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-10.1 send-20180630ex101c57d74.htm
EX-10.2 send-20180630ex102c6bd34.htm
EX-31.1 send-20180630ex311bdcf80.htm
EX-31.2 send-20180630ex312570c89.htm
EX-32.1 send-20180630ex3216c1a76.htm
EX-32.2 send-20180630ex3229c5ec0.htm

Sendgrid Earnings 2018-06-30

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-20180630x10q.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 June 30, 2018

 

or

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

For the transition period from            to           

 

 

Commission File Number: 001-38275


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 July  23, 2018, the registrant had 46,387,368 shares of common stock outstanding.

 

 

 

 


 

SendGrid, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 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 and Six Months Ended June 30, 2018 and 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June  30, 2018 and December 31, 2017

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2018

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2. 

 

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

 

21

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

 

 

Item 4 

 

Controls and Procedures

 

35

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

36

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

36

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

64

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

64

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

64

 

 

 

 

 

Item 5. 

 

Other Information

 

65

 

 

 

 

 

Item 6. 

 

Exhibits

 

65

 

 

 

 

 

 

 

Signatures

 

68

 

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 June 30,

 

For the Six Months Ended June 30,

 

    

2018

  

2017

  

2018

  

2017

Revenue

 

$

35,675

 

$

27,012

 

$

68,244

 

$

51,843

Cost of revenue

 

 

8,805

 

 

7,274

 

 

17,293

 

 

13,745

Gross profit

 

 

26,870

 

 

19,738

 

 

50,951

 

 

38,098

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

9,871

 

 

7,139

 

 

18,805

 

 

13,663

Selling and marketing

 

 

8,707

 

 

6,870

 

 

16,643

 

 

13,458

General and administrative

 

 

9,165

 

 

6,494

 

 

18,031

 

 

13,538

Loss on disposal of assets

 

 

 -

 

 

 2

 

 

62

 

 

 2

Total operating expenses

 

 

27,743

 

 

20,505

 

 

53,541

 

 

40,661

Loss from operations

 

 

(873)

 

 

(767)

 

 

(2,590)

 

 

(2,563)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

626

 

 

 -

 

 

1,116

 

 

 -

Interest expense

 

 

(56)

 

 

(32)

 

 

(104)

 

 

(69)

Adjustment to redeemable preferred stock warrant liability

 

 

 -

 

 

(544)

 

 

 -

 

 

(518)

Other

 

 

(7)

 

 

10

 

 

(5)

 

 

16

Other income (expense)

 

 

563

 

 

(566)

 

 

1,007

 

 

(571)

Net loss before provision for income taxes

 

 

(310)

 

 

(1,333)

 

 

(1,583)

 

 

(3,134)

Provision for income taxes

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Net loss

 

$

(310)

 

$

(1,333)

 

$

(1,583)

 

$

(3,134)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

44,581

 

 

7,943

 

 

43,099

 

 

7,896

Net loss per share attributable to common stockholders

 

$

(0.01)

 

$

(0.17)

 

$

(0.04)

 

$

(0.40)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(310)

 

$

(1,333)

 

$

(1,583)

 

$

(3,134)

Change in cumulative foreign currency translation adjustment

 

 

(6)

 

 

 1

 

 

(3)

 

 

 1

Comprehensive loss

 

$

(316)

 

$

(1,332)

 

$

(1,586)

 

$

(3,133)

 

See accompanying notes to condensed consolidated financial statements.

5


 

SENDGRID, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

As of June 30,

 

As of December 31,

 

    

2018

    

2017

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

182,317

 

$

175,496

Restricted cash

 

 

1,120

 

 

 -

Accounts receivable - trade, net of allowance

 

 

6,103

 

 

5,765

Prepaid expenses and other current assets

 

 

5,599

 

 

9,087

Total current assets

 

 

195,139

 

 

190,348

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

Property and equipment, net

 

 

34,249

 

 

29,192

Intangible assets, net

 

 

1,554

 

 

1,795

Other assets

 

 

322

 

 

300

Goodwill

 

 

1,648

 

 

1,648

Total noncurrent assets

 

 

37,773

 

 

32,935

Total assets

 

$

232,912

 

$

223,283

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

9,405

 

$

13,837

Current portion of capital lease obligations

 

 

6,208

 

 

6,110

Current portion of deferred rent

 

 

1,138

 

 

