|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
Note 1. Overview and Basis of Presentation
Company and Background
Zendesk was founded in Denmark in 2007 and reincorporated in Delaware in April 2009.
Our mission is to help organizations and their customers build better relationships. We are a software development company that provides a software-as-a-service, or SaaS, customer service platform. Our platform helps organizations engage with people in new ways that foster long-term customer loyalty and satisfaction. We empower organizations to better answer customers’ questions, and to solve their problems through the channels that people use every day when seeking help, such as email, chat, voice, social media and websites. Our customer service platform also helps people find answers on their own through knowledge bases and communities, capitalizing on the increasing customer preference for self-service. Our customer engagement capabilities allow organizations to proactively serve their customers, reaching out to those who may need help and soliciting feedback about their experience. The openness of our customer service platform makes it easy for organizations to integrate with their other applications. Our customer service platform consolidates the data from customer interactions and provides organizations with powerful analytics and performance benchmarking.
References to Zendesk, the “Company”, “our”, or “we” in these notes refer to Zendesk, Inc. and its subsidiaries on a consolidated basis.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015. There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.
The consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, our comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2015.
Follow-On Public Offering
In March 2015, we completed a follow-on public offering, in which we issued 8.8 million shares of our common stock at a public offering price of $22.75 per share. We received net proceeds of $190.1 million after deducting underwriting discounts and commissions of $8.7 million and other offering expenses of $0.9 million.
Initial Public Offering and Share-based Compensation
In May 2014, we completed our initial public offering, or IPO, in which we issued and sold 12.8 million shares of common stock at a public offering price of $9.00 per share. We received net proceeds of $103.1 million after deducting underwriting discounts and commissions of $8.1 million and other offering expenses of $3.8 million. Upon the closing of the IPO, all shares of our then-outstanding redeemable convertible preferred stock automatically converted into an aggregate of 34.3 million shares of common stock.
Share-based compensation expense to employees is measured based on the fair value of the awards on the grant date and recognized in our consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We measure the fair value of restricted stock units, or RSUs, based on the fair value of the underlying shares on the date of grant. Compensation expense for awards with only service conditions is recognized over the vesting period of the applicable award using the straight-line method. Compensation expense for awards with both service and performance conditions is recognized over the longer period required to achieve both conditions using the accelerated attribution method.
All RSUs and certain options granted to employees prior to the IPO vest upon the satisfaction of both a service condition and a performance condition. These RSUs and stock options with both a service condition and performance condition are collectively referred to as “Performance Awards” in the following discussion. The service condition for substantially all of these awards is satisfied over four years. The performance condition was satisfied upon the occurrence of a qualifying liquidity event which occurred upon the effectiveness of the registration statement related to our IPO. No share-based compensation expense was recognized for the Performance Awards prior to the IPO as the performance condition had not been deemed probable to have been met. Upon the satisfaction of the performance condition, we recognized a cumulative share-based compensation expense for the portion of the Performance Awards that had met the service condition. The remaining unrecognized share-based compensation expense related to the Performance Awards are being recorded over the remaining requisite service period using the accelerated attribution method, net of estimated forfeitures.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods.
Significant items subject to such estimates and assumptions include the fair value of our common stock (through the date of our IPO) and share-based awards, fair value of acquired intangible assets, goodwill, unrecognized tax benefits, useful lives of intangible assets and property and equipment, and the capitalization and estimated useful life of our capitalized internal-use software.
These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
Concentrations of Risk
At March 31, 2015, there were no customers that represented more than 10% of our accounts receivable balance. At March 31, 2014, one customer represented 14% and a second customer represented 12% of our total accounts receivable balance. There were no customers that individually exceeded 10% of our revenue during the three months ended March 31, 2015 or 2014.
