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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 build successful long-term relationships with their customers. We are a software development company that provides a software-as-a-service, or SaaS, customer service platform that enables our customers to provide tailored support through multiple channels, establish effective self-service support resources, proactively serve customers through customer engagement capabilities, integrate with other applications and consolidate and analyze data from customer interactions in powerful ways. We also provide SaaS live chat software that can be utilized independently to facilitate proactive communications between organizations and their customers or integrated seamlessly into our customer service platform.
References to Zendesk, “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 consolidated financial statements and notes included in our final prospectus filed with the SEC on May 16, 2014 pursuant to Rule 424(b) of the Securities Act of 1933, as amended. There have been no changes to our significant accounting policies described in the prospectus that have had a material impact on our condensed consolidated financial statements and related notes.
The consolidated balance sheet as of December 31, 2013 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, 2014.
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.
All restricted stock units, or 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 the Performance Awards is satisfied over three or four years. The performance condition was satisfied upon the effectiveness of the registration statement related to our IPO. No share-based compensation expense had been recognized for the Performance Awards prior to the IPO. 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. For the three and nine months ended September 30, 2014, share-based compensation expense related to the Performance Awards recognized was $2.9 million and $9.0 million, respectively, using the accelerated attribution method. The remaining unrecognized share-based compensation expense related to the Performance Awards will be recorded over the remaining requisite service period using the accelerated attribution method, net of estimated forfeitures.
As of September 30, 2014, we had a total of $74.5 million future period share-based compensation expense related to all equity awards, net of estimated forfeitures, to be recognized over a weighted average period of 3.6 years.
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 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 September 30, 2014, there was one customer represented 17% of our total accounts receivable balance. At December 31, 2013, there were no customers that 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, 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 will be effective for 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. The fair value of assets acquired and liabilities assumed was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas of those preliminary estimates that are not yet finalized relate to accrued liabilities and income and non-income based tax liabilities. During the nine months ended September 30, 2014, we made adjustments of $0.2 million to the preliminary purchase price allocation related to final working capital acquired. No adjustments were made to the preliminary purchase price during the three months ended September 30, 2014. 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 held back between 12 and 18 months as partial security for standard indemnification obligations. Of the total purchase price, $9.6 million was allocated to goodwill, $6.6 million to identifiable intangible assets, and $0.4 million to net liabilities assumed. 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. 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.
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, and 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.
|
Note 3. Fair Value Measurements
The following tables present information about our financial assets measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 based on the three-tier fair value hierarchy (in thousands):
|
Fair Value Measurement at |
|
|||||||||
|
September 30, 2014 |
|
|||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
$ |
— |
|
|
|
41,140 |
|
|
$ |
41,140 |
|
Money market funds |
|
24,820 |
|
|
|
— |
|
|
|
24,820 |
|
U.S. treasury securities |
|
— |
|
|
|
2,998 |
|
|
|
2,998 |
|
Asset-backed securities |
|
— |
|
|
|
2,026 |
|
|
|
2,026 |
|
U.S. agency obligations |
|
— |
|
|
|
1,002 |
|
|
|
1,002 |
|
Commercial paper |
|
— |
|
|
|
699 |
|
|
|
699 |
|
Total |
$ |
24,820 |
|
|
$ |
47,865 |
|
|
$ |
72,685 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
$ |
24,820 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
$ |
47,865 |
|
|
Fair Value Measurement at |
|
|||||||||
|
December 31, 2013 |
|
|||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
$ |
— |
|
|
$ |
12,114 |
|
|
$ |
12,114 |
|
Money market funds |
|
10,836 |
|
|
|
— |
|
|
|
10,836 |
|
Total |
$ |
10,836 |
|
|
$ |
12,114 |
|
|
$ |
22,950 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
$ |
10,836 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
$ |
12,114 |
|
Gross unrealized gains or losses for cash equivalents and available-for-sale marketable securities as of September 30, 2014 and December 31, 2013 were not material. As of September 30, 2014 and December 31, 2013, 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, 2014 and December 31, 2013 (in thousands):
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
Due in one year |
$ |
29,858 |
|
|
$ |
9,889 |
|
Due in one to five years |
|
18,007 |
|
|
|
2,225 |
|
Total |
$ |
47,865 |
|
|
$ |
12,114 |
|
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 and nine months ended September 30, 2014.
