Company Quick10K Filing
Sendgrid
Price36.59 EPS-0
Shares47 P/E-430
MCap1,722 P/FCF108
Net Debt-182 EBIT-4
TEV1,540 TEV/EBIT-409
TTM 2018-09-30, in MM, except price, ratios
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-07-31
S-1 2018-04-03 Public Filing
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-26
8-K 2019-02-01
8-K 2019-01-30
8-K 2019-01-24
8-K 2018-12-21
8-K 2018-11-06
8-K 2018-10-15
8-K 2018-08-06
8-K 2018-07-31
8-K 2018-05-31
8-K 2018-05-01
8-K 2018-04-03
8-K 2018-03-22
8-K 2018-02-26
8-K 2018-01-30

SEND 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 Disclosure About Market Risk
Item 4.Controls and Procedures
Part II – Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosure
Item 5.Other Information
Item 6.Exhibits
EX-31.1 send-20180331ex311195b43.htm
EX-31.2 send-20180331ex3124de028.htm
EX-32.1 send-20180331ex3211ce6e7.htm
EX-32.2 send-20180331ex3221ea15a.htm

Sendgrid Earnings 2018-03-31

Balance SheetIncome StatementCash Flow
0.30.20.20.10.10.02017201720182019
Assets, Equity
0.10.10.0-0.0-0.1-0.12017201720182019
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12017201720182019
Ops, Inv, Fin

10-Q 1 send-20180331x10q.htm 10-Q send_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


 

 

 

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

 

For the quarterly period ended March 31, 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: 001-38275


SendGrid, Inc.

(Exact name of registrant as specified in its charter)


Delaware

27-0654600

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

1801 California Street, Suite 500

Denver, Colorado 80202 
(Address of principal executive offices) (Zip Code)

(888) 985-7363 
(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. ☐

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

On April 24, 2018, the registrant had 44,257,744 shares of common stock outstanding.

 

 

 

 

 


 

SendGrid, Inc.

Quarterly Report on Form 10-Q

For the Three Months Ended March 31, 2018

Table of Contents

 

 

 

 

 

 

 

 

    

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Disclosure Regarding Forward-Looking Statements

 

3

 

 

 

 

 

Item 1. 

 

Financial Statements (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2018

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2. 

 

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

 

20

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4 

 

Controls and Procedures

 

31

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

32

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

61

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

61

 

 

 

 

 

Item 5. 

 

Other Information

 

61

 

 

 

 

 

Item 6. 

 

Exhibits

 

61

 

 

 

 

 

 

 

Signatures

 

64

 

2


 

Unless the content otherwise requires, references in this Quarterly Report on Form 10-Q to “SendGrid,” “company,” “our,” “us,” and “we” refer to SendGrid, Inc. and where appropriate its consolidated subsidiaries.

“SendGrid” and other trademarks or service marks of SendGrid appearing in this Quarterly Report on Form 10-Q are our property.  This Quarterly Report on Form 10-Q contains additional trade names, trademarks, and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial condition, results of operations, business strategy and plans and objectives of management for future operations, as well as statements regarding industry trends, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

·

our ability to effectively sustain and manage our growth and future expenses, and our ability to achieve and maintain future profitability;

·

our ability to attract new customers and to maintain and expand our existing customer base;

·

our dependence on our self-service model;

·

our ability to scale and update our platform to respond to customers’ needs and rapid technological change;

·

our reliance on third parties, including for strategic relationships to sell our services and for network connectivity, hosting and other services;

·

the effects of increased competition on our market and our ability to compete effectively;

·

our ability to expand our operations and increase adoption of our platform internationally;

·

our ability to maintain, protect and enhance our brand;

·

our customers’ and other platform users’ violation of our policies or misuse of our platform;

·

the sufficiency of our cash and cash equivalents to satisfy our liquidity needs;

·

our failure or the failure of our platform of services to comply with applicable industry standards, laws, and regulations;

·

our ability to maintain our corporate culture;

·

our ability to hire, retain and motivate qualified personnel;

·

our ability to identify targets for, execute on and realize the benefits of potential acquisitions;

·

our ability to estimate the size and potential growth of our target market; and

·

our ability to maintain proper and effective internal controls.

