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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
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.
Immaterial Error Correction
We corrected an immaterial prior period error on the statement of operations for the nine months ended September 30, 2014 related to the calculation of weighted average shares used to compute net loss per share attributable to common stockholders. As a result of this error, basic and diluted net loss per share attributable to common stockholders decreased by $0.01 for the nine months ended September 30, 2014. The adjustment did not affect any other financial statements presented.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
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
As of September 30, 2015, one customer represented 10% of our total accounts receivable balance. As of December 31, 2014, no customers represented more than 10% of our accounts receivable balance. There were no customers that individually exceeded 10% of our revenue during the three and nine months ended September 30, 2015 or 2014.
Recently Issued and Adopted Accounting Pronouncements
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments”, which requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new standard is required to be applied prospectively. We plan to adopt this guidance in the first quarter of 2016. The adoption of this new standard is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606 “Revenue from Contracts with Customers.” This standard provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. Early adoption is permitted. The amendment may be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial adoption. 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. These hold back amounts were released in equal installments in March and September 2015. 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 income tax purposes.
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.
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Note 3. Financial Instruments
Investments
The following tables present information about our financial assets measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 based on the three-tier fair value hierarchy (in thousands):
|
|
Fair Value Measurement at |
|
|||||||||
|
|
September 30, 2015 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
35,736 |
|
|
$ |
35,736 |
|
Money market funds |
|
|
25,368 |
|
|
|
— |
|
|
|
25,368 |
|
Asset-backed securities |
|
|
— |
|
|
|
6,030 |
|
|
|
6,030 |
|
Commercial paper |
|
|
— |
|
|
|
3,991 |
|
|
|
3,991 |
|
Agency securities |
|
|
— |
|
|
|
2,003 |
|
|
|
2,003 |
|
Total |
|
$ |
25,368 |
|
|
$ |
47,760 |
|
|
$ |
73,128 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
25,368 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
47,760 |
|
|
|
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 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,991 |
|
|
|
1,991 |
|
Commercial paper |
|
|
— |
|
|
|
3,993 |
|
|
|
3,993 |
|
Total |
|
$ |
21,382 |
|
|
$ |
51,409 |
|
|
$ |
72,791 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
21,382 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
51,409 |
|
As of September 30, 2015 and December 31, 2014, there were no securities within Level 3 of the fair value hierarchy. Gross unrealized gains or losses for cash equivalents and available-for-sale marketable securities as of September 30, 2015 and December 31, 2014 were not material. As of September 30, 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 September 30, 2015 and December 31, 2014 (in thousands):
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Due in one year or less |
|
$ |
25,247 |
|
|
$ |
42,204 |
|
Due after one year |
|
|
22,513 |
|
|
|
9,205 |
|
Total |
|
$ |
47,760 |
|
|
$ |
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 within Level 2 of the fair value hierarchy.
There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2015.
Derivative Instruments and Hedging
Our foreign currency exposures typically arise from foreign operations and, to a lesser extent, sales in foreign currencies for subscriptions to our customer service platform. In September 2015, we implemented a hedging program to mitigate the impact of foreign currency fluctuations on our future cash flows and earnings. We entered into foreign currency forward contracts with certain financial institutions and designated those hedges as cash flow hedges. Our foreign currency forward contracts generally have maturities of fifteen months or less.
These derivative instruments expose us to credit risk to the extent that our counterparties are unable to meet the terms of the arrangement. We seek to mitigate this risk by transacting with major financial institutions with high credit ratings. In addition, we have a master netting agreement with each of our counterparties, which permits net settlement of multiple, separate derivative contracts with a single payment. We may also be required to exchange cash collateral with certain of our counterparties on a regular basis. ASC 815 permits companies to present the fair value of derivative instruments on a net basis according to master netting arrangements. We have elected to present our derivative instruments on a gross basis in our consolidated financial statements.
Cash Flow Hedges
Our foreign currency forward contracts are designated as cash flow hedges of foreign currency forecasted revenues and expenses. We recognize all derivative instruments on our balance sheet at fair value as either assets or liabilities. The effective portion of the gain or loss on each forward contract is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings to either revenue or operating expense in the same period, or periods, during which the hedged transaction affects earnings. The ineffective portion of the gains or losses, if any, is recorded immediately in other income (expense), net. The change in time value related to our cash flow hedges is excluded from the assessment of hedge effectiveness and is recorded immediately in other income (expense), net. We evaluate the effectiveness of our cash flow hedges on a quarterly basis.