Recently Issued and Adopted Accounting Pronouncements
On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606 “Revenue from Contracts with Customers.” This ASU provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. This ASU is expected to be effective no earlier than our fiscal year beginning January 1, 2017. Early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
|
Note 2. Acquisition
On March 21, 2014, we completed the acquisition of Zopim Technologies Pte Ltd., or Zopim, a software development company that provides a SaaS live chat service. As of December 31, 2014, we finalized our purchase accounting after adjustments were made to the preliminary purchase price allocation. The total adjusted acquisition date fair value of consideration transferred was $15.8 million ($4.9 million of cash and $10.9 million of our common stock), which included $1.1 million of cash and $2.4 million of common stock consideration that was held back between 12 and 18 months as partial security for standard indemnification obligations. In the three months ended March 31, 2015, we released $0.5 million of cash and $1.2 million of common stock consideration that was held back, based on the fair value of our common stock on the date of the acquisition. The total adjusted purchase price was allocated to assets acquired and liabilities assumed as set forth below (in thousands). The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the acquisition is attributable to expected synergies from future growth and potential future monetization opportunities, and is not deductible for tax purpose.
Net tangible liabilities assumed |
|
$ |
(385 |
) |
Intangible assets |
|
|
6,560 |
|
Goodwill |
|
|
9,594 |
|
Total purchase price |
|
$ |
15,769 |
|
In connection with the acquisition, we also established a retention plan pursuant to which we issued RSUs for 0.9 million shares of our common stock, which vest in three annual installments from the date of acquisition. In addition, we agreed to pay cash in an aggregate amount of $3.0 million in two annual installments from the date of acquisition to Zopim employees in connection with their continued employment, which is recorded as compensation expense over the associated service periods of such employees. In the three months ended March 31, 2015, RSUs for 0.3 million shares of our common stock became vested pursuant to the terms of the retention plan, and we paid the first installment of the cash retention bonus in the amount of $1.5 million.
Pro forma revenue and results of operations have not been presented because the historical results of Zopim were not material to our consolidated financial statements in any period presented.
|
Note 3. Fair Value Measurements
The following tables present information about our financial assets measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 based on the three-tier fair value hierarchy (in thousands):
|
|
Fair Value Measurement at |
|
|||||||||
|
|
March 31, 2015 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
38,097 |
|
|
$ |
38,097 |
|
Money market funds |
|
|
20,491 |
|
|
|
— |
|
|
|
20,491 |
|
Commercial paper |
|
|
— |
|
|
|
7,991 |
|
|
|
7,991 |
|
Asset-backed securities |
|
|
— |
|
|
|
5,069 |
|
|
|
5,069 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,199 |
|
|
|
1,199 |
|
Total |
|
$ |
20,491 |
|
|
$ |
52,356 |
|
|
$ |
72,847 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
20,491 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
52,356 |
|
|
|
Fair Value Measurement at |
|
|||||||||
|
|
December 31, 2014 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
40,345 |
|
|
$ |
40,345 |
|
Money market funds |
|
|
21,382 |
|
|
|
— |
|
|
|
21,382 |
|
Asset-backed securities |
|
|
— |
|
|
|
5,080 |
|
|
|
5,080 |
|
Commercial paper |
|
|
— |
|
|
|
3,993 |
|
|
|
3,993 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,991 |
|
|
|
1,991 |
|
Total |
|
$ |
21,382 |
|
|
$ |
51,409 |
|
|
$ |
72,791 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
21,382 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
51,409 |
|
Gross unrealized gains or losses for cash equivalents and available-for-sale marketable securities as of March 31, 2015 and December 31, 2014 were not material. As of March 31, 2015 and December 31, 2014, there were no securities that were in an unrealized loss position for more than 12 months.
The following table classifies our available-for-sale marketable securities by contractual maturities as of March 31, 2015 and December 31, 2014 (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Due in one year |
|
$ |
44,855 |
|
|
$ |
42,204 |
|
Due in one to five years |
|
|
7,501 |
|
|
|
9,205 |
|
Total |
|
$ |
52,356 |
|
|
$ |
51,409 |
|
For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances. Based on borrowing rates available to us for loans with similar terms and maturities, the carrying value of borrowings approximates fair value or Level 2 within the fair value hierarchy.