|
Note 4. Property and Equipment
Property and equipment, net consists of the following (in thousands):
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
Capitalized internal-use software |
$ |
14,453 |
|
|
$ |
11,104 |
|
Furniture and fixtures |
|
4,440 |
|
|
|
1,383 |
|
Hosting equipment |
|
12,423 |
|
|
|
7,931 |
|
Computer equipment and software |
|
3,898 |
|
|
|
1,680 |
|
Leasehold improvements |
|
14,871 |
|
|
|
1,717 |
|
Construction in progress |
|
6,198 |
|
|
|
341 |
|
Total |
|
56,283 |
|
|
|
24,156 |
|
Less accumulated depreciation and amortization |
|
(15,419 |
) |
|
|
(8,725 |
) |
Property and equipment, net |
$ |
40,864 |
|
|
$ |
15,431 |
|
Depreciation expense was $1.7 million and $0.8 million for the three months ended September 30, 2014 and 2013, respectively, and $4.0 million and $1.9 million for the nine months ended September 30, 2014 and 2013, respectively.
We capitalized $3.1 million and $1.3 million in internal-use software during the three months ended September 30, 2014 and 2013, respectively, and $8.1 million and $3.7 million during the nine months ended September 30, 2014 and 2013, respectively. Included in the capitalized development costs are $0.8 million and $33,000 in share-based compensation costs for the three months ended September 30, 2014 and 2013, respectively, and $1.9 and $0.1 million for the nine months ended September 30, 2014 and 2013, respectively. Amortization expense of capitalized internal-use software totaled $0.9 million and $0.6 million for the three months ended September 30, 2014 and 2013, respectively, and $2.6 million and $1.6 million for the nine months ended September 30, 2014 and 2013, respectively. The net carrying value of capitalized internal-use software at September 30, 2014 and December 31, 2013 was $12.3 million and $6.8 million, respectively, including $5.1 million and $0.3 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, 2014 are as follows (in thousands):
Balance as of December 31, 2013 |
$ |
— |
|
Goodwill acquired |
|
9,373 |
|
Goodwill adjustments |
|
216 |
|
Balance as of September 30, 2014 |
$ |
9,589 |
|
Purchased intangible assets subject to amortization as of September 30, 2014 consist of the following (in thousands). No purchased intangible assets were recorded as of December 31, 2013.
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Remaining Useful Life |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
$ |
5,200 |
|
|
$ |
(787 |
) |
|
$ |
4,413 |
|
|
|
3.0 |
|
Customer relationships |
|
1,300 |
|
|
|
(172 |
) |
|
|
1,128 |
|
|
|
3.5 |
|
Trade name |
|
60 |
|
|
|
(32 |
) |
|
|
28 |
|
|
|
0.5 |
|
|
$ |
6,560 |
|
|
$ |
(991 |
) |
|
$ |
5,569 |
|
|
|
|
|
Amortization expense of purchased intangible assets for the three and nine months ended September 30, 2014 was $0.5 million and $1.0 million, respectively. No amortization expense was recorded for the three and nine months ended September 30, 2013.
Estimated future amortization expense as of September 30, 2014 is as follows (in thousands):
Remainder of 2014 |
$ |
471 |
|
2015 |
|
1,823 |
|
2016 |
|
1,810 |
|
2017 |
|
1,393 |
|
2018 |
|
72 |
|
2019 and thereafter |
|
— |
|
|
$ |
5,569 |
|
|
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. As of December 31, 2013, outstanding balance under the revolving line of credit was $20.0 million. In June 2014 we repaid all outstanding principal and accrued interest under the revolving line of credit and as of September 30, 2014 there was no balance outstanding. As of September 30, 2014 and December 31, 2013, outstanding balance under the equipment line of credit was $7.7 million and $3.8 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 the IPO, the interest rate was reduced to the Prime Rate of 3.25% as of September 30, 2014. 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 were entitled to make interest-only payments until September 14, 2014, when the last draw against the equipment line of credit could be made. The outstanding balance as of September 14, 2014 is 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 September 30, 2014 and December 31, 2013, 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):
2014 (remaining 3 months) |
$ |
749 |
|
2015 |
|
3,041 |
|
2016 |
|
3,118 |
|
2017 |
|
792 |
|
2018 and thereafter |
|
— |
|
|
$ |
7,700 |
|
|
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 $1.7 million and $0.6 million for the three months ended September 30, 2014 and 2013, respectively, and $5.2 million and $1.5 million for the nine months ended September 30, 2014 and 2013, respectively. Deferred rent of $7.4 million and $1.0 million as of September 30, 2014 and December 31, 2013, respectively, is included in other liabilities.
