Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of ~~October~~July 31, ~~2014, 27,522,264~~2015, 27,812,577 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

	As of			As of			As of			As of
	September 30,			December 31,			June 30,			December 31,
	2014			2013			2015			2014
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	46,850		$	19,117		$	57,326		$	59,419
Short-term investments		77,360			15,105			70,421			71,493
Accounts receivable, net		8,652			12,987			12,042			12,032
Prepaid expenses and other current assets		2,880			3,268			2,847			2,666
Deferred tax asset		324			290			404			400
Total current assets		136,066			50,767			143,040			146,010
Property and equipment, net		13,054			10,028			14,598			13,595
Goodwill		64,290			65,280			62,886			63,779
Intangible assets, net		25,283			29,490			21,115			23,846
Deferred commissions		5,980			6,701			5,712			6,094
Deferred tax asset, less current portion		11,592			10,885			11,779			11,657
Other		263			294			298			234
Total assets	$	256,528		$	173,445		$	259,428		$	265,215

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	158		$	741		$	271		$	375
Accrued liabilities		10,256			13,765			8,570			10,051
Deferred revenues		55,709			57,417			53,823			59,751
Total current liabilities		66,123			71,923			62,664			70,177
Deferred revenues, less current portion		10,610			13,343			9,373			11,350
Deferred rent, less current portion								1,986			2,027

Commitments and Contingencies

Stockholders' equity:
Common stock, $0.001 par value; 50,000 shares authorized; 27,520 and 23,811 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively		28			24
Common stock, $0.001 par value; 50,000 shares authorized; 27,812 and 27,574 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively								28			28
Additional paid-in capital		201,886			108,864			208,897			204,065
Accumulated other comprehensive loss		(2,374	)		(1,401	)		(4,236	)		(3,055	)
Accumulated deficit		(19,745	)		(19,308	)		(19,284	)		(19,377	)
Total stockholders' equity		179,795			88,179			185,405			181,661
Total liabilities and stockholders' equity	$	256,528		$	173,445		$	259,428		$	265,215

The accompanying notes are an integral part of the consolidated financial statements.

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2014			2013			2014			2013			2015			2014			2015			2014
	(unaudited)						(unaudited)						(unaudited)						(unaudited)

Revenues	$	25,670		$	22,513		$	76,364		$	64,383		$	26,501		$	25,287		$	52,442		$	50,694
Cost of revenues		7,854			6,759			23,400			19,942			8,702			7,876			17,030			15,546
Gross profit		17,816			15,754			52,964			44,441			17,799			17,411			35,412			35,148
Operating expenses:
Research and development		7,146			7,132			21,261			20,525			6,730			7,188			13,802			14,115
Sales and marketing		6,208			6,334			19,409			17,064			6,727			6,241			13,733			13,201
General and administrative		4,348			3,462			10,791			9,446			3,170			3,333			6,519			6,443
Amortization of intangible assets		795			602			2,395			1,545			734			803			1,469			1,600
Total operating expenses		18,497			17,530			53,856			48,580			17,361			17,565			35,523			35,359
Loss from operations		(681	)		(1,776	)		(892	)		(4,139	)
Income (loss) from operations														438			(154	)		(111	)		(211	)
Other income (expense):
Interest income		124			10			182			50			163			52			313			58
Other (expense) income, net		(37	)		(13	)		(48	)		(58	)
Other expense, net														(47	)		(2	)		(235	)		(11	)
Total other income (expense), net		87			(3	)		134			(8	)		116			50			78			47
Loss before income taxes		(594	)		(1,779	)		(758	)		(4,147	)
Income tax benefit (expense)		164			(603	)		321			633
Net loss	$	(430	)	$	(2,382	)	$	(437	)	$	(3,514	)
Income (loss) before income taxes														554			(104	)		(33	)		(164	)
Income tax (expense) benefit														(172	)		31			126			157
Net income (loss)													$	382		$	(73	)	$	93		$	(7	)

