Company Quick10K Filing
Hubspot
Price154.21 EPS-1
Shares43 P/E-119
MCap6,559 P/FCF92
Net Debt-233 EBIT-36
TEV6,325 TEV/EBIT-176
TTM 2019-09-30, in MM, except price, ratios
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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-31.1 hubs-ex311_8.htm
EX-31.2 hubs-ex312_10.htm
EX-32.1 hubs-ex321_7.htm

Hubspot Earnings 2017-06-30

Balance SheetIncome StatementCash Flow
1.51.20.80.50.1-0.22014201620182020
Assets, Equity
0.20.10.10.0-0.0-0.12014201620182020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32014201620182020
Ops, Inv, Fin

10-Q 1 hubs-10q_20170630.htm 10-Q hubs-10q_20170630.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 June 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 001-36680

 

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 37,025,599 shares of the registrant’s Common Stock issued and outstanding as of July 27, 2017.

 

 

 

 

 


 

HUBSPOT, INC.

Table of Contents

 

Part I — Financial Information

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements:

 

 

 

Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016

4

 

 

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016

5

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2017 and 2016

6

 

 

Unaudited Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2017

7

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

8

 

 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

 

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

19

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

28

Item 4.

 

Controls and Procedures

29

 

Part II — Other Information

 

 

 

 

Item 1.

 

Legal Proceedings

31

Item 1A.

 

Risk Factors

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

 

Default Upon Senior Securities

50

Item 4.

 

Mine Safety Disclosures

50

Item 5.

 

Other Information

50

Item 6.

 

Exhibits

51

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

175,622

 

 

$

59,702

 

Short-term investments

 

 

316,798

 

 

 

54,648

 

Accounts receivable — net of allowance for doubtful accounts of $650 and $617

   at June 30, 2017 and December 31, 2016, respectively

 

 

38,466

 

 

 

38,984

 

Deferred commission expense

 

 

11,149

 

 

 

9,025

 

Restricted cash

 

 

-

 

 

 

162

 

Prepaid hosting costs

 

 

1,521

 

 

 

5,299

 

Prepaid expenses and other current assets

 

 

20,224

 

 

 

8,433

 

Total current assets

 

 

563,780

 

 

 

176,253

 

Long-term investments

 

 

41,895

 

 

 

35,718

 

Property and equipment, net

 

 

37,618

 

 

 

30,201

 

Capitalized software development costs, net

 

 

7,774

 

 

 

6,523

 

Restricted cash

 

 

5,100

 

 

 

321

 

Other assets

 

 

1,579

 

 

 

966

 

Goodwill

 

 

9,773

 

 

 

9,773

 

Total assets

 

$

667,519

 

 

$

259,755

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,865

 

 

$

4,350

 

Accrued compensation costs

 

 

12,668

 

 

 

11,415

 

Other accrued expenses

 

 

27,354

 

 

 

15,237

 

Capital lease obligations

 

 

780

 

 

 

796

 

Deferred rent

 

 

157

 

 

 

159

 

Deferred revenue

 

 

109,919

 

 

 

95,426

 

Total current liabilities

 

 

153,743

 

 

 

127,383

 

Capital lease obligations, net of current portion

 

 

319

 

 

 

275

 

Deferred rent, net of current portion

 

 

16,780

 

 

 

10,079

 

Deferred revenue, net of current portion

 

 

1,394

 

 

 

1,171

 

Asset retirement obligations

 

 

872

 

 

 

591

 

Other long-term liabilities

 

 

1,944

 

 

 

1,556

 

Convertible senior notes

 

 

288,764

 

 

 

-

 

Total liabilities

 

 

463,816

 

 

 

141,055

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

467,897

 

 

 

365,444

 

Accumulated other comprehensive loss

 

 

(266

)

 

 

(864

)

Accumulated deficit

 

 

(263,964

)

 

 

(245,916

)

Total stockholders’ equity

 

 

203,703

 

 

 

118,700

 

Total liabilities and stockholders’ equity

 

$

667,519

 

 

$

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

84,363

 

 

$

60,916

 

 

$

161,866

 

 

$

115,852

 

Professional services and other

 

 

4,730

 

 

 

4,058

 

 

 

9,479

 

 

 

8,082

 

Total revenue

 

 

89,093

 

 

 

64,974

 

 

 

171,345

 

 

 

123,934

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

12,492

 

 

 

9,985

 

 

 

23,901

 

 

 

18,895

 

Professional services and other

 

 

6,099

 

 

 

5,210

 

 

 

11,762

 

 

 

10,271

 

Total cost of revenues

 

 

18,591

 

 

 

15,195

 

 

 

35,663

 

 

 

29,166

 

Gross profit

 

 

70,502

 

 

 

49,779

 

 

 

135,682

 

 

 

94,768

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

15,889

 

 

 

11,278

 

 

 

29,259

 

 