There were no transfers between fair value measurement levels during the three months ended March 31, 2015.
|
Note 4. Property and Equipment
Property and equipment, net consists of the following (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Capitalized internal-use software |
|
$ |
23,305 |
|
|
$ |
18,541 |
|
Furniture and fixtures |
|
|
4,619 |
|
|
|
4,524 |
|
Hosting equipment |
|
|
16,642 |
|
|
|
14,085 |
|
Computer equipment and software |
|
|
4,335 |
|
|
|
4,310 |
|
Leasehold improvements |
|
|
15,439 |
|
|
|
15,144 |
|
Construction in progress |
|
|
757 |
|
|
|
3,546 |
|
Total |
|
|
65,097 |
|
|
|
60,150 |
|
Less: accumulated depreciation and amortization |
|
|
(21,746 |
) |
|
|
(18,255 |
) |
Property and equipment, net |
|
$ |
43,351 |
|
|
$ |
41,895 |
|
Depreciation expense was $2.3 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively.
We capitalized $1.9 million and $1.8 million in internal-use software during the three months ended March 31, 2015 and 2014, respectively. Included in the capitalized development costs are $0.5 million and $49,000 in share-based compensation costs for the three months ended March 31, 2015 and 2014, respectively. Amortization expense of capitalized internal-use software totaled $1.5 million and $0.7 million for the three months ended March 31, 2015 and 2014, respectively. The carrying value of capitalized internal-use software at March 31, 2015 and December 31, 2014 was $14.0 million and $13.6 million, respectively, including $0.6 million and $3.5 million in construction in progress, respectively.
|
Note 5. Goodwill and Purchased Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2015 are as follows (in thousands):
Balance as of December 31, 2014 |
|
$ |
9,240 |
|
Foreign currency translation adjustments |
|
|
(306 |
) |
Balance as of March 31, 2015 |
|
$ |
8,934 |
|
Purchased intangible assets subject to amortization as of March 31, 2015 and December 31, 2014 consist of the following (in thousands).
|
|
March 31, 2015 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(1,526 |
) |
|
$ |
(253 |
) |
|
$ |
3,421 |
|
|
|
2.5 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(334 |
) |
|
|
(66 |
) |
|
|
900 |
|
|
|
3.0 |
|
Trade name |
|
|
60 |
|
|
|
(60 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
6,560 |
|
|
$ |
(1,920 |
) |
|
$ |
(319 |
) |
|
$ |
4,321 |
|
|
|
|
|
|
|
December 31, 2014 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(1,118 |
) |
|
$ |
(191 |
) |
|
$ |
3,891 |
|
|
|
2.7 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(244 |
) |
|
|
(48 |
) |
|
|
1,008 |
|
|
|
3.2 |
|
Trade name |
|
|
60 |
|
|
|
(45 |
) |
|
|
(2 |
) |
|
|
13 |
|
|
|
0.2 |
|
|
|
$ |
6,560 |
|
|
$ |
(1,407 |
) |
|
$ |
(241 |
) |
|
$ |
4,912 |
|
|
|
|
|
Amortization expense of purchased intangible assets for the three months ended March 31, 2015 and 2014 was $0.4 million and $52,000, respectively.
Estimated future amortization expense as of March 31, 2015 is as follows (in thousands):
Remainder of 2015 |
|
$ |
1,271 |
|
2016 |
|
|
1,686 |
|
2017 |
|
|
1,298 |
|
2018 |
|
|
66 |
|
|
|
$ |
4,321 |
|
|
Note 6. Credit Facility
We have a credit facility with Silicon Valley Bank consisting of a $20.0 million revolving line of credit and a $10.0 million equipment line of credit. In June 2014 we repaid all outstanding principal and accrued interest under the revolving line of credit and as of March 31, 2015 there was no balance outstanding. As of March 31, 2015 and December 31, 2014, the outstanding balance under the equipment line of credit was $6.2 million and $7.0 million, respectively.