328

Other current liabilities

 

 

1,273

 

 

1,575

Total current liabilities

 

 

18,024

 

 

21,850

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

Capital lease obligations, net of current portion

 

 

10,492

 

 

11,095

Deferred rent, net of current portion

 

 

9,561

 

 

10,054

Other long-term liabilities

 

 

532

 

 

510

Total long-term obligations, net of current portion:

 

 

20,585

 

 

21,659

Total liabilities

 

 

38,609

 

 

43,509

 

 

 

 

 

 

 

Commitment and contingencies (notes 5 - 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, 250,000,000 shares authorized as of Jun. 30, 2018 and Dec. 31, 2017, 46,365,202 and 42,175,647 shares issued and outstanding as of Jun. 30, 2018 and Dec. 31, 2017, respectively

 

 

46

 

 

39

Preferred stock, $0.001 par value, 10,000,000 shares authorized as of Jun. 30, 2018 and Dec. 31, 2017.  None issued or outstanding.

 

 

 -

 

 

 -

Additional paid-in capital

 

 

246,328

 

 

229,594

Accumulated deficit

 

 

(52,066)

 

 

(49,857)

Accumulated other comprehensive loss

 

 

(5)

 

 

(2)

Total stockholders’ equity

 

 

194,303

 

 

179,774

Total liabilities and stockholders’ equity

 

$

232,912

 

$

223,283

See accompanying notes to condensed consolidated financial statements

6


 

SENDGRID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

  

2018

  

2017

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,583)

 

$

(3,134)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

5,243

 

 

4,562

Stock-based compensation

 

 

4,640

 

 

1,381

Adjustment to redeemable preferred stock warrant liability

 

 

 -

 

 

518

Non-cash interest expense and other

 

 

21

 

 

10

Loss on disposal of assets and restructuring of assets

 

 

221

 

 

352

Reimbursement of tenant improvements

 

 

2,434

 

 

654

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(332)

 

 

(803)

Prepaid expenses and other assets

 

 

891

 

 

(494)

Accounts payable and accrued liabilities

 

 

(1,673)

 

 

2,050

Other liabilities

 

 

(1,129)

 

 

26

Net cash flows from operating activities

 

 

8,733

 

 

5,122

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,288)

 

 

(3,014)

Cash paid for business combination

 

 

 -

 

 

(2,726)

Cash acquired in business combination

 

 

 -

 

 

527

Proceeds from sale of assets

 

 

27

 

 

 9

Net cash flows from investing activities

 

 

(9,261)

 

 

(5,204)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

6,410

 

 

264

Proceeds from follow-on public offering, net of $0.7 million underwriting discount

 

 

13,716

 

 

 -

Payments for stock issuance costs

 

 

(1,167)

 

 

(40)

Payments for tax withholding on equity awards

 

 

(7,146)

 

 

 -

Principal payments on capital lease obligations

 

 

(3,341)

 

 

(2,997)

Net cash flows from financing activities

 

 

8,472

 

 

(2,773)

 

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash

 

 

(3)

 

 

 2

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

7,941

 

 

(2,853)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

175,496

 

 

40,478

Cash, cash equivalents, and restricted cash at end of period

 

$

183,437

 

$

37,625

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Assets acquired under capitalized leases

 

$

2,913

 

$

8,352

Property and equipment purchases included in accounts payable

 

$

217

 

$

41

Issuance of common stock for business combination

 

$

 -

 

$

432

Cash paid for interest

 

$

93

 

$

69

 

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

 

3,286,005

 

 

 3

 

 

6,407

 

 

 

 

 

 

 

 

6,410

Vesting of restricted stock units

 

303,550

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

Tax withholding associated with vesting of restricted stock units

 

 

 

 

 

 

 

(7,310)

 

 

 

 

 

 

 

 

(7,310)

Stock-based compensation

 

 

 

 

 

 

 

4,640

 

 

 

 

 

 

 

 

4,640

Net loss

 

 

 

 

 

 

 

 

 

 

(1,583)

 

 

 

 

 

(1,583)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

 

(3)

Follow-on offering of common stock

 

600,000

 

 

 4

 

 

13,712

 

 

 

 

 

 

 

 

13,716

Issuance costs associated with IPO and follow-on offering

 

 

 

 

 

 

 

(1,341)

 

 

 

 

 

 

 

 

(1,341)

Adoption of ASU 2016-09 (Note 2)

 

 

 

 

 

 

 

626

 

 

(626)

 

 

 

 

 

 -

Balance at June 30, 2018

 

46,365,202

 

$

46

 

$

246,328

 

$

(52,066)

 

$

(5)

 

$

194,303

 

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 at the public offering price of $16.00 per share. We received net proceeds of $136.3 million after deducting underwriting discounts, commissions, 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.

