in computing basic

   and diluted net loss per share:

 

 

36,205

 

 

 

34,692

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5


 

HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net loss

 

$

(8,075

)

 

$

(10,154

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

121

 

 

 

166

 

Changes in unrealized gain on investments, net of

   income taxes of $18 for the three months ended March 31, 2017 and $0 for the

   three months ended March 31, 2016

 

 

35

 

 

 

334

 

Comprehensive loss

 

$

(7,919

)

 

$

(9,654

)

 

The accompanying notes are an integral part of the consolidated financial statements.

6


 

HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,075

)

 

$

(10,154

)

Adjustments to reconcile net loss to net cash and cash equivalents provided

   by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,329

 

 

 

2,201

 

Stock-based compensation

 

 

9,303

 

 

 

6,231

 

Provision for deferred income taxes

 

 

(27

)

 

 

3

 

Amortization of bond premium discount

 

 

77

 

 

 

221

 

Noncash rent expense

 

 

1,667

 

 

 

1,112

 

Unrealized currency translation

 

 

(46

)

 

 

(252

)

Changes in assets and liabilities, net of acquisition

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,176

 

 

 

347

 

Prepaid expenses and other assets

 

 

1,061

 

 

 

(2,403

)

Deferred commission expense

 

 

(464

)

 

 

(299

)

Accounts payable

 

 

(1,250

)

 

 

(804

)

Accrued expenses

 

 

922

 

 

 

(1,154

)

Deferred rent

 

 

(34

)

 

 

(23

)

Deferred revenue

 

 

8,453

 

 

 

8,152

 

Net cash and cash equivalents provided by operating activities

 

 

19,092

 

 

 

3,178

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(16,367

)

 

 

(8,969

)

Maturities of investments

 

 

15,860

 

 

 

8,875

 

Purchases of property and equipment

 

 

(5,835

)

 

 

(6,641

)

Capitalization of software development costs

 

 

(1,610

)

 

 

(1,434

)

Restricted cash

 

 

(4,431

)

 

 

 

Net cash and cash equivalents used in investing activities

 

 

(12,383

)

 

 

(8,169

)

Financing Activities:

 

 

 

 

 

 

 

 

Employee taxes paid related to the net share settlement of stock-based awards

 

 

(1,153

)

 

 

(958

)

Proceeds related to the issuance of common stock under stock plans

 

 

4,340

 

 

 

2,992

 

Repayments of capital lease obligations

 

 

(240

)

 

 

(142

)

Net cash and cash equivalents provided by financing activities

 

 

2,947

 

 

 

1,892

 

Effect of exchange rate changes on cash and cash equivalents

 

 

428

 

 

 

538

 

Net increase (decrease) in cash and cash equivalents

 

 

10,084

 

 

 

(2,561

)

Cash and cash equivalents, beginning of period

 

 

59,702

 

 

 

55,580

 

Cash and cash equivalents, end of period

 

$

69,786

 

 

$

53,019

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

192

 

 

$

87

 

Cash paid for income taxes

 

$

37

 

 

$

73

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment acquired under capital lease

 

$

247

 

 

$

257

 

Capital expenditures incurred but not yet paid

 

$

1,525

 

 

$

2,974

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

7


 

HubSpot, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Organization and Operations

HubSpot, Inc. (the “Company”) was formed as a limited liability company in Delaware on April 4, 2005. The Company converted to a Delaware corporation on June 7, 2007. The Company provides a cloud-based inbound marketing and sales platform which features integrated applications to help businesses attract visitors to their websites, convert visitors into leads, close leads into customers and delight customers so they become promoters of those businesses. These integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics, and reporting.

The Company is headquartered in Cambridge, Massachusetts, and has wholly-owned subsidiaries in Dublin, Ireland, which commenced operations in January 2013, in Sydney, Australia, which commenced operations in August 2014, in Singapore, which commenced operations in October 2015, and in Tokyo, Japan, which commenced operations in July 2016. Additionally, the Company has announced that it will open an office in Berlin, Germany during the second half of 2017.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2016, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation.   

The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2017. The year-end balance sheet data was derived from audited financial statements, but this Form 10-Q does not include all disclosures required under GAAP. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted under the rules and regulations of the SEC.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on February16, 2017. There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes, except the adoption of updated guidance related to certain aspects of share-based payments to employee described within the Recent Accounting Pronouncements below.

Recent Accounting Pronouncements

Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations.

The Company adopted updated guidance related to certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. As a result of the adoption, we recorded an increase to deferred tax assets with a corresponding increase to the valuation allowance of $30.4 million to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized as additional paid-in capital. In addition, the Company changed its policy election to account for forfeitures as they occur rather than on an estimated basis. The change in the policy election related to forfeitures resulted in the Company reclassifying $453 thousand from additional paid-in capital to accumulative deficit for the net cumulative-effect adjustment in stock compensation expense related to prior periods.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

8


 

 

 

 

In November 2016, the FASB issued guidance related to the presentation of restricted cash within the statement of cash flows. The guidance requires entities to show the changes in cash, cash equivalents, and restricted cash in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. As of March 31, 2017, we had $4.9 million in restricted cash. The new standard is effective beginning in the first quarter of 2018, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective in 2019 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the consolidated financial statements.