Prior to our IPO, borrowings on the revolving line of credit bore interest at the prime rate plus 2.0% per annum. Upon the consummation of our IPO, the interest rate was reduced to the prime rate. Borrowings on the revolving line of credit are subject to a borrowing base limit determined monthly based on our recurring revenue metrics from previous months and the ratio of certain current assets to current liabilities as of the previous month end. To the extent we borrow funds pursuant to the revolving line of credit, we are entitled to make interest-only payments until January 1, 2016, when the outstanding balance is due in full.
Borrowings on the equipment line of credit bear interest of 2.5% per annum. For each equipment advance, we made interest-only payments prior to September 2014, when the outstanding balance became payable in 30 equal monthly installments, with the last payment due on March 14, 2017. We are also required to make a final payment fee of $0.3 million on March 14, 2017.
The credit facility is collateralized by substantially all of our assets, excluding our intellectual property. Our domestic subsidiary is a guarantor of the credit facility and we have pledged up to 65% of the equity in our international subsidiaries as collateral. The credit facility also imposes various covenants on us, including the delivery of financial and other information, the maintenance of our primary operating and securities accounts with the lender, the maintenance of minimum revenue targets and an agreed ratio of certain current assets to current liabilities, as well as limitations on dispositions, changes in business or management, certain mergers or consolidations, dividends and other corporate activities. As of March 31, 2015 and December 31, 2014, we were in compliance with all of the covenants contained in the credit facility.
Contractual future principal repayments in relation to the credit facility are as follows for the year ending December 31 (in thousands):
Remainder of 2015 |
|
$ |
2,288 |
|
2016 |
|
|
3,118 |
|
2017 |
|
|
793 |
|
|
|
$ |
6,199 |
|
In June 2012, in connection with the credit facility, we issued a non-refundable, fully earned warrant to Silicon Valley Bank to purchase 125,000 shares of common stock at $1.92 per share with an expiration date of June 2019. The fair value of the warrant on issuance is being accreted to interest expense using the effective interest rate method over the life of the credit facility. This warrant was exercised in the three months ended June 30, 2014.
|
Note 7. Commitments and Contingencies
Leases
We lease office space under noncancelable operating leases with various expiration dates. Certain of the office space lease agreements contain rent holidays or rent escalation provisions. Rent holiday and rent escalation provisions are considered in determining the straight-line expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Rent expense was $1.6 million and $1.8 million for the three months ended March 31, 2015 and 2014, respectively.
We leased computer equipment from various parties under capital lease agreements that expired in March 2015.
Litigation and Loss Contingencies
We accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax, and other matters. We currently have no material pending litigation.
We are not currently aware of any litigation matters or loss contingencies that would be expected to have a material adverse effect on our business, consolidated financial position, results of operations, comprehensive loss, or cash flows.
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from our customer service platform, live chat software, or our acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments. In addition, we have indemnification agreements with our directors and executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations may vary. To date, we have not incurred any material costs, and we have not accrued any liabilities in the accompanying condensed consolidated financial statements, as a result of these obligations.
We have entered into service-level agreements with certain customers warranting defined levels of uptime reliability and performance and permitting those customers to receive credits for future services in the event that we fail to meet those levels. To date, we have not accrued for any significant liabilities in the accompanying consolidated financial statements as a result of these service-level agreements.
|
Note 8. Common Stock and Stockholders’ Equity
Common Stock Authorized
Upon the completion of our IPO, we increased the amount of common stock authorized for issuance from 125 million to 400 million common shares with a par value of $0.01 per share.