Other comprehensive loss:
Other comprehensive income (loss):
Foreign currency translation adjustments		(898	)		426			(973	)		(606	)		462			682			(1,181	)		(75	)
Comprehensive loss	$	(1,328	)	$	(1,956	)	$	(1,410	)	$	(4,120	)
Comprehensive income (loss)													$	844		$	609		$	(1,088	)	$	(82	)

Net loss per share:
Net income (loss) per share:
Basic	$	(0.02	)	$	(0.10	)	$	(0.02	)	$	(0.15	)	$	0.01		$	(0.00	)	$	0.00		$	(0.00	)
Diluted	$	(0.02	)	$	(0.10	)	$	(0.02	)	$	(0.15	)	$	0.01		$	(0.00	)	$	0.00		$	(0.00	)
Weighted average shares outstanding used in computing per share amounts:
Basic		27,514			23,068			26,295			22,803			27,646			27,423			27,615			25,675
Diluted		27,514			23,068			26,295			22,803			27,989			27,423			27,955			25,675

The accompanying notes are an integral part of the consolidated financial statements.

Additional

Accumulated Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

Amount

Capital

Loss

Deficit

Equity

Balance at December 31, 2013

23,811

$
24

$
108,864

$
(1,401
)

$
(19,308
)

$
88,179

Proceeds from public offering, net of underwriting discounts and offering costs

3,450

4

87,429

-

-

87,433

Issuance of stock in connection with stock option exercises

92

-

452

-

-

452

Issuance of stock in connection with employee stock purchase plan

33

-

469

-

-

469

Issuance of stock pursuant to vesting of restricted stock units

2

-

-

-

-

-

Issuance of stock in connection with business acquisitions

132

-

-

-

-

-

Stock-based compensation

-

-

4,672

-

-

4,672

Foreign currency translation adjustments

-

-

-

(973
)

-

(973
)
Net loss

-

-

-

-

(437
)

(437
)
Balance at September 30, 2014

27,520

$
28

$
201,886

$
(2,374
)

$
(19,745
)

$
179,795

					Additional		Accumulated Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at December 31, 2014		27,574	$	28	$	204,065	$	(3,055	)	$	(19,377	)	$	181,661
Issuance of stock in connection with stock option exercises		197		-		1,520		-			-			1,520
Issuance of stock in connection with employee stock purchase plan		32		-		398		-			-			398
Issuance of stock pursuant to vesting of restricted stock units		9		-		-		-			-			-
Stock-based compensation		-		-		2,914		-			-			2,914
Foreign currency translation adjustments		-		-		-		(1,181	)		-			(1,181	)
Net income		-		-		-		-			93			93
Balance at June 30, 2015		27,812	$	28	$	208,897	$	(4,236	)	$	(19,284	)	$	185,405

The accompanying notes are an integral part of the consolidated financial statements.