As of September 30, 2015, $0.1 million of unrealized losses related to the effective portion of changes in the fair value of foreign currency forward contracts designated as cash flow hedges were included in the balance of other accumulated comprehensive loss. We expect to reclassify $0.1 million from accumulated other comprehensive loss into earnings over the next twelve months associated with our cash flow hedges.
The following table presents information about our derivative instruments on the consolidated balance sheet as of September 30, 2015 (in thousands):
|
September 30, 2015 |
|
|||||||||
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
Derivative Instrument |
Balance Sheet Location |
|
Fair Value (Level 2) |
|
|
Balance Sheet Location |
|
Fair Value (Level 2) |
|
||
Foreign currency forward contracts |
Other current assets |
|
|
69 |
|
|
Accrued liabilities |
|
|
163 |
|
Foreign currency forward contracts |
Other assets |
|
|
10 |
|
|
Other liabilities |
|
|
25 |
|
Total |
|
|
$ |
79 |
|
|
|
|
$ |
188 |
|
Our foreign currency contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. Our foreign currency forward contracts had a total notional value of $47.6 million as of September 30, 2015. There were no derivative assets or liabilities on our consolidated balance sheet as of December 31, 2014.
The following table presents information about our derivative instruments on the statement of operations for the three and nine months ended September 30, 2015 (in thousands):
|
|
|
Three Months Ended September 30, 2015 |
|
|
Nine Months Ended September 30, 2015 |
|
||||||||||
Hedging Instrument |
Location of Gain (Loss) Reclassified into Earnings |
|
Gain (Loss) Recognized in AOCI |
|
|
Gain (Loss) Reclassified from AOCI into Earnings |
|
|
Gain (Loss) Recognized in AOCI |
|
|
Gain (Loss) Reclassified from AOCI into Earnings |
|
||||
Foreign currency forward contracts |
Revenue, cost of revenue, operating expenses |
|
|
(101 |
) |
|
|
— |
|
|
|
(101 |
) |
|
|
— |
|
Total |
|
|
$ |
(101 |
) |
|
$ |
— |
|
|
$ |
(101 |
) |
|
$ |
— |
|
There were no gains or losses on derivative instruments for the three and nine months ended September 30, 2014.
All derivatives have been designated as hedging instruments. Amounts recognized in earnings related to excluded time value and hedge ineffectiveness were not material for the three and nine months ended September 30, 2015.
|
Note 4. Property and Equipment
Property and equipment, net consists of the following (in thousands):
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Capitalized internal-use software |
|
$ |
25,613 |
|
|
$ |
18,541 |
|
Hosting equipment |
|
|
24,740 |
|
|
|
14,085 |
|
Leasehold improvements |
|
|
16,651 |
|
|
|
15,144 |
|
Computer equipment and software |
|
|
5,949 |
|
|
|
4,310 |
|
Furniture and fixtures |
|
|
5,092 |
|
|
|
4,524 |
|
Construction in progress |
|
|
4,575 |
|
|
|
3,546 |
|
Total |
|
|
82,620 |
|
|
|
60,150 |
|
Less: accumulated depreciation and amortization |
|
|
(29,873 |
) |
|
|
(18,255 |
) |
Property and equipment, net |
|
$ |
52,747 |
|
|
$ |
41,895 |
|
Depreciation expense was $2.8 million and $1.7 million for the three months ended September 30, 2015 and 2014, respectively, and $7.7 million and $4.0 million for the nine months ended September 30, 2015 and 2014, respectively.
Amortization expense of capitalized internal-use software totaled $1.6 million and $0.9 million for the three months ended September 30, 2015 and 2014, respectively, and $4.6 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively. The carrying value of capitalized internal-use software at September 30, 2015 and December 31, 2014 was $14.2 million and $13.6 million, respectively, including $1.7 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 nine months ended September 30, 2015 are as follows (in thousands):
Balance as of December 31, 2014 |
|
$ |
9,240 |
|
Foreign currency translation adjustments |
|
|
(670 |
) |
Balance as of September 30, 2015 |
|
$ |
8,570 |
|
Purchased intangible assets subject to amortization as of September 30, 2015 and December 31, 2014 consist of the following (in thousands).
|
|
September 30, 2015 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(2,271 |
) |
|
$ |
(326 |
) |
|
$ |
2,603 |
|
|
|
2.0 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(497 |
) |
|
|
(88 |
) |
|
|
715 |
|
|
|
2.5 |
|
Trade name |
|
|
60 |
|
|
|
(60 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
6,560 |
|
|
$ |
(2,828 |
) |
|
$ |
(414 |
) |
|
$ |
3,318 |
|
|
|
|
|
|
|
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 September 30, 2015 and 2014 was $0.4 million and $0.5 million, respectively, and $1.4 million and $1.0 million for the nine months ended September 30, 2015 and 2014, respectively.