Employee Equity Plans
Employee Stock Purchase Plan
Our board of directors adopted the Employee Stock Purchase Plan, or ESPP, in February 2014, which became effective in May 2014 upon the effectiveness of the registration statement related to our IPO. Under the ESPP, eligible employees are granted options to purchase shares of our common stock through payroll deductions. The ESPP provides for eighteen-month offering periods, which include three six-month purchase periods. At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of our common stock at the beginning of an offering period or the fair market value of our common stock at the end of the purchase period. We commenced our first purchase period under the ESPP on May 15, 2014. For the three months ended March 31, 2015, no shares of common stock were purchased under the ESPP. Pursuant to the terms of the ESPP, the number of shares reserved under the ESPP increased by 0.8 million shares on January 1, 2015. As of March 31, 2015, 4.0 million shares of common stock were available for issuance under the ESPP.
Stock Option and Grant Plans
Our board of directors adopted the 2009 Stock Option and Grant Plan, or the 2009 Plan, in July 2009. The 2009 Plan was terminated in connection with our IPO, and accordingly, no shares are available for issuance under this plan. The 2009 Plan continues to govern outstanding awards granted thereunder.
Our 2014 Stock Option and Incentive Plan, or the 2014 Plan, serves as the successor to our 2009 Plan. Pursuant to the terms of the 2014 Plan, the number of shares reserved for issuance under the 2014 Plan increased by 3.8 million shares on January 1, 2015. As of March 31, 2015, we had 8.1 million shares of common stock available for future grants under the 2014 Plan.
The following table summarizes our stock option and RSU award activities for the three months ended March 31, 2015 (in thousands, except per share information):
|
|
|
|
|
|
Options Outstanding |
|
|
RSUs Outstanding |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
||
|
|
Shares |
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
Average |
|
|||||
|
|
Available |
|
|
Number of |
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|
Outstanding |
|
|
Grant Date |
|
|||||||
|
|
for Grant |
|
|
Shares |
|
|
Exercise Price |
|
|
Term |
|
|
Value |
|
|
RSUs |
|
|
Fair Value |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — January 1, 2015 |
|
|
7,560 |
|
|
|
12,043 |
|
|
$ |
7.39 |
|
|
|
8.29 |
|
|
$ |
204,467 |
|
|
|
3,064 |
|
|
$ |
13.69 |
|
Increase in authorized shares |
|
|
3,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted |
|
|
(1,494 |
) |
|
|
1,494 |
|
|
|
24.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
|
(1,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,854 |
|
|
|
24.77 |
|
Stock options exercised |
|
|
|
|
|
|
(982 |
) |
|
|
2.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519 |
) |
|
|
12.63 |
|
Unvested shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or canceled |
|
|
39 |
|
|
|
(39 |
) |
|
|
4.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80 |
) |
|
|
15.18 |
|
Outstanding —March 31, 2015 |
|
|
8,110 |
|
|
|
12,516 |
|
|
$ |
9.80 |
|
|
|
8.35 |
|
|
$ |
161,387 |
|
|
|
4,319 |
|
|
$ |
18.55 |
|
Aggregate intrinsic value represents the difference between the Company's closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the New York Stock Exchange as of March 31, 2015 was $22.69.
As of March 31, 2015, we had a total of $129.8 million in future share-based compensation expense related to all equity awards, net of estimated forfeitures, to be recognized over a weighted average period of 3.4 years.