	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2014			2013			2015			2014
	(unaudited)						(unaudited)
Cash flows from operating activities
Net loss	$	(437	)	$	(3,514	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)							$	93		$	(7	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		7,954			5,460			5,879			5,120
Loss on disposal of fixed assets		430			-
Stock-based compensation expense		4,672			5,102			2,914			3,094
Deferred taxes		(457	)		(676	)		(126	)		(214	)
Changes in operating assets and liabilities:
Accounts receivable		4,293			2,709			(33	)		(1,813	)
Prepaid expenses and other current assets		379			(469	)		(175	)		476
Deferred commissions and other assets		753			785			302			(113	)
Accounts payable		(582	)		(1,631	)		(105	)		931
Accrued liabilities		(3,769	)		1,093			(1,523	)		(5,971	)
Deferred revenues		(4,328	)		470			(7,813	)		(4,608	)
Net cash provided by operating activities		8,908			9,329
Deferred rent								(41	)		-
Net cash used in operating activities								(628	)		(3,105	)
Cash flows from investing activities
Business acquisitions, net of cash acquired		-			(25,533	)
Addition of capitalized software development costs		(4,231	)		(2,942	)		(3,257	)		(2,752	)
Purchase of property and equipment		(3,304	)		(1,841	)		(1,285	)		(1,559	)
Purchase of available-for-sale short-term investments		(92,735	)		(23,525	)		(72,478	)		(67,710	)
Maturities of available-for-sale short-term investments		30,480			38,035			73,550			20,480
Net cash used in investing activities		(69,790	)		(15,806	)		(3,470	)		(51,541	)
Cash flows from financing activities
Proceeds from public offering, net of underwriting discount		87,673			-			-			87,673
Public offering costs		(240	)		-			-			(240	)
Proceeds from exercise of common stock options		452			1,608			1,520			351
Proceeds from employee stock purchase plan activity		766			760			476			541
Net cash provided by financing activities		88,651			2,368			1,996			88,325
Effect of exchange rate changes on cash and cash equivalents		(36	)		(39	)		9			230
Net increase (decrease) in cash and cash equivalents		27,733			(4,148	)
Net (decrease) increase in cash and cash equivalents								(2,093	)		33,909
Cash and cash equivalents at beginning of period		19,117			15,606			59,419			19,117
Cash and cash equivalents at end of period	$	46,850		$	11,458		$	57,326		$	53,026
Supplemental disclosure of non-cash investing activities:
Issuance of common stock in connection with acquisition	$	-		$	17,055

The accompanying notes are an integral part of the consolidated financial statements.

SciQuest, Inc. (the Company) provides leading cloud-based business automation solutions for spend management. The Company’s solutions include procurement solutions that automate the source-to-settle process, spend analysis solutions that cleanse and classify spend data to drive and measure cost savings, supplier management solutions that facilitate our customers’ interactions with their suppliers, contract lifecycle management solutions that automate the complete contract lifecycle from contract creation through maintenance and accounts payable solutions that automate the invoice processing and vendor payment processes. The Company’s solutions are designed to meet customer needs to reduce costs, simplify and improve visibility into key business processes, further strategic initiatives, enhance control over spending decisions and improve compliance and risk management. By simplifying and streamlining cumbersome, and often manual, processes and creating a comprehensive view of spending and compliance across the organization, organizations can identify and capitalize on opportunities to reduce costs by gaining control over suppliers, contracts, purchases and payments. The Company is headquartered in Morrisville, North Carolina.

On April 1, 2014, the Company completed a public offering of 3,000 shares of common stock at an offering price of $26.75 per share. An additional 450 shares of common stock were sold at an offering price of $26.75 per share pursuant to the underwriters’ over-allotment option. The Company received aggregate net proceeds of approximately $87,433, after payment of underwriting discounts and commissions and estimated legal, accounting, and other fees incurred in connection with the offering and the over-allotment option.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 are not necessarily indicative of the results to be expected for the fiscal year or any future period. The balance sheet at December 31, ~~2013~~2014 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2013,~~2014, which was filed with the Securities and Exchange Commission on February ~~21, 2014.~~23, 2015.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

The Company primarily derives its revenues from subscription fees and related services, permitting customers to access and utilize the Company’s cloud-based business automation solutions for spend management. Customers may also purchase a perpetual license for certain software products. Revenue is recognized when there is persuasive evidence of an arrangement, the service has been provided or delivered to the customer, the collection of the fee is probable and the amount of the fee to be paid by the customer is fixed or determinable. The Company’s arrangements do not contain general rights of return.

Because customers do not have the right to take possession of the Software-as-a-Service (“SaaS”) based software, these arrangements are considered service contracts and are not within the scope of Industry Topic 985, Software. The Company’s contractual agreements generally contain multiple service elements and deliverables, for which we follow the guidance provided in Accounting Standards Codification (“ASC”) 605-25, Revenue Recognition for Multiple-Element Arrangements. These elements include access to the hosted software, implementation or data classification services and, on a limited basis, perpetual licenses for certain software products and related maintenance and support. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has ~~standalone~~stand-alone value and delivery of the undelivered element is probable and within the Company’s control.