Emerging Growth Company Status

Currently, 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.

As of June 30, 2018, the market value of or common stock held by non-affiliates exceeded $700 million. Therefore, effective December 31, 2018, we will cease to be classified as an EGC. As a result, as of December 31, 2018, we will be required to adopt all applicable accounting standards that were effective for any period during 2018. 

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:

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(Unaudited)

 

 

     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.

Sales Taxes

We account for sales tax collected from customers and remitted to governmental authorities on a net basis and, therefore, we do not include such tax in revenue or cost of revenue in our consolidated statements of operations and comprehensive loss.

Other

Aside from the treatment of restricted cash on the statements of cash flows (see discussion of ASU 2016-18 below) and our accounting policy election regarding forfeitures on stock awards (see discussion of ASU 2016-09 below), 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 January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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 are 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. We adopted ASU 2016-18 effective April 1, 2018. Our condensed consolidated balance sheet as of June 30, 2018 includes $1.1 million of restricted cash related to SendGrid.org (Note 3). The condensed consolidated statement of cash flows includes this restricted cash within the end-of-period total amount shown as “cash, cash equivalents, and restricted cash.” When the SendGrid.org restricted cash is actually disbursed, we will classify it as a use of cash from operating activities. We restated the prior period to conform to current year presentation. For the six months ended June 30, 2017, this resulted in a $0.1 million decrease in cash used in investing activities.

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. The standard requires retrospective application for each period presented. We adopted ASU 2016-

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15 effective April 1, 2018. The adoption did not have a significant impact on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued 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 the following:

·

accounting for income tax consequences;

·

minimum statutory tax withholdings requirements;

·

forfeitures;

·

excess tax benefits in the statement of cash flows; and

·

classification of employee taxes paid when an employer withholds shares for tax-withholding purposes 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.

New Accounting Pronouncements Not Yet Adopted

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. 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 U.S. 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize, on the balance sheet, a liability to make lease payments and a corresponding right-of-use asset representing a right to use the underlying asset for the lease term. ASU 2016-02 is effective for us beginning January 1, 2019. Early adoption permitted, but we do not expect to do so.  The standard requires a modified retrospective approach. The FASB recently approved Proposed ASU 2018-200, Leases (Topic 842), Targeted Improvements. We anticipate electing the optional transition method in ASU 2018-200, which still requires a modified retrospective transition and contains the following provisions:

·

transition provisions of the new standard are applied at its adoption date;

·

recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption; and

·

continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year the new leases standard is adopted.

We are currently in the process of accumulating and evaluating all contractual lease arrangements in order to determine the impact on our consolidated financial statements and related disclosures. While we expect the adoption of this standard to result in an increase to our reported assets and liabilities, we have not yet determined the full impact.

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 incremental costs to obtain a sales contract, such as sales commissions.  Under the new standard, these incremental costs

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(Unaudited)

will be capitalized at inception and expensed over an estimate of the customer’s life.  The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Most public companies adopted ASU 2014-09 effective January 1, 2018. Due to the cessation of our EGC status, the new standard is effective for us beginning December 31, 2018. 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 customer arrangements and commissions and identifying differences in accounting between new and existing standards.  We do not anticipate the new standard will have a material impact on the timing or amount of revenue recognition.  However, we expect some impact on our consolidated statements of operations as a result of the deferred expense on sales commissions. 

 

(3)    Restricted Cash

 

Restricted cash as of June 30, 2018 represents amounts designated for SendGrid.org. SendGrid.org is a division of SendGrid and not a separate legal entity. Its mission is to support nonprofit organizations.