3


 

These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect.

 

4


 

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

SENDGRID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

Revenue

 

$

32,569

 

$

24,831

Cost of revenue

 

 

8,488

 

 

6,471

Gross profit

 

 

24,081

 

 

18,360

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

8,934

 

 

6,524

Selling and marketing

 

 

7,936

 

 

6,588

General and administrative

 

 

8,866

 

 

7,044

Loss on disposal of assets

 

 

62

 

 

 -

Total operating expenses

 

 

25,798

 

 

20,156

Loss from operations

 

 

(1,717)

 

 

(1,796)

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

490

 

 

 -

Interest expense

 

 

(48)

 

 

(37)

Adjustment to redeemable preferred stock warrant liability

 

 

 -

 

 

26

Other

 

 

 2

 

 

 6

Other income (expense)

 

 

444

 

 

(5)

Net loss before provision for income taxes

 

 

(1,273)

 

 

(1,801)

Provision for income taxes

 

 

 -

 

 

 -

Net loss

 

$

(1,273)

 

$

(1,801)

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

42,520

 

 

7,848

Net loss per share attributable to common stockholders

 

$

(0.03)

 

$

(0.23)

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(1,273)

 

$

(1,801)

Change in cumulative foreign currency translation adjustment

 

 

 3

 

 

 -

Comprehensive loss

 

$

(1,270)

 

$

(1,801)

 

See accompanying notes to condensed consolidated financial statements.

5


 

SENDGRID, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

As of March 31,

 

As of December 31,

 

    

2018

    

2017

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

168,597

 

$

175,496

Accounts receivable - trade, net of allowance

 

 

5,791

 

 

5,765

Prepaid expenses and other current assets

 

 

7,996

 

 

9,087

Total current assets

 

 

182,384

 

 

190,348

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

Property and equipment, net

 

 

34,529

 

 

29,192

Intangible assets, net

 

 

1,675

 

 

1,795

Other assets

 

 

306

 

 

300

Goodwill

 

 

1,648

 

 

1,648

Total noncurrent assets

 

 

38,158

 

 

32,935

Total assets

 

$

220,542

 

$

223,283

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

9,790

 

$

13,837

Current portion of capital lease obligations

 

 

6,218

 

 

6,110

Current portion of deferred rent

 

 

797

 

 

328

Other current liabilities

 

 

1,150

 

 

1,575

Total current liabilities

 

 

17,955

 

 

21,850

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

Capital lease obligations, net of current portion

 

 

11,138

 

 

11,095

Deferred rent, net of current portion

 

 

9,889

 

 

10,054

Other long-term liabilities

 

 

528

 

 

510

Total long-term obligations, net of current portion:

 

 

21,555

 

 

21,659

Total liabilities

 

 

39,510

 

 

43,509

 

 

 

 

 

 

 

Commitment and contingencies (notes 4 - 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, 250,000,000 shares authorized as of Mar. 31, 2018 and Dec. 31, 2017,  42,880,420 and 42,175,647 shares issued and outstanding as of Mar. 31, 2018 and Dec. 31, 2017, respectively

 

 

40

 

 

39

Preferred stock, $0.001 par value, 10,000,000 shares authorized as of Mar. 31, 2018 and Dec. 31, 2017.  None issued or outstanding.