Early Exercise of Stock Options and Purchase of Unvested Stock Awards
Certain of our stock options permit early exercise. Common stock purchased pursuant to an early exercise of stock options or unvested stock awards is not deemed to be outstanding for financial reporting purposes until those shares vest. Therefore, cash received in exchange for unvested shares is recorded as a liability and is transferred into common stock and additional paid-in capital as the shares vest. Upon termination of service, we may, at our discretion, repurchase unvested shares acquired through early exercise of stock options or purchase of unvested stock awards at a price equal to the price per share paid upon the exercise of such options or the purchase of such unvested stock awards. As of March 31, 2015 and December 31, 2014, there were 0.5 million and 0.6 million shares, respectively, outstanding as a result of the early exercise of stock options and purchase of unvested stock awards by our employees and directors that were classified as accrued liabilities for an aggregated amount of $1.8 million and $2.1 million, respectively.
|
Note 10. Income Taxes
The effective tax rates for the three months ended March 31, 2015 and 2014 were less than 1%. The effective tax rate differs from the statutory rate primarily as a result of not recognizing a deferred tax asset for U.S. losses due to having a full valuation allowance against U.S. deferred tax assets. There were no material changes to the unrecognized tax benefits in the three months ended March 31, 2015 and 2014.
|
Note 11. Geographic Information
Our chief operating decision maker reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. Accordingly, we have determined that we operate in a single reporting segment.
Revenue
The following table presents our revenue by geographic areas, as determined based on the billing address of our customers (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
United States |
|
$ |
22,852 |
|
|
$ |
14,885 |
|
EMEA |
|
|
12,576 |
|
|
|
6,620 |
|
Other |
|
|
6,806 |
|
|
|
3,587 |
|
Total |
|
$ |
42,234 |
|
|
$ |
25,092 |
|
Long-Lived Assets
The following table presents our long-lived assets by geographic areas (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
United States |
|
$ |
24,236 |
|
|
$ |
22,817 |
|
EMEA |
|
|
4,075 |
|
|
|
4,373 |
|
Other |
|
|
1,053 |
|
|
|
1,095 |
|
Total |
|
$ |
29,364 |
|
|
$ |
28,286 |
|
The carrying value of capitalized internal-use software and intangible assets is excluded from the balance of long-lived assets presented in the table above.
|
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015. There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.
The consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, our comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2015.
Initial Public Offering and Share-based Compensation
In May 2014, we completed our initial public offering, or IPO, in which we issued and sold 12.8 million shares of common stock at a public offering price of $9.00 per share. We received net proceeds of $103.1 million after deducting underwriting discounts and commissions of $8.1 million and other offering expenses of $3.8 million. Upon the closing of the IPO, all shares of our then-outstanding redeemable convertible preferred stock automatically converted into an aggregate of 34.3 million shares of common stock.
Share-based compensation expense to employees is measured based on the fair value of the awards on the grant date and recognized in our consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We measure the fair value of restricted stock units, or RSUs, based on the fair value of the underlying shares on the date of grant. Compensation expense for awards with only service conditions is recognized over the vesting period of the applicable award using the straight-line method. Compensation expense for awards with both service and performance conditions is recognized over the longer period required to achieve both conditions using the accelerated attribution method.
All RSUs and certain options granted to employees prior to the IPO vest upon the satisfaction of both a service condition and a performance condition. These RSUs and stock options with both a service condition and performance condition are collectively referred to as “Performance Awards” in the following discussion. The service condition for substantially all of these awards is satisfied over four years. The performance condition was satisfied upon the occurrence of a qualifying liquidity event which occurred upon the effectiveness of the registration statement related to our IPO. No share-based compensation expense was recognized for the Performance Awards prior to the IPO as the performance condition had not been deemed probable to have been met. Upon the satisfaction of the performance condition, we recognized a cumulative share-based compensation expense for the portion of the Performance Awards that had met the service condition. The remaining unrecognized share-based compensation expense related to the Performance Awards are being recorded over the remaining requisite service period using the accelerated attribution method, net of estimated forfeitures.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods.
Significant items subject to such estimates and assumptions include the fair value of our common stock (through the date of our IPO) and share-based awards, fair value of acquired intangible assets, goodwill, unrecognized tax benefits, useful lives of intangible assets and property and equipment, and the capitalization and estimated useful life of our capitalized internal-use software.