We lease computer equipment from various parties under capital lease agreements that expire through March 2015. The total outstanding balance financed under capital leases was $0.1 million and $0.4 million as of September 30, 2014 and December 31, 2013, respectively. Accumulated depreciation on the leased assets was $0.9 million and $0.7 million as of September 30, 2014 and December 31, 2013, respectively. Depreciation of assets recorded under the capital leases is included in depreciation expense.
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.
|
Note 8. Common Stock and Stockholders’ Equity (Deficit)
Convertible Preferred Stock
Upon the completion of the IPO, all outstanding convertible preferred stock was converted into 34.3 million shares of common stock.
Reverse Stock Split
In April 2014, our board of directors and stockholders approved an amendment of our sixth amended and restated certificate of incorporation, as amended to effect a one-for-two reverse stock split of our common stock and a corresponding adjustment to the conversion prices of our redeemable convertible preferred stock. All share and per share information and the conversion prices of each outstanding series of our redeemable convertible preferred stock referenced throughout the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect this stock split.
Common Stock Authorized
Upon the completion of the 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. The ESPP initially reserved and authorized the issuance of up to 3.6 million shares of common stock. The ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each January, beginning on January 1, 2015, by the lesser of 1.5 million shares, 1% of the number of shares issued and outstanding on the immediately preceding December 31, or such lesser number of shares as determined by our compensation committee.
2009 Stock Option and Grant Plan
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.
2014 Stock Option and Grant Plan
Our board of directors adopted the 2014 Stock Option and Incentive Plan, or the 2014 Plan, in February 2014, which became effective in May 2014 upon the effectiveness of the registration statement related to our IPO. The 2014 Plan serves as the successor to our 2009 Plan. The 2014 Plan initially reserved and authorized the issuance of 7.5 million shares of our common stock. Additionally, shares not issued or subject to outstanding grants under the 2009 Plan rolled into the 2014 Plan, resulting in a total of 8.3 million available shares under the 2014 Plan as of the effective date. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2015, by 5% of the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by our compensation committee.
The following table summarizes our stock option and RSU award activities for the nine months ended September 30, 2014 (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, 2014 |
|
1,854 |
|
|
|
10,134 |
|
|
$ |
2.82 |
|
|
|
|
|
|
|
|
|
|
|
811 |
|
|
$ |
6.76 |
|
Increase in authorized shares |
|
13,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted |
|
(6,008 |
) |
|
|
6,008 |
|
|
|
10.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
(2,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,643 |
|
|
|
13.24 |
|
Stock options exercised |
|
— |
|
|
|
(1,264 |
) |
|
|
2.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234 |
) |
|
|
8.64 |
|
Stock options forfeited or canceled |
|
664 |
|
|
|
(664 |
) |
|
|
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276 |
) |
|
|
8.37 |
|
Outstanding —September 30, 2014 |
|
7,893 |
|
|
|
14,214 |
|
|
$ |
6.24 |
|
|
|
8.30 |
|
|
$ |
218,185 |
|
|
|
2,944 |
|
|
$ |
12.29 |
|
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 September 30, 2014 was $21.59.
During the three and nine months ended September 30, 2014 we recorded $2.8 million and $4.3 million share-based compensation expense, respectively, related to the accelerated vesting of certain stock options and RSUs.