 

 

 -

 

 

 -

Additional paid-in capital

 

 

232,747

 

 

229,594

Accumulated deficit

 

 

(51,756)

 

 

(49,857)

Accumulated other comprehensive loss

 

 

 1

 

 

(2)

Total stockholders’ equity

 

 

181,032

 

 

179,774

Total liabilities and stockholders’ equity

 

$

220,542

 

$

223,283

 

See accompanying notes to condensed consolidated financial statements

6


 

SENDGRID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

  

2018

  

2017

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,273)

 

$

(1,801)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

2,517

 

 

2,128

Stock-based compensation

 

 

1,828

 

 

588

Adjustment to redeemable preferred stock warrant liability

 

 

 -

 

 

(26)

Non-cash interest expense and other

 

 

11

 

 

 5

Loss on disposal of assets and restructuring of assets

 

 

183

 

 

350

Reimbursement of tenant improvements

 

 

1,203

 

 

473

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(60)

 

 

(434)

Prepaid expenses and other assets

 

 

483

 

 

103

Accounts payable and accrued liabilities

 

 

(3,836)

 

 

301

Other liabilities

 

 

(1,095)

 

 

43

Net cash flows from operating activities

 

 

(39)

 

 

1,730

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(6,062)

 

 

(1,794)

Cash paid for business combination

 

 

 -

 

 

(2,726)

Cash acquired in business combination

 

 

 -

 

 

527

Decrease (increase) in restricted cash

 

 

 -

 

 

78

Net cash flows from investing activities

 

 

(6,062)

 

 

(3,915)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

893

 

 

221

Payments for stock issuance costs

 

 

 -

 

 

(33)

Principal payments on capital lease obligations

 

 

(1,694)

 

 

(1,517)

Net cash flows from financing activities

 

 

(801)

 

 

(1,329)

 

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash

 

 

 3

 

 

 -

Net increase (decrease) in cash and cash equivalents

 

 

(6,899)

 

 

(3,514)

Cash and cash equivalents, beginning of period

 

 

175,496

 

 

40,400

Cash and cash equivalents, end of period

 

$

168,597

 

$

36,886

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Assets acquired under capitalized leases

 

$

1,905

 

$

655

Property and equipment purchases included in accounts payable

 

$

2,204

 

$

213

Issuance of common stock for business combination

 

$

 -

 

$

432

Cash paid for interest

 

$

37

 

$

32

 

See accompanying notes to condensed consolidated financial statements

 

 

7


 

SENDGRID, INC.

CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders'

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Loss

    

Equity

Balance at January 1, 2018

 

42,175,647

 

$

39

 

$

229,594

 

$

(49,857)

 

$

(2)

 

$

179,774

Exercise of common stock options

 

704,773

 

 

 1

 

 

892

 

 

 

 

 

 

 

 

893

Stock-based compensation

 

 

 

 

 

 

 

1,828

 

 

 

 

 

 

 

 

1,828

Net loss

 

 

 

 

 

 

 

 

 

 

(1,273)

 

 

 

 

 

(1,273)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 3

 

 

 3

Issuance costs associated with IPO

 

 

 

 

 

 

 

(193)

 

 

 

 

 

 

 

 

(193)

Adoption of ASU 2016-09 (Note 2)

 

 

 

 

 

 

 

626

 

 

(626)

 

 

 

 

 

 -

Balance at March 31, 2018

 

42,880,420

 

$

40

 

$

232,747

 

$

(51,756)

 

$

 1

 

$

181,032

 

See accompanying notes to condensed consolidated financial statements

 

8


 

Table of Contents

SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)    Organization and Description of Business

SendGrid, Inc. and our wholly owned subsidiaries, SendGrid UK Limited and JCKM, Inc. (“Bizzy”) (collectively, “we,” “us,” “our,” “SendGrid,” or “the Company”), operate a leading digital communication platform that enables businesses to engage with their customers via email reliably, effectively, and at scale. SendGrid’s cloud-based platform allows for frictionless adoption and immediate value creation for businesses, providing their developers and marketers with the tools to seamlessly and effectively reach their customers using email. We maintain business operations in the United States and United Kingdom, with sales to customers in the United States and internationally.

In November 2017, we completed our initial public offering (“IPO”). We sold 9.4 million shares of our common stock (“Common Stock”) at the public offering price of $16.00 per share. We received net proceeds of $136.3 million after deducting underwriting discounts and offering expenses.  Our Common Stock began trading on the New York Stock Exchange on November 15, 2017.  

(2)    Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and 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 our Annual Report on Form 10-K.

These condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and account balances have been eliminated in consolidation. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements, in conformity with GAAP, requires 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, the reported amounts of revenue and expenses during the reporting period, and certain information disclosed in the notes to the consolidated financial statements. Actual results could materially differ from these estimates. Significant estimates and assumptions that affect our consolidated financial condition and results of operations include:

     revenue recognition

     deferred taxes and related valuation allowances

     allowance for doubtful accounts and sales returns

     sales and use tax

     income tax uncertainties

     stock-based compensation

     other contingencies

     determination of the fair value of assets acquired and liabilities assumed in business combinations

 

We review estimates and assumptions periodically, and the effects of revisions are reflected prospectively in the period they occur.

9


 

Table of Contents

SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other

Aside from the accounting policy election regarding forfeitures on stock awards (discussed below in “Recently Adopted Accounting Standards”) there have been no material changes to our significant accounting policies as described in our December 31, 2017 consolidated financial statements.

Recently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718): Improvements for Employee Share-Based Payment Accounting, which simplifies certain aspects of accounting for share-based payment transactions, including accounting for income tax consequences, minimum statutory tax withholdings requirements, forfeitures, and classification of employee taxes paid when an employer withholds shares for tax-withholding purposes and excess tax benefits in the statement of cash flows. We adopted ASU 2016-09 effective January 1, 2018. We made an accounting policy election to account for forfeitures in stock-based compensation cost as they occur and recorded a cumulative-effect adjustment of $0.6 million to accumulated deficit. The adoption of the remaining provisions of ASU 2016-09 did not have a significant impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies when transactions should be accounted for as acquisitions (or disposals) of assets or business. We adopted ASU 2017-01 effective January 1, 2018. The adoption did not have a significant impact on our consolidated financial statements and related disclosures.

 

New Accounting Pronouncements Not Yet Adopted

We are an emerging growth company (“EGC”) as defined by the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected to take advantage of the extended transition period. However, this election will not apply should we cease to be classified as an EGC.

In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to accumulated deficit for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“the 2017 Act”). ASU 2018-02 is effective for us beginning January 1, 2019. This standard does not provide an extended adoption date for EGCs. Early adoption is permitted, but we do not expect to do so. Companies that elect to reclassify the stranded effects associated with the change in US federal corporate income tax rate must do so for all items within Accumulated Other Comprehensive Income (“AOCI”). This standard allows adoption under one of two transition methods: (1) retrospective to each period (or periods) in which the income tax effects of the 2017 Act related to items remaining in AOCI are recognized, or (2) at the beginning of the period of adoption. We expect to adopt at the beginning of the period of adoption and do not anticipate the adoption of this standard will have a significant impact on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flow (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amount shown on the statement of cash flows. ASU 2016-18 is effective for us beginning January 1, 2019 (or December 31, 2018 should we cease to be classified as an EGC). Early adoption is permitted, but we do not expect to do so. The standard requires retrospective application for each period presented. The effect that the standard will have on our consolidated financial statements will be dependent upon the amount of restricted cash in future periods.

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In August 2016, the FASB issued ASU 2016-15, Statements of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies classification for certain cash receipts and cash payments on the consolidated statement of cash flows. ASU 2016-15 is effective for us beginning January 1, 2019 (or December 31, 2018 should we cease to be classified as an EGC). Early adoption is permitted, but we do not expect to do so. The standard requires retrospective application for each period presented. We do not expect the adoption of this standard will have a significant impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize the assets and liabilities that arise from all leases on the consolidated balance sheet. ASU 2016-02 is effective for us beginning January 1, 2020 (or January 1, 2019 should we cease to be classified as an EGC). Early adoption is permitted, but we do not expect to do so. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We have not yet determined the effect of the standard on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and modified the standard thereafter.  The standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new accounting standard also impacts the recognition of sales commissions. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for us beginning January 1, 2019 (or December 31, 2018 should we cease to be classified as an EGC). Early adoption is permitted, but we do not expect to do so. The standard permits the use of either the retrospective or cumulative effect transition method. We continue to evaluate the impact of the new standard and available adoption methods on our consolidated financial statements. We are in the process of evaluating arrangements with customers and identifying differences in accounting between new and existing standards. 