These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
Concentrations of Risk
At March 31, 2015, there were no customers that represented more than 10% of our accounts receivable balance. At March 31, 2014, one customer represented 14% and a second customer represented 12% of our total accounts receivable balance. There were no customers that individually exceeded 10% of our revenue during the three months ended March 31, 2015 or 2014.
Recently Issued and Adopted Accounting Pronouncements
On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606 “Revenue from Contracts with Customers.” This ASU provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. This ASU is expected to be effective no earlier than our fiscal year beginning January 1, 2017. Early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
|
The total adjusted purchase price was allocated to assets acquired and liabilities assumed as set forth below (in thousands).
Net tangible liabilities assumed |
|
$ |
(385 |
) |
Intangible assets |
|
|
6,560 |
|
Goodwill |
|
|
9,594 |
|
Total purchase price |
|
$ |
15,769 |
|
|
The following tables present information about our financial assets measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 based on the three-tier fair value hierarchy (in thousands):
|
|
Fair Value Measurement at |
|
|||||||||
|
|
March 31, 2015 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
38,097 |
|
|
$ |
38,097 |
|
Money market funds |
|
|
20,491 |
|
|
|
— |
|
|
|
20,491 |
|
Commercial paper |
|
|
— |
|
|
|
7,991 |
|
|
|
7,991 |
|
Asset-backed securities |
|
|
— |
|
|
|
5,069 |
|
|
|
5,069 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,199 |
|
|
|
1,199 |
|
Total |
|
$ |
20,491 |
|
|
$ |
52,356 |
|
|
$ |
72,847 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
20,491 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
52,356 |
|
|
|
Fair Value Measurement at |
|
|||||||||
|
|
December 31, 2014 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
40,345 |
|
|
$ |
40,345 |
|
Money market funds |
|
|
21,382 |
|
|
|
— |
|
|
|
21,382 |
|
Asset-backed securities |
|
|
— |
|
|
|
5,080 |
|
|
|
5,080 |
|
Commercial paper |
|
|
— |
|
|
|
3,993 |
|
|
|
3,993 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,991 |
|
|
|
1,991 |
|
Total |
|
$ |
21,382 |
|
|
$ |
51,409 |
|
|
$ |
72,791 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
21,382 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
51,409 |
|
The following table classifies our available-for-sale marketable securities by contractual maturities as of March 31, 2015 and December 31, 2014 (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Due in one year |
|
$ |
44,855 |
|
|
$ |
42,204 |
|
Due in one to five years |
|
|
7,501 |
|
|
|
9,205 |
|
Total |
|
$ |
52,356 |
|
|
$ |
51,409 |
|
|
Property and equipment, net consists of the following (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Capitalized internal-use software |
|
$ |
23,305 |
|
|
$ |
18,541 |
|
Furniture and fixtures |
|
|
4,619 |
|
|
|
4,524 |
|
Hosting equipment |
|
|
16,642 |
|
|
|
14,085 |
|
Computer equipment and software |
|
|
4,335 |
|
|
|
4,310 |
|
Leasehold improvements |
|
|
15,439 |
|
|
|
15,144 |
|
Construction in progress |
|
|
757 |
|
|
|
3,546 |
|
Total |
|
|
65,097 |
|
|
|
60,150 |
|
Less: accumulated depreciation and amortization |
|
|
(21,746 |
) |
|
|
(18,255 |
) |
Property and equipment, net |
|
$ |
43,351 |
|
|
$ |
41,895 |
|
|
The changes in the carrying amount of goodwill for the three months ended March 31, 2015 are as follows (in thousands):
Balance as of December 31, 2014 |
|
$ |
9,240 |
|
Foreign currency translation adjustments |
|
|
(306 |
) |
Balance as of March 31, 2015 |
|
$ |
8,934 |
|
Purchased intangible assets subject to amortization as of March 31, 2015 and December 31, 2014 consist of the following (in thousands).