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, 2014 and December 31, 2013, there were 0.7 million and 0.8 million shares, respectively, outstanding as a result of the early exercise of stock options and purchase of unvested stock awards that were classified as accrued liabilities for an aggregated amount of $2.4 million and $1.4 million, respectively. There were no repurchases during the three and nine months ended September 30, 2014.
|
Note 10. Income Taxes
The effective tax rates for the three and nine months ended September 30, 2014 and 2013 were one percent. 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. The tax benefit recorded for the three and nine months ended September 30, 2014 is primarily due to recognizing deferred tax assets in foreign jurisdictions for losses and research credits. There were no material changes to the unrecognized tax benefits in the three and nine months ended September 30, 2014 and 2013.
|
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, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
United States |
$ |
19,031 |
|
|
$ |
11,432 |
|
|
$ |
50,774 |
|
|
$ |
29,000 |
|
EMEA |
|
9,704 |
|
|
|
4,993 |
|
|
|
24,565 |
|
|
|
13,236 |
|
Other |
|
5,175 |
|
|
|
2,812 |
|
|
|
13,169 |
|
|
|
7,308 |
|
Total |
$ |
33,910 |
|
|
$ |
19,237 |
|
|
$ |
88,508 |
|
|
$ |
49,544 |
|
Long-Lived Assets
The following table presents our long-lived assets by geographic areas (in thousands):
|
As of |
|
|
As of |
|
||
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
United States |
$ |
23,396 |
|
|
$ |
6,466 |
|
EMEA |
|
4,683 |
|
|
|
2,054 |
|
Other |
|
532 |
|
|
|
135 |
|
Total |
$ |
28,611 |
|
|
$ |
8,655 |
|
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.
|
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 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 September 30, 2014, there was one customer represented 17% of our total accounts receivable balance. At December 31, 2013, there were no customers that 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, 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 will be effective for 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 following tables present information about our financial assets measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 based on the three-tier fair value hierarchy (in thousands):
|
Fair Value Measurement at |
|
|||||||||
|
September 30, 2014 |
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|||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
$ |
— |
|
|
|
41,140 |
|
|
$ |
41,140 |
|
Money market funds |
|
24,820 |
|
|
|
— |
|
|
|
24,820 |
|
U.S. treasury securities |
|
— |
|
|
|
2,998 |
|
|
|
2,998 |
|
Asset-backed securities |
|
— |
|
|
|
2,026 |
|
|
|
2,026 |
|
U.S. agency obligations |
|
— |
|
|
|
1,002 |
|
|
|
1,002 |
|
Commercial paper |
|
— |
|
|
|
699 |
|
|
|
699 |
|
Total |
$ |
24,820 |
|
|
$ |
47,865 |
|
|
$ |
72,685 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
$ |
24,820 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
$ |
47,865 |
|
|
Fair Value Measurement at |
|
|||||||||
|
December 31, 2013 |
|
|||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|||
Description |
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
$ |
— |
|
|
$ |
12,114 |
|
|
$ |
12,114 |
|
Money market funds |
|
10,836 |
|
|
|
— |
|
|
|
10,836 |
|
Total |
$ |
10,836 |
|
|
$ |
12,114 |
|
|
$ |
22,950 |
|
Included in cash and cash equivalents |
|
|
|
|
|
|
|
|
$ |
10,836 |
|
Included in marketable securities |
|
|
|
|
|
|
|
|
$ |
12,114 |
|
The following table classifies our available-for-sale marketable securities by contractual maturities as of September 30, 2014 and December 31, 2013 (in thousands):
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
Due in one year |
$ |
29,858 |
|
|
$ |
9,889 |
|
Due in one to five years |
|
18,007 |
|
|
|
2,225 |
|
Total |
$ |
47,865 |
|
|
$ |
12,114 |
|
|
Property and equipment, net consists of the following (in thousands):
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
Capitalized internal-use software |
$ |
14,453 |
|
|
$ |
11,104 |
|
Furniture and fixtures |
|
4,440 |
|
|
|
1,383 |
|
Hosting equipment |
|
12,423 |
|
|
|
7,931 |
|
Computer equipment and software |
|
3,898 |
|
|
|
1,680 |
|
Leasehold improvements |
|
14,871 |
|
|
|
1,717 |
|
Construction in progress |
|
6,198 |
|
|
|
341 |
|
Total |
|
56,283 |
|
|
|
24,156 |
|
Less accumulated depreciation and amortization |
|
(15,419 |
) |
|
|
(8,725 |
) |
Property and equipment, net |
$ |
40,864 |
|
|
$ |
15,431 |
|
|
The changes in the carrying amount of goodwill for the nine months ended September 30, 2014 are as follows (in thousands):
Balance as of December 31, 2013 |
$ |
— |
|
Goodwill acquired |
|
9,373 |
|
Goodwill adjustments |
|
216 |
|
Balance as of September 30, 2014 |
$ |
9,589 |
|
Purchased intangible assets subject to amortization as of September 30, 2014 consist of the following (in thousands). No purchased intangible assets were recorded as of December 31, 2013.