Estimated future amortization expense as of September 30, 2015 is as follows (in thousands):
Remainder of 2015 |
|
$ |
406 |
|
2016 |
|
|
1,610 |
|
2017 |
|
|
1,239 |
|
2018 |
|
|
63 |
|
|
|
$ |
3,318 |
|
|
Note 6. Credit Facility
Until its termination in June 2015, we had 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. The revolving line of credit bore interest at the prime rate plus 2.0% per annum prior to our IPO and was reduced to the prime rate upon the consummation of our IPO. Borrowings on the equipment line of credit bore interest of 2.5% per annum. In June 2014, we repaid all outstanding principal and accrued interest under the revolving line of credit. In June 2015, we repaid all outstanding principal and interest under the equipment line of credit and terminated the Silicon Valley Bank credit facility.
|
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 $2.0 million and $1.7 million for the three months ended September 30, 2015 and 2014, respectively, and $5.4 million and $5.2 million for the nine months ended September 30, 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 customers, 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, analytics 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.
Certain of our product offerings contain service-level agreements 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
Upon the completion of our IPO, we increased the number of shares authorized for issuance from 125 million to 400 million with a par value of $0.01 per share. As of September 30, 2015 and December 31, 2014, there were 89.1 million and 76.1 million shares of common stock issued and 88.5 million and 75.5 million shares outstanding, respectively. Included within the number of shares issued and outstanding were 0.3 million and 0.6 million shares of common stock subject to repurchase, as of September 30, 2015 and December 31, 2014, respectively.
Preferred Stock
As of September 30, 2015 and December 31, 2014, 10 million shares of preferred stock were authorized for issuance with a par value of $0.01 per share and no shares of preferred stock were issued or outstanding.
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. No shares of common stock were purchased under the ESPP during the three months ended September 30, 2015. For the nine months ended September 30, 2015, 0.6 million 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 September 30, 2015, 3.4 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 September 30, 2015, we had 6.0 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 nine months ended September 30, 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 |
|
|
(2,009 |
) |
|
|
2,009 |
|
|
|
24.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
|
(3,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,775 |
|
|
|
22.83 |
|
Stock options exercised |
|
|
|
|
|
|
(2,308 |
) |
|
|
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,290 |
) |
|
|
16.20 |
|
Unvested shares repurchased |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or canceled |
|
|
67 |
|
|
|
(67 |
) |
|
|
4.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332 |
) |
|
|
18.75 |
|
Outstanding — September 30, 2015 |
|
|
5,956 |
|
|
|
11,677 |
|
|
$ |
11.28 |
|
|
$ |
8.12 |
|
|
$ |
98,481 |
|
|
|
5,217 |
|
|
$ |
19.36 |
|
Aggregate intrinsic value represents the difference between our closing stock price of its common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of September 30, 2015 was $19.71.
As of September 30, 2015, we had a total of $145.8 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 3.1 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 September 30, 2015 and December 31, 2014, there were 0.3 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 $1.3 million and $2.1 million, respectively.
|
Note 10. Income Taxes
The effective tax rates for the three and nine months ended September 30, 2015 and 2014 were less than 2%. 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 during the three and nine months ended September 30, 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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
United States |
|
$ |
31,388 |
|
|
$ |
19,031 |
|
|
$ |
81,094 |
|
|
$ |
50,774 |
|
EMEA |
|
|
15,397 |
|
|
|
9,704 |
|
|
|
41,434 |
|
|
|
24,565 |
|
Other |
|
|
8,876 |
|
|
|
5,175 |
|
|
|
23,594 |
|
|
|
13,169 |
|
Total |
|
$ |
55,661 |
|
|
$ |
33,910 |
|
|
$ |
146,122 |
|
|
$ |
88,508 |
|
Long-Lived Assets
The following table presents our long-lived assets by geographic areas (in thousands):
|
|
As of |
|
|
As of |
|
||
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
United States |
|
$ |
25,223 |
|
|
$ |
22,817 |
|
EMEA |
|
|
10,304 |
|
|
|
4,373 |
|
Other |
|
|
3,031 |
|
|
|
1,095 |
|
Total |
|
$ |
38,558 |
|
|
$ |
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.