In May 2014, the FASB issued updated guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-step analysis of transactions 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 to which the entity expects to be entitled in exchange for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining customer contracts.  In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard now is effective for annual reporting periods beginning January 1, 2018. The FASB will permit companies to adopt the new standard early, but not before the original effective date of January 1, 2017. The Company will adopt the standard on January 1, 2018, and currently anticipates adopting the standard using the modified retrospective method, which would result in a cumulative effect adjustment as of the date of adoption. The Company has established a cross-functional coordinated team that is continuing to assess potential impacts of the standard on the timing of revenue recognition and accounting for deferred commission balances and whether the adoption will have a material impact on the consolidated financial statements and footnote disclosures.

 

 

 

2. Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock units (“RSUs”), and Employee Stock Purchase Plan (“ESPP”) are considered to be potential common stock equivalents.

A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

 

2017

 

 

 

2016

 

Net loss

 

$

(8,075

)

 

$

(10,154

)

Weighted-average common shares outstanding — basic

 

 

36,205

 

 

 

34,692

 

Dilutive effect of share equivalents resulting from stock

   options, RSUs, and ESPP

 

 

 

 

 

 

Weighted-average common shares,

   outstanding — diluted

 

 

36,205

 

 

 

34,692

 

Net loss per share, basic and diluted

 

$

(0.22

)

 

$

(0.29

)

 

9


 

Additionally, since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s outstanding stock options, RSUs, and ESPP were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. The following table contains all potentially dilutive common stock equivalents.

 

 

 

As of March 31,

 

 

 

 

2017

 

 

 

2016

 

 

 

(in thousands)

 

Options to purchase common shares

 

 

2,561

 

 

 

3,200

 

RSUs

 

 

2,013

 

 

 

1,785

 

ESPP

 

 

3

 

 

 

 

 

 

3. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at March 31, 2017 and December 31, 2016.

 

 

 

March 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

32,128

 

 

$

 

 

$

 

 

$

32,128

 

Commercial paper

 

 

 

 

 

11,962

 

 

 

 

 

 

11,962

 

Corporate bonds

 

 

 

 

 

67,901

 

 

 

 

 

 

67,901

 

U.S. government agency obligations

 

 

 

 

 

10,984

 

 

 

 

 

 

10,984

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

4,940

 

 

 

 

 

 

4,940

 

Total

 

$

32,128

 

 

$

95,787

 

 

$

 

 

$

127,915

 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

32,260

 

 

$

 

 

$

 

 

$

32,260

 

Commercial paper

 

 

 

 

 

12,439

 

 

 

 

 

 

12,439

 

Corporate bonds

 

 

 

 

 

66,947

 

 

 

 

 

 

66,947

 

U.S. government agency obligations

 

 

 

 

 

10,980

 

 

 

 

 

 

10,980

 

Total

 

$

32,260

 

 

$

90,366

 

 

$

 

 

$

122,626

 

 

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets. At March 31, 2017 and December 31, 2016, our Level 2 securities were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.

10


 

For certain other financial instruments, including accounts receivable, accounts payable, capital leases and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

Restricted cash is comprised of certificates of deposit related to landlord guarantees for our leased facilities. These restricted cash balances have been excluded from our cash and cash equivalents balance on our consolidated balance sheets.

The following tables summarize the composition of our short- and long-term investments at March 31, 2017 and December 31, 2016.

 

 

 

March 31, 2017

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Aggregate

Fair Value

 

 

 

(in thousands)

 

Commercial paper

 

$

11,967

 

 

$

 

 

$

(5

)

 

$

11,962

 

Corporate bonds

 

 

68,034

 

 

 

3

 

 

 

(136

)

 

 

67,901

 

U.S. government agency obligations

 

 

10,999

 

 

 

1

 

 

 

(16

)

 

 

10,984

 

Total

 

$

91,000

 

 

$

4

 

 

$

(157

)

 

$

90,847

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Aggregate

Fair Value

 

 

 

(in thousands)

 

Commercial paper

 

$

12,446

 

 

$

 

 

$

(7

)

 

$

12,439

 

Corporate bonds

 

 

67,126

 

 

 

 

 

 

(179

)

 

 

66,947

 

U.S. government agency obligations

 

 

10,998

 

 

 

 

 

 

(18

)

 

 

10,980

 

Total

 

$

90,570

 

 

$

 

 

$

(204

)

 

$

90,366

 

 

For all of our securities for which the amortized cost basis was greater than the fair value at March 31, 2017, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. In making the determination as to whether the unrealized loss is other-than-temporary, the Company considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Contractual Maturities

The contractual maturities of short-term and long-term investments held at March 31, 2017 and December 31, 2016 are as follows:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

Amortized

Cost Basis

 

 

Aggregate

Fair Value

 

 

Amortized

Cost Basis

 

 

Aggregate

Fair Value

 

 

 

(in thousands)

 

 

(in thousands)

 

Due within one year

 