 

21,082

 

Sales and marketing

 

 

50,708

 

 

 

39,140

 

 

 

97,380

 

 

 

74,338

 

General and administrative

 

 

14,482

 

 

 

10,391

 

 

 

27,620

 

 

 

20,239

 

Total operating expenses

 

 

81,079

 

 

 

60,809

 

 

 

154,259

 

 

 

115,659

 

Loss from operations

 

 

(10,577

)

 

 

(11,030

)

 

 

(18,577

)

 

 

(20,891

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

734

 

 

 

201

 

 

 

1,037

 

 

 

380

 

Interest expense

 

 

(2,832

)

 

 

(93

)

 

 

(2,884

)

 

 

(180

)

Other expense

 

 

(97

)

 

 

(202

)

 

 

(225

)

 

 

(535

)

Total other expense

 

 

(2,195

)

 

 

(94

)

 

 

(2,072

)

 

 

(335

)

Loss before income tax benefit

 

 

(12,772

)

 

 

(11,124

)

 

 

(20,649

)

 

 

(21,226

)

Income tax benefit

 

 

3,251

 

 

 

60

 

 

 

3,053

 

 

 

8

 

Net loss

 

$

(9,521

)

 

$

(11,064

)

 

$

(17,596

)

 

$

(21,218

)

Net loss per share, basic and diluted

 

$

(0.26

)

 

$

(0.32

)

 

$

(0.48

)

 

$

(0.61

)

Weighted average common shares used in computing basic

   and diluted net loss per share

 

 

36,654

 

 

 

35,023

 

 

 

36,431

 

 

 

34,858

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(9,521

)

 

$

(11,064

)

 

$

(17,596

)

 

$

(21,218

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

445

 

 

 

(313

)

 

 

564

 

 

 

88

 

Changes in unrealized gain on investments, net of income taxes of $2 and $20 for the three and six months ended June 30, 2017 and $40 and $172  for the three and six months ended June 30, 2016

 

 

2

 

 

 

69

 

 

 

34

 

 

 

271

 

Comprehensive loss

 

$

(9,074

)

 

$

(11,308

)

 

$

(16,998

)

 

$

(20,859

)

 

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

6


 

HubSpot, Inc.

Unaudited Consolidated Statements of Stockholders’ Equity

(In thousands, except per share amounts)

 

 

Common

Stock, $0.001

Par Value

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

Equity

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

(Deficit)

 

 

Total

 

Balances at December 31, 2016

 

 

35,784

 

 

$

36

 

 

$

365,444

 

 

$

(864

)

 

$

(245,916

)

 

$

118,700

 

Issuance of common stock under stock

   plans, net of shares withheld for

   employee taxes

 

 

977

 

 

 

 

 

 

5,156

 

 

 

 

 

 

 

 

 

5,156

 

Stock-based compensation

 

 

 

 

 

 

 

 

23,132

 

 

 

 

 

 

 

 

 

23,132

 

Cumulative adjustment from adoption of stock compensation standard

 

 

 

 

 

 

 

 

452

 

 

 

 

 

 

 

(452

)

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

564

 

Unrealized gain on investments, net of income taxes of $20

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

Equity component of 2022 Notes (Note 6)

 

 

 

 

 

 

 

 

73,713

 

 

 

 

 

 

 

 

 

73,713

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,596

)

 

 

(17,596

)

Balances at June 30, 2017

 

 

36,761

 

 

$

36

 

 

$

467,897

 

 

$

(266

)

 

$

(263,964

)

 

$

203,703

 

7


 

HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flow

(in thousands)

 

  

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,596

)

 

$

(21,218

)

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

   by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,977

 

 

 

5,223

 

Stock-based compensation

 

 

22,309

 

 

 

14,705

 

Benefit for deferred income taxes

 

 

(3,544

)

 

 

(165

)

Amortization of debt discount and issuance costs

 

 

2,683

 

 

 

 

(Accretion) amortization of bond discount premium

 

 

(55

)

 

 

411

 

Noncash rent expense

 

 

2,999

 

 

 

1,949

 

Unrealized currency translation

 

 

(195

)

 

 

(63

)

Changes in assets and liabilities, net of acquisition

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,161

 

 

 

(385

)

Prepaid expenses and other assets

 

 

(7,918

)

 

 

(2,624

)

Deferred commission expense

 

 

(1,901

)

 

 

(3

)

Accounts payable

 

 

(327

)

 

 

302

 

Accrued expenses

 

 

6,969

 

 

 

1,937

 

Deferred rent

 

 

3,602

 

 

 

(34

)

Deferred revenue

 

 

12,655

 

 

 

11,786

 

Net cash and cash equivalents provided by operating activities

 

 

27,819

 

 

 

11,821

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(305,277

)

 

 

(21,111

)

Maturities of investments

 

 

37,060

 

 

 

21,343

 