|
Note 12. Subsequent Event
On October 13, 2015, we completed the acquisition of We Are Cloud SAS, or WAC, the maker of BIME Analytics software. We acquired 100 percent of the outstanding shares of WAC in exchange for purchase consideration of $45.0 million in cash, subject to working capital adjustments. As partial security for standard indemnification obligations, $7.0 million of the consideration will be held in escrow for a period of up to 18 months, with a portion to be released 12 months following the closing of the acquisition. We have also entered into retention arrangements pursuant to which we have issued restricted stock unit awards for an aggregate of approximately 0.5 million shares of our common stock, subject to vesting based on continued employment. The acquisition will be accounted for as a business combination. We are in the process of evaluating the impact of the business combination on our consolidated financial statements.
|
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
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.
Immaterial Error Correction
We corrected an immaterial prior period error on the statement of operations for the nine months ended September 30, 2014 related to the calculation of weighted average shares used to compute net loss per share attributable to common stockholders. As a result of this error, basic and diluted net loss per share attributable to common stockholders decreased by $0.01 for the nine months ended September 30, 2014. The adjustment did not affect any other financial statements presented.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
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
As of September 30, 2015, one customer represented 10% of our total accounts receivable balance. As of December 31, 2014, no customers represented more than 10% of our accounts receivable balance. There were no customers that individually exceeded 10% of our revenue during the three and nine months ended September 30, 2015 or 2014.
Recently Issued and Adopted Accounting Pronouncements
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments”, which requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new standard is required to be applied prospectively. We plan to adopt this guidance in the first quarter of 2016. The adoption of this new standard is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606 “Revenue from Contracts with Customers.” This standard provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. Early adoption is permitted. The amendment may be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial adoption. 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 September 30, 2015 and December 31, 2014 based on the three-tier fair value hierarchy (in thousands):
|
|
Fair Value Measurement at |
|
|||||||||
|
|
September 30, 2015 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
$ |
— |
|
|
$ |
35,736 |
|
|
$ |
35,736 |
|
Money market funds |
|
|
25,368 |
|
|
|
— |
|
|
|
25,368 |
|
Asset-backed securities |
|
|
— |
|
|
|
6,030 |
|
|
|
6,030 |
|
Commercial paper |
|
|
— |
|
|
|
3,991 |
|
|
|
3,991 |
|
Agency securities |
|
|
— |
|
|
|
2,003 |
|
|
|
2,003 |
|
Total |
|
$ |
25,368 |
|
|
$ |
47,760 |
|
|
$ |
73,128 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
$ |
25,368 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
|
$ |
47,760 |
|
|
|
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 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,991 |
|
|
|
1,991 |
|
Commercial paper |
|
|
— |
|
|
|
3,993 |
|
|
|
3,993 |
|
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 September 30, 2015 and December 31, 2014 (in thousands):
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Due in one year or less |
|
$ |
25,247 |
|
|
$ |
42,204 |
|
Due after one year |
|
|
22,513 |
|
|
|
9,205 |
|
Total |
|
$ |
47,760 |
|
|
$ |
51,409 |
|
The following table presents information about our derivative instruments on the consolidated balance sheet as of September 30, 2015 (in thousands):
|
September 30, 2015 |
|
|||||||||
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||
Derivative Instrument |
Balance Sheet Location |
|
Fair Value (Level 2) |
|
|
Balance Sheet Location |
|
Fair Value (Level 2) |
|
||
Foreign currency forward contracts |
Other current assets |
|
|
69 |
|
|
Accrued liabilities |
|
|
163 |
|