 

(3)    Property and Equipment

 

Property and equipment consist of the following:

 

 

 

 

 

 

 

 

 

 

 

Estimated Useful

 

As of March 31,

 

As of December 31,

 

    

Life (in months)

 

2018

 

2017

 

 

 

 

(In thousands)

Data center equipment

 

36 - 48

 

$

30,496

 

$

28,474

Leasehold improvements

 

45 - 90

*  

 

11,964

 

 

8,067

Office furniture and equipment

 

36 - 60

 

 

5,815

 

 

4,560

Computer equipment and peripherals

 

36

 

 

3,156

 

 

3,276

 

 

 

 

 

51,431

 

 

44,377

Less accumulated depreciation

 

 

 

 

(16,902)

 

 

(15,185)

Property and equipment, net

 

 

 

$

34,529

 

$

29,192


*We depreciate leasehold improvements using the straight-line method over the shorter of the asset’s useful life or the life of the lease.

We hold certain equipment under capital lease arrangements.  This equipment is classified as data center and office equipment.  We depreciate this equipment using the straight-line method over the shorter of the useful life or the term of the lease agreement.  The following table summarizes our capital lease arrangements:

 

 

 

 

 

 

 

 

 

As of March 31,

 

As of December 31,

 

    

2018

    

2017

 

 

(In thousands)

Equipment held under capital lease agreements

 

$

25,216

 

$

24,866

Less accumulated depreciation

 

 

(7,997)

 

 

(7,860)

Carrying value

 

$

17,219

 

$

17,006

 

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes depreciation expense, including depreciation of assets held under capital lease arrangements:

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

 

 

(In thousands)

Depreciation expense

 

$

2,397

 

$

2,091

 

(4)    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consists of the following:

 

 

 

 

 

 

 

 

 

As of March 31,

 

As of December 31,

 

    

2018

    

2017

 

 

(In thousands)

Accounts payable

 

$

3,101

 

$

3,553

Bonus and commission

 

 

1,663

 

 

4,031

Sales tax

 

 

1,198

 

 

2,057

Employee benefits

 

 

498

 

 

557

Marketing expense

 

 

329

 

 

203

Vacation

 

 

16

 

 

1,832

Accrued professional fees and other

 

 

2,985

 

 

1,604

Accounts payable and accrued liabilities

 

$

9,790

 

$

13,837

 

 

(5)    Revolving Line of Credit

We have a loan and security agreement (“LSA”) with a bank that provides a revolving line of credit with $40.0 million maximum borrowing availability.  The LSA matures in May 2018. We had $40.0 million available to draw as of March 31, 2018 and December 31, 2017. We received a waiver from the bank with regard to a specific financial covenant as of March 31, 2018 and were in compliance with all other financial covenants.  We were in compliance with all financial covenants as of December 31, 2017. For all periods presented, no amounts were outstanding, and we had no borrowing activity.

Amounts available to draw under the LSA are calculated from a trailing three-month revenue base, which can differ from the maximum loan amount. Advances are subject to the following interest rates:

·

prime rate then in effect plus 0.50%, with a floor of 4.00% while our cash balance is greater than $8.0 million.

·

prime rate then in effect plus 1.25%, with a floor of 4.75% while our cash balance is not greater than $8.0 million

 

Principal is due at maturity. Borrowings are secured by substantially all of our assets. The LSA contains certain restrictions, affirmative and negative covenants, and limitations, including, among other things:

·

restriction on our ability to pledge our intellectual property;

·

requirement to maintain at least 40% of our aggregate cash and cash equivalents in depository, operating, and investment accounts with the bank (waiver received with regard to this covenant as of March 31, 2018);

·

requirement to maintain certain business performance levels;

·

limitations on disposal of assets;

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

·

limitations on certain fundamental business changes;

·

limitations on incurrences of debt;

·

limitations on incurrences of liens;

·

limitations on payments of dividends;

·

limitations on repurchases of stock; and

·

limitations on engaging in affiliate transactions.