$

53,059

 

 

$

53,001

 

 

$

54,694

 

 

$

54,648

 

Due after 1 year through 2 years

 

 

37,941

 

 

 

37,846

 

 

 

35,876

 

 

 

35,718

 

Total

 

$

91,000

 

 

$

90,847

 

 

$

90,570

 

 

$

90,366

 

 

 

11


 

4. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

(in thousands)

 

Computer equipment and purchased software

 

$

3,364

 

 

$

3,237

 

Employee computer equipment

 

 

1,780

 

 

 

1,534

 

Furniture and fixtures

 

 

8,237

 

 

 

8,174

 

Office equipment

 

 

2,357

 

 

 

2,326

 

Leasehold improvements

 

 

23,902

 

 

 

23,693

 

Equipment under capital lease

 

 

2,658

 

 

 

2,412

 

Internal-use software

 

 

1,732

 

 

 

1,301

 

Construction in progress

 

 

5,390

 

 

 

322

 

Total property and equipment

 

 

49,420

 

 

 

42,999

 

Less accumulated depreciation and amortization

 

 

(14,723

)

 

 

(12,798

)

Property and equipment, net

 

$

34,697

 

 

$

30,201

 

 

Depreciation and amortization expense on property and equipment was $1.9 million for the three months ended March 31, 2017 and $981 thousand for the three months ended March 31, 2016.

 

 

5. Capitalized Software Development Costs

Capitalized software development costs, exclusive of those recorded within property and equipment, consisted of the following:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

(in thousands)

 

Gross capitalized software development costs

 

$

27,054

 

 

$

25,152

 

Accumulated amortization

 

 

(19,982

)

 

 

(18,629

)

Capitalized software development costs, net

 

$

7,072

 

 

$

6,523

 

 

Capitalized software development costs are amortized on a straight-line basis over their estimated useful life of two to three years.

 

The following table summarizes software development costs capitalized, stock-based compensation included in capitalized software development costs, and amortization of capitalized software development costs.

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Software development costs capitalized

 

$

1,902

 

 

$

1,627

 

Stock-based compensation included in capitalized software

   development costs

 

$

338

 

 

$

193

 

Amortization of software development costs

 

$

1,369

 

 

$

1,196

 

 

 

6. Commitments and Contingencies

Contractual Obligations

There were no material changes in our commitments under contractual obligations, as disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2016 and related notes thereto contained in the Company’s Annual Report on Form 10-K, except those disclosed below.

In February 2017, the Company signed an amendment related to a leased facility in Cambridge, Massachusetts. The amended lease increased the Company’s future commitments by approximately $6.0 million, which will be payable over approximately nine years.

12


 

Legal Contingencies

From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax, and other matters. We currently have no material pending litigation.

 

 

7. Changes in Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, which is reported as a component of stockholders’ equity, for the three months ended March 31, 2017.

 

 

 

Cumulative Translation Adjustment

 

 

Unrealized Loss on

Investments

 

 

Total

 

 

 

(in thousands)

 

Beginning balance at January 1, 2017

 

$

(589

)

 

$

(275

)

 

$

(864

)

Other comprehensive loss before reclassifications

 

 

121

 

 

 

35

 

 

 

156

 

Amounts reclassified from accumulated other

   comprehensive income

 

 

 

 

 

 

 

 

 

Ending balance at March 31, 2017

 

$

(468

)

 

$

(240

)

 

$

(708

)

 

 

8. Stock-Based Compensation Expense

The following two tables show stock-based compensation expense by award type and where the stock-based compensation expense is recorded in the Company’s consolidated statements of operations:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Options

 

$

1,247

 

 

$

1,478

 

RSUs

 

 

7,790

 

 

 

4,533

 

Employee stock purchase plan

 

 

266

 

 

 

220

 

Total stock-based compensation expense

 

$

9,303

 

 

$

6,231

 

 

Effect of stock-based compensation expense on income by line item:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Cost of revenue, subscription

 

$

115

 

 

$

94

 

Cost of revenue, service

 

 

449

 

 

 

324

 

Research and development

 

 

2,442

 

 

 

1,758

 

Sales and marketing

 

 

3,770

 

 

 

2,427

 

General and administrative

 

 

2,527

 

 

 

1,628

 

Total stock-based compensation expense

 

$

9,303

 

 

$

6,231

 

 

Capitalized software development costs excluded from stock-based compensation expense is $338 thousand for the three months ended March 31, 2017 and $193 thousand for the three months ended March 31, 2016.

 

 

13


 

9. Segment Information and Geographic Data

The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision makers (“CODMs”), which are the Company’s chief executive officer and chief operating officer, in deciding how to allocate resources and assess performance. The Company’s CODMs evaluate the Company’s financial information and resources and assess the performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements. Revenue and long-lived assets by geographic region, based on the physical location of the operations recording the sale or the asset, are as follows:

Revenues by geographical region:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Americas

 

$

64,352

 

 

$

48,777

 

Europe

 

 

13,844

 

 

 

8,499

 

Asia Pacific

 

 

4,056

 

 

 

1,684

 

Total

 

$

82,252