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Remaining Useful Life |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
Developed technology |
$ |
5,200 |
|
|
$ |
(787 |
) |
|
$ |
4,413 |
|
|
|
3.0 |
|
Customer relationships |
|
1,300 |
|
|
|
(172 |
) |
|
|
1,128 |
|
|
|
3.5 |
|
Trade name |
|
60 |
|
|
|
(32 |
) |
|
|
28 |
|
|
|
0.5 |
|
|
$ |
6,560 |
|
|
$ |
(991 |
) |
|
$ |
5,569 |
|
|
|
|
|
Estimated future amortization expense as of September 30, 2014 is as follows (in thousands):
Remainder of 2014 |
$ |
471 |
|
2015 |
|
1,823 |
|
2016 |
|
1,810 |
|
2017 |
|
1,393 |
|
2018 |
|
72 |
|
2019 and thereafter |
|
— |
|
|
$ |
5,569 |
|
|
Contractual future principal repayments in relation to the credit facility are as follows for the year ending December 31 (in thousands):
2014 (remaining 3 months) |
$ |
749 |
|
2015 |
|
3,041 |
|
2016 |
|
3,118 |
|
2017 |
|
792 |
|
2018 and thereafter |
|
— |
|
|
$ |
7,700 |
|
|
The following table summarizes our stock option and RSU award activities for the nine months ended September 30, 2014 (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, 2014 |
|
1,854 |
|
|
|
10,134 |
|
|
$ |
2.82 |
|
|
|
|
|
|
|
|
|
|
|
811 |
|
|
$ |
6.76 |
|
Increase in authorized shares |
|
13,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted |
|
(6,008 |
) |
|
|
6,008 |
|
|
|
10.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
(2,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,643 |
|
|
|
13.24 |
|
Stock options exercised |
|
— |
|
|
|
(1,264 |
) |
|
|
2.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234 |
) |
|
|
8.64 |
|
Stock options forfeited or canceled |
|
664 |
|
|
|
(664 |
) |
|
|
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited or cancelled |
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276 |
) |
|
|
8.37 |
|
Outstanding —September 30, 2014 |
|
7,893 |
|
|
|
14,214 |
|
|
$ |
6.24 |
|
|
|
8.30 |
|
|
$ |
218,185 |
|
|
|
2,944 |
|
|
$ |
12.29 |
|
|
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, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
United States |
$ |
19,031 |
|
|
$ |
11,432 |
|
|
$ |
50,774 |
|
|
$ |
29,000 |
|
EMEA |
|
9,704 |
|
|
|
4,993 |
|
|
|
24,565 |
|
|
|
13,236 |
|
Other |
|
5,175 |
|
|
|
2,812 |
|
|
|
13,169 |
|
|
|
7,308 |
|
Total |
$ |
33,910 |
|
|
$ |
19,237 |
|
|
$ |
88,508 |
|
|
$ |
49,544 |
|
The following table presents our long-lived assets by geographic areas (in thousands):
|
As of |
|
|
As of |
|
||
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
United States |
$ |
23,396 |
|
|
$ |
6,466 |
|
EMEA |
|
4,683 |
|
|
|
2,054 |
|
Other |
|
532 |
|
|
|
135 |
|
Total |
$ |
28,611 |
|
|
$ |
8,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|