|
|
March 31, 2015 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(1,526 |
) |
|
$ |
(253 |
) |
|
$ |
3,421 |
|
|
|
2.5 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(334 |
) |
|
|
(66 |
) |
|
|
900 |
|
|
|
3.0 |
|
Trade name |
|
|
60 |
|
|
|
(60 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
6,560 |
|
|
$ |
(1,920 |
) |
|
$ |
(319 |
) |
|
$ |
4,321 |
|
|
|
|
|
|
|
December 31, 2014 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(1,118 |
) |
|
$ |
(191 |
) |
|
$ |
3,891 |
|
|
|
2.7 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(244 |
) |
|
|
(48 |
) |
|
|
1,008 |
|
|
|
3.2 |
|
Trade name |
|
|
60 |
|
|
|
(45 |
) |
|
|
(2 |
) |
|
|
13 |
|
|
|
0.2 |
|
|
|
$ |
6,560 |
|
|
$ |
(1,407 |
) |
|
$ |
(241 |
) |
|
$ |
4,912 |
|
|
|
|
|
Estimated future amortization expense as of March 31, 2015 is as follows (in thousands):
Remainder of 2015 |
|
$ |
1,271 |
|
2016 |
|
|
1,686 |
|
2017 |
|
|
1,298 |
|
2018 |
|
|
66 |
|
|
|
$ |
4,321 |
|
|
Contractual future principal repayments in relation to the credit facility are as follows for the year ending December 31 (in thousands):
Remainder of 2015 |
|
$ |
2,288 |
|
2016 |
|
|
3,118 |
|
2017 |
|
|
793 |
|
|
|
$ |
6,199 |
|
|
The following table summarizes our stock option and RSU award activities for the three months ended March 31, 2015 (in thousands, except per share information):
|
|
|
|
|
|
Options Outstanding |
|
|
RSUs Outstanding |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
||
|
|
Shares |
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
Average |
|
|||||
|
|
Available |
|
|
Number of |
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|
Outstanding |
|
|
Grant Date |
|
|||||||
|
|
for Grant |
|
|
Shares |
|
|
Exercise Price |
|
|
Term |
|
|
Value |
|
|
RSUs |
|
|
Fair Value |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — January 1, 2015 |
|
|
7,560 |
|
|
|
12,043 |
|
|
$ |
7.39 |
|
|
|
8.29 |
|
|
$ |
204,467 |
|
|
|
3,064 |
|
|
$ |
13.69 |
|
Increase in authorized shares |
|
|
3,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted |
|
|
(1,494 |
) |
|
|
1,494 |
|
|
|
24.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
|
(1,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,854 |
|
|
|
24.77 |
|
Stock options exercised |
|
|
|
|
|
|
(982 |
) |
|
|
2.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519 |
) |
|
|
12.63 |
|
Unvested shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or canceled |
|
|
39 |
|
|
|
(39 |
) |
|
|
4.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80 |
) |
|
|
15.18 |
|
Outstanding —March 31, 2015 |
|
|
8,110 |
|
|
|
12,516 |
|
|
$ |
9.80 |
|
|
|
8.35 |
|
|
$ |
161,387 |
|
|
|
4,319 |
|
|
$ |
18.55 |
|
|
The following table presents our revenue by geographic areas, as determined based on the billing address of our customers (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
United States |
|
$ |
22,852 |
|
|
$ |
14,885 |
|
EMEA |
|
|
12,576 |
|
|
|
6,620 |
|
Other |
|
|
6,806 |
|
|
|
3,587 |
|
Total |
|
$ |
42,234 |
|
|
$ |
25,092 |
|
The following table presents our long-lived assets by geographic areas (in thousands):
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
United States |
|
$ |
24,236 |
|
|
$ |
22,817 |
|
EMEA |
|
|
4,075 |
|
|
|
4,373 |
|
Other |
|
|
1,053 |
|
|
|
1,095 |
|
Total |
|
$ |
29,364 |
|
|
$ |
28,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|