 

(4)    Property and Equipment

 

Property and equipment consist of the following:

 

 

 

 

 

 

 

 

 

 

 

Estimated Useful

 

As of June 30,

 

As of December 31,

 

    

Life (in months)

 

2018

 

2017

 

 

 

 

(In thousands)

Data center equipment

 

36 - 48

 

$

31,566

 

$

28,474

Leasehold improvements

 

76 - 131

*  

 

12,837

 

 

8,067

Office furniture and equipment

 

36 - 60

 

 

5,840

 

 

4,560

Computer equipment and peripherals

 

36

 

 

3,295

 

 

3,276

 

 

 

 

 

53,538

 

 

44,377

Less accumulated depreciation

 

 

 

 

(19,289)

 

 

(15,185)

Property and equipment, net

 

 

 

$

34,249

 

$

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 or 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 June 30,

 

As of December 31,

 

    

2018

    

2017

 

 

(In thousands)

Equipment held under capital lease agreements

 

$

25,428

 

$

24,866

Less accumulated depreciation

 

 

(8,835)

 

 

(7,860)

Carrying value

 

$

16,593

 

$

17,006

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

Depreciation expense

 

$

2,605

 

$

2,410

 

$

5,002

 

$

4,501

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5)    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consists of the following:

 

 

 

 

 

 

 

 

 

As of June 30,

 

As of December 31,

 

    

2018

    

2017

 

 

(In thousands)

Bonus and commission

 

$

3,831

 

$

4,031

Accounts payable

 

 

1,913

 

 

3,553

Sales tax

 

 

984

 

 

2,057

Marketing expense

 

 

707

 

 

203

Employee benefits

 

 

650

 

 

557

Vacation

 

 

19

 

 

1,832

Professional fees and other

 

 

1,301

 

 

1,604

Accounts payable and accrued liabilities

 

$

9,405

 

$

13,837

 

 

(6)    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 August 2018. We had $40.0 million available to draw as of June 30, 2018 and December 31, 2017. We were in compliance with all financial covenants as of June 30, 2018 and 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;

·

requirement to maintain certain business performance levels;

·

limitations on disposal of assets;

·

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.

 

 

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(Unaudited)

(7)   Equity Financing

On April 10, 2018 we closed a follow-on public offering of 7,514,369 shares of SendGrid common stock priced at $24.00, before underwriting discounts and commissions. Of the total shares sold, existing stockholders and option holders sold 6,914,369 shares, and the Company sold 600,000 shares. We received net proceeds of $12.4 million after deducting $0.7 million of underwriting discounts and commissions and $1.3 million of offering expenses.

 

(8)    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 June 30,

 

As of December 31,

Stock Awards Available for Grant

    

2018

    

2017

 

 

(In thousands)

2017 Plan

 

 

5,581

 

 

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

 

249,740

 

$

26.28

Exercised

 

(3,286,005)

 

$

1.95

Forfeited

 

(598,009)

 

$

7.29

Outstanding June 30, 2018

 

8,583,447

 

$

6.33

Vested and exercisable June 30, 2018

 

3,762,222

 

$

2.30

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018

 

 

Options Outstanding

 

Options Exercisable

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

Weighted

 

 

 

Average

 

Weighted

 

 

Number of

 

Remaining

 

Average

 

Number of

 

Remaining

 

Average

 

 

Options

 

Contractual Life

 

Exercise

 

Options

 

Contractual Life

 

Exercise

Exercise Price

    

Outstanding

    

(In Years)

    

Price

    

Exercisable

    

(In Years)

    

Price

$0.18 - $1.50

 

769,286

 

4.8

 

$

1.07

 

769,286

 

 

 

 

 

$1.83 - $2.12

 

1,280,363

 

6.3

 

$

1.85

 

1,162,142

 

 

 

 

 

$2.18

 

1,007,841

 

6.9

 

$

2.18

 

714,385

 

 

 

 

 

$2.46 - $2.79

 

1,055,838

 

7.4

 

$

2.55

 

567,820

 

 

 

 

 

$4.24

 

1,073,986

 

8.2

 

$

4.24

 

373,011

 

 

 

 

 

$4.52 - $7.58

 

838,853

 

8.8

 

$

5.82

 

165,620

 

 

 

 

 

$12.00

 

1,521,581

 

9.1

 

$

12.00

 

9,958

 

 

 

 

 

$12.72 - $22.87

 

873,404

 

9.3

 

$

16.06

 

 -

 

 

 

 

 

$24.97 - $30.35

 

162,295

 

9.7

 

$

27.96

 

 -

 

 

 

 

 

 

 

8,583,447

 

7.7

 

$

6.33

 

3,762,222

 

6.6

 

$

2.30

 

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