Foreign currency forward contracts |
Other assets |
|
|
10 |
|
|
Other liabilities |
|
|
25 |
|
Total |
|
|
$ |
79 |
|
|
|
|
$ |
188 |
|
The following table presents information about our derivative instruments on the statement of operations for the three and nine months ended September 30, 2015 (in thousands):
|
|
|
Three Months Ended September 30, 2015 |
|
|
Nine Months Ended September 30, 2015 |
|
||||||||||
Hedging Instrument |
Location of Gain (Loss) Reclassified into Earnings |
|
Gain (Loss) Recognized in AOCI |
|
|
Gain (Loss) Reclassified from AOCI into Earnings |
|
|
Gain (Loss) Recognized in AOCI |
|
|
Gain (Loss) Reclassified from AOCI into Earnings |
|
||||
Foreign currency forward contracts |
Revenue, cost of revenue, operating expenses |
|
|
(101 |
) |
|
|
— |
|
|
|
(101 |
) |
|
|
— |
|
Total |
|
|
$ |
(101 |
) |
|
$ |
— |
|
|
$ |
(101 |
) |
|
$ |
— |
|
|
Property and equipment, net consists of the following (in thousands):
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Capitalized internal-use software |
|
$ |
25,613 |
|
|
$ |
18,541 |
|
Hosting equipment |
|
|
24,740 |
|
|
|
14,085 |
|
Leasehold improvements |
|
|
16,651 |
|
|
|
15,144 |
|
Computer equipment and software |
|
|
5,949 |
|
|
|
4,310 |
|
Furniture and fixtures |
|
|
5,092 |
|
|
|
4,524 |
|
Construction in progress |
|
|
4,575 |
|
|
|
3,546 |
|
Total |
|
|
82,620 |
|
|
|
60,150 |
|
Less: accumulated depreciation and amortization |
|
|
(29,873 |
) |
|
|
(18,255 |
) |
Property and equipment, net |
|
$ |
52,747 |
|
|
$ |
41,895 |
|
|
The changes in the carrying amount of goodwill for the nine months ended September 30, 2015 are as follows (in thousands):
Balance as of December 31, 2014 |
|
$ |
9,240 |
|
Foreign currency translation adjustments |
|
|
(670 |
) |
Balance as of September 30, 2015 |
|
$ |
8,570 |
|
Purchased intangible assets subject to amortization as of September 30, 2015 and December 31, 2014 consist of the following (in thousands).
|
|
September 30, 2015 |
|
|||||||||||||||||
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Foreign Currency Translation Adjustment |
|
|
Net |
|
|
Remaining Useful Life |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
|
$ |
5,200 |
|
|
$ |
(2,271 |
) |
|
$ |
(326 |
) |
|
$ |
2,603 |
|
|
|
2.0 |
|
Customer relationships |
|
|
1,300 |
|
|
|
(497 |
) |
|
|
(88 |
) |
|
|
715 |
|
|
|
2.5 |
|
Trade name |
|
|
60 |
|
|
|
(60 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
6,560 |
|
|
$ |
(2,828 |
) |
|
$ |
(414 |
) |
|
$ |
3,318 |
|
|
|
|
|
|
|
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 September 30, 2015 is as follows (in thousands):
Remainder of 2015 |
|
$ |
406 |
|
2016 |
|
|
1,610 |
|
2017 |
|
|
1,239 |
|
2018 |
|
|
63 |
|
|
|
$ |
3,318 |
|
|
The following table summarizes our stock option and RSU award activities for the nine months ended September 30, 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 |
|
|
(2,009 |
) |
|
|
2,009 |
|
|
|
24.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
|
(3,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,775 |
|
|
|
22.83 |
|
Stock options exercised |
|
|
|
|
|
|
(2,308 |
) |
|
|
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,290 |
) |
|
|
16.20 |
|
Unvested shares repurchased |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or canceled |
|
|
67 |
|
|
|
(67 |
) |
|
|
4.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332 |
) |
|
|
18.75 |
|
Outstanding — September 30, 2015 |
|
|
5,956 |
|
|
|
11,677 |
|
|
$ |
11.28 |
|
|
$ |
8.12 |
|
|
$ |
98,481 |
|
|
|
5,217 |
|
|
$ |
19.36 |
|
|
The following table presents our revenue by geographic areas, as determined based on the billing address of our customers (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
United States |
|
$ |
31,388 |
|
|
$ |
19,031 |
|
|
$ |
81,094 |
|
|
$ |
50,774 |
|
EMEA |
|
|
15,397 |
|
|
|
9,704 |
|
|
|
41,434 |
|
|
|
24,565 |
|
Other |
|
|
8,876 |
|
|
|
5,175 |
|
|
|
23,594 |
|
|
|
13,169 |
|
Total |
|
$ |
55,661 |
|
|
$ |
33,910 |
|
|
$ |
146,122 |
|
|
$ |
88,508 |
|
The following table presents our long-lived assets by geographic areas (in thousands):
|
|
As of |
|
|
As of |
|
||
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
United States |
|
$ |
25,223 |
|
|
$ |
22,817 |
|
EMEA |
|
|
10,304 |
|
|
|
4,373 |
|
Other |
|
|
3,031 |
|
|
|
1,095 |
|
Total |
|
$ |
38,558 |
|
|
$ |
28,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|