Each case is subject to certain exceptions. The LSA also contains certain events of default including, among other things, that during the existence of an event of default, interest on the obligations could be increased.

 

(6)    Stock Awards

In 2012, we created the 2012 Equity Incentive Plan (the “2012 Plan”), and in 2017, we created the 2017 Equity Incentive Plan (the “2017 Plan”). The 2012 Plan terminated upon the effectiveness of the 2017 Plan. However, any outstanding stock awards will continue to be governed by their existing terms.

The following table summarizes remaining shares available for grant:

 

 

 

 

 

 

 

 

 

As of March 31,

 

As of December 31,

Stock Awards Available for Grant

    

2018

    

2017

 

 

(In thousands)

2017 Plan

 

 

5,751

 

 

3,504

 

The 2012 Plan allowed and the 2017 Plan allows granting of stock options and restricted stock units.  Options have an exercise price not less than 100% of the fair value of Common Stock on the date of grant and expire no more than ten years from the grant date. Stock options and restricted stock units generally vest over two to four years.

The following table summarizes our stock option activity:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Average

 

 

Stock

 

Exercise

 

    

Options

    

Price

Outstanding January 1, 2018

 

12,217,721

 

$

4.79

Granted

 

167,240

 

$

25.92

Exercised

 

(704,773)

 

$

1.27

Forfeited

 

(402,805)

 

$

6.16

Outstanding March 31, 2018

 

11,277,383

 

$

5.28

Vested and exercisable March 31, 2018

 

5,831,413

 

$

2.10

 

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes information about stock options outstanding and exercisable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2018

 

 

Options Outstanding

 

Options Exercisable

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

Weighted

 

 

 

Average

 

Weighted

Grant

 

Number of

 

Remaining

 

Average

 

Number of

 

Remaining

 

Average

(Strike)

 

Options

 

Contractual Life

 

Exercise

 

Options

 

Contractual Life

 

Exercise

Price

    

Outstanding

    

(In Years)

    

Price

    

Exercisable

    

(In Years)

    

Price

$0.01 - $1.50

 

1,787,448

 

5.2

 

$

1.09

 

1,776,184

 

 

 

 

 

$1.51 - $2.00

 

1,713,882

 

6.5

 

$

1.83

 

1,514,914

 

 

 

 

 

$2.01 - $2.50

 

2,498,164

 

7.3

 

$

2.31

 

1,684,572

 

 

 

 

 

$2.51 - $5.00

 

1,936,761

 

8.4

 

$

4.00

 

723,086

 

 

 

 

 

$5.01 - $6.00

 

471,403

 

9.0

 

$

5.48

 

111,664

 

 

 

 

 

$6.01 - $8.00

 

275,147

 

9.2

 

$

7.58

 

20,343

 

 

 

 

 

$8.01 - $10.00

 

 -

 

 -

 

$

 -

 

 -

 

 

 

 

 

$10.01 - $13.00

 

2,172,283

 

9.4

 

$

12.19

 

650

 

 

 

 

 

$13.01 - $30.35

 

422,295

 

9.7

 

$

23.14

 

 -

 

 

 

 

 

 

 

11,277,383

 

7.7

 

$

5.28

 

5,831,413

 

6.6

 

$

2.10

 

The 2012 Plan allowed and the 2017 Plan also allows for the issuance of restricted stock units. The following table summarizes our restricted stock unit activity:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Restricted

 

Average

 

 

Stock

 

Grant Date

 

    

Units

    

Fair Value

Outstanding at January 1, 2018

 

656,854

 

$

2.54

Granted

 

97,334

 

$

28.11

Vested

 

 -

 

$

 -

Forfeited

 

 -

 

$

 -

Outstanding at March 31, 2018

 

754,188

 

$

5.84

 

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For all periods presented, we computed the fair value of options granted using the Black-Scholes option pricing model. The model requires estimates and assumptions, including:

 

 

Estimate or Assumption

Criteria

The fair value of our Common Stock

Subsequent to our IPO in November 2017, we obtain the fair value of our Common Stock from the public market.  Prior to our IPO, there was no public trading market for our Common or Preferred Stock. As a result, our board of directors considered an independent third-party valuation of our Common Stock and whether any new material information after the date of such valuation had materially affected the fair value of our Common Stock.