Purchases of property and equipment

 

 

(11,072

)

 

 

(11,269

)

Capitalization of software development costs

 

 

(3,340

)

 

 

(2,512

)

Purchases of strategic investments

 

 

(600

)

 

 

 

Restricted cash

 

 

(4,589

)

 

 

 

Net cash and cash equivalents used in investing activities

 

 

(287,818

)

 

 

(13,549

)

Financing Activities:

 

 

 

 

 

 

 

 

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

 

 

(2,097

)

 

 

(1,342

)

Proceeds related to the issuance of common stock under stock plans

 

 

7,485

 

 

 

6,168

 

Repayments of capital lease obligations

 

 

(518

)

 

 

(319

)

Proceeds of the issuance of convertible notes, net of issuance costs paid of $10,755

 

 

389,245

 

 

 

-

 

Purchase of note hedge related to convertible notes

 

 

(78,920

)

 

 

-

 

Proceeds from the issuance of warrants related to convertible notes, net of issuance costs paid of $200

 

 

58,880

 

 

 

-

 

Net cash and cash equivalents provided by financing activities

 

 

374,075

 

 

 

4,507

 

Effect of exchange rate changes on cash and cash equivalents

 

 

1,844

 

 

 

302

 

Net increase in cash and cash equivalents

 

 

115,920

 

 

 

3,081

 

Cash and cash equivalents, beginning of period

 

 

59,702

 

 

 

55,580

 

Cash and cash equivalents, end of period

 

$

175,622

 

 

$

58,661

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

191

 

 

$

104

 

Cash paid for income taxes

 

$

410

 

 

$

197

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment acquired under capital lease

 

$

547

 

 

$

473

 

Convertible notes offering costs incurred but not yet paid

 

$

12

 

 

$

 

Capital expenditures incurred but not yet paid

 

$

206

 

 

$

867

 

Asset retirement obligations

 

$

400

 

 

$

 

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

8


 

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 in July 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 February 16, 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 $452 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.

9


 

 

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 June 30, 2017, we had $5.1 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 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. The Company expects there may be a change to the period over which sales commissions will be amortized to align to an estimated customer life and a change to the scope of capitalized sales commissions based on the definition of incremental costs of obtaining a contract. In addition, there may be a change in relation to the timing of revenue recognition for certain sales contracts, due primarily to the removal of the current limitation on contingent revenue. These changes are being evaluated to determine the potential impact to our financial statements and 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”), Employee Stock Purchase Plan (“ESPP”), and the Conversion Option of the 2022 Notes (Note 6) 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

Net loss

 

$

(9,521

)

 

$

(11,064

)

 

$

(17,596

)

 

$

(21,218

)

Weighted-average common shares outstanding — basic

 

 

36,654

 

 

 

35,023

 

 

 

36,431

 

 

 

34,858

 

Dilutive effect of share equivalents resulting from stock options, RSUs, ESPP and the Conversion Option of the 2022 Notes

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares,

   outstanding — diluted

 

 

36,654

 

 

 

35,023

 

 

 

36,431

 

 

 

34,858

 

Net loss per share, basic and diluted

 

$

(0.26

)

 

$

(0.32

)

 

$

(0.48

)

 

$

(0.61

)

 

10


 

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, ESPP, and Conversion Option of the 2022 Notes 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 June 30,

 

 

 

 

2017

 

 

 

2016

 

 

 

(in thousands)

 

Options to purchase common shares

 

 

2,501

 

 

 

3,003

 

RSUs

 

 

2,304

 

 

 

2,405

 

ESPP

 

 

5

 

 

 

 

 

The Company expects to settle the principal amount of the 2022 Notes in cash, and therefore, the Company uses the treasury stock method for calculating any potential dilutive effect of the Conversion Option on diluted net income per share, if applicable. The Conversion Option will have a dilutive impact on net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of the 2022 Notes of $94.77 per share.  During the three and six months ended June 30, 2017, the Company's weighted average common stock price was below the conversion price of the 2022 Notes.

 

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 June 30, 2017 and December 31, 2016.

 

 

 

June 30, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,003

 

 

$

 

 

$

 

 

$

35,003

 

Commercial paper

 

 

 

 

 

7,743

 

 

 

 

 

 

7,743

 

Corporate bonds

 

 

 

 

 

74,399

 

 

 

 

 

 

74,399

 

U.S. government agency obligations

 

 

 

 

 

8,981

 

 

 

 

 

 

8,981

 

U.S. Treasury securities

 

 

 

 

 

367,532

 

 

 

 

 

 

367,532

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

5,100

 

 

 

 

 

 

5,100

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic investments

 

 

 

 

 

 

 

 

600

 

 

 

600

 

Total

 

$

35,003

 

 

$

463,755

 

 

$

600

 

 

$

499,358

 

 

 

 

11


 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

32,260

 

 

$

 

 

$