Risk-free interest rates

The risk-free interest rate is based on the U.S. Treasury yield for treasury securities with maturities that align closely with the timing of the average remaining expected life of the option.

Volatility

We estimate a volatility factor utilizing an average of the stock volatility of peer companies.

Expected dividend yield

Because we have never declared or paid a dividend and do not expect to do so in the foreseeable future, we assume a dividend yield of zero.

Expected option life

Given our limited history, we applied the simplified method (the average of the period from vesting to expiration) to determine the expected option life.

 

The use of different estimates and assumptions could cause significant adjustments to the valuation.

The following table summarizes the estimates and assumptions used and the resulting weighted average grant date fair value of the options granted:

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

Fair value of common stock

 

 

$22.87 - $30.35

 

 

$4.47

Risk-free interest rate

 

 

2.4% - 2.7%

 

 

2.1%

Expected life

 

 

6.0 years

 

 

6.1 years

Expected dividend yield

 

 

-

 

 

-

Expected volatility

 

 

51.5%

 

 

54.0%

Weighted average grant date fair value of the options granted

 

 

$13.33

 

 

$2.34

 

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We recognize stock-based compensation cost on a straight‑line basis over the requisite service period for the entire award and account for forfeitures as they occur. We allocate stock-based compensation to the same expense categories as the base compensation for such employees. We recognized the following stock-based compensation expense for options and RSUs:

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

 

 

(In thousands)

Cost of revenue

 

$

202

 

$

53

Research and development

 

 

594

 

 

147

Selling and marketing

 

 

224

 

 

135

General and administrative

 

 

808

 

 

253

Stock-based compensation

 

$

1,828

 

$

588

 

The following table summarizes our unrecognized compensation cost:

 

 

 

 

 

    

As of March 31,

 

    

2018

Unrecognized compensation cost (in thousands)

 

$

24,018

Weighted average remaining vesting period

 

 

3.2 years

 

 

(7)    Net Loss Per Share Attributed to Common Stockholders

We calculate our basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method, which is required for companies with participating securities. We exclude all potentially dilutive securities, which include the following “common stock equivalents”:

·

Options to purchase Common Stock

·

Restricted stock units

·

Redeemable convertible preferred stock (existed prior to our IPO and considered a participating security)

·

Redeemable convertible preferred stock warrant (existed prior to our IPO)

The two-class method requires the following:

 

 

 

Periods when we have net loss

    

We calculate both basic and diluted net loss per common share by dividing net loss by the weighted average number of common shares outstanding during the period.

 

 

Common stock equivalents are not considered because their effect is antidilutive.

Periods when we have net income

 

Basic net income per share

 

 

We calculate basic net income per share by dividing the net income attributable to the common stockholder by the weighted average number of common shares outstanding during the period.

 

 

Diluted net income per share

 

 

We calculate diluted net income per share by dividing net income attributable to the common stockholder by the weighted average number of common shares and common stock equivalents outstanding during the period. The potential dilution from stock awards is accounted for using the treasury stock method.

 

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SENDGRID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes our net loss per share:

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

 

 

(In thousands, except per share amounts)

Net loss

 

$

(1,273)

 

$

(1,801)

Weighted average common shares outstanding

 

 

42,520

 

 

7,848

Net loss attributable to common stockholders

 

$

(0.03)

 

$

(0.23)

 

The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive.

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

    

2018

    

2017

 

 

(In thousands)

Stock options

 

 

11,277

 

 

9,350

Restricted stock units

 

 

754

 

 

617

Redeemable convertible preferred stock

 

 

 -

 

 

24,535

Redeemable preferred stock warrant

 

 

 -