For arrangements in which elements do have stand-alone value, the Company allocates revenue to each element in the arrangement based on a selling price hierarchy. The selling price for a deliverable is based on vendor-specific objective evidence of selling price (“VSOE”), if available, third-party evidence of selling price (“TPE”), if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. Because the Company has neither VSOE nor TPE for its deliverables, the allocation of revenue is based on ESP.

The Company’s process for determining ESP for its deliverables considers multiple factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP related to deliverables include established pricing and approval policies, type and size of customer, number of products purchased, and historical transactions. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

The Company evaluates its SaaS subscription agreements and considers whether the associated services have ~~standalone~~stand-alone value to its customers. For arrangements when implementation services do not have ~~standalone~~stand-alone value to the customer, licenses and related implementation services are considered a single unit of accounting. Accordingly, the consideration allocated to licenses and services is recognized ratably over the term of the subscription agreement, beginning with the later of the start date specified in the subscription agreement, or the date access to the software is provided to the customer, provided all other revenue recognition criteria have been met. Fees for professional services that are contingent upon future performance are recognized ratably over the remaining subscription term once the performance milestones have been met. Alternatively, when services have ~~standalone~~stand-alone value to the customer, licenses and related services are considered separate units of accounting. For separate units of accounting, services are recognized as the services are performed and delivered to the customer and licenses are recognized over the term of the subscription arrangement, beginning with the later of the start date specified in the subscription agreement, or the date access to the software is provided to the customer, provided all other revenue recognition criteria have been met.

Revenue from sales of certain of the Company’s perpetual software products and related implementation services and maintenance is recognized as a single unit of accounting since VSOE of fair value does not exist for the contractual elements. Accordingly, revenue for all elements in these arrangements is recognized over the contractual maintenance term, which is typically one year.

The Company recognizes revenue from any professional services that are sold separately as the services are performed.

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company’s software and services described above. For multi-year subscription agreements, the Company generally invoices its customers in annual installments. Accordingly, the deferred revenue balance does not represent the total contract value of these multi-year subscription agreements. The Company’s services, such as implementation, are generally sold in conjunction with subscription agreements. These services are recognized ratably over the remaining term of the subscription agreement once any contingent performance milestones have been satisfied. The portion of deferred revenue that the Company anticipates will be recognized after the succeeding 12-month period is recorded as non-current deferred revenue and the remaining portion is recorded as current deferred revenue.

Cost of revenues primarily consists of costs related to hosting the Company’s subscription software services, compensation and related expenses for implementation services, supplier enablement services, customer support staff and client partners, amortization of capitalized software development costs and allocated fixed asset depreciation and facilities costs. Cost of revenues is expensed as incurred.

The Company capitalizes sales commission costs that are directly related to the execution of its subscription agreements. The commissions are deferred and amortized over the contractual term of the related non-cancelable subscription agreement. The Company believes this is the appropriate method of accounting, as the commission costs are so closely related to the revenues from the subscription agreements that they should be recorded as an asset and charged to expense over the same period that the subscription revenues are recognized. Amortization of deferred commissions is included in sales and marketing expense in the accompanying consolidated statements of operations and comprehensive ~~loss.~~income (loss). The deferred commissions are reflected in the accompanying consolidated balance sheets.

The Company considers all highly liquid debt investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains cash balances at financial institutions that may at times exceed federally insured limits. The Company maintains this cash at reputable financial institutions and, as a result, believes credit risk related to its cash is minimal.

Management determines the appropriate classification of investments at the time of purchase and evaluates such determination as of each balance sheet date. The Company’s investments were classified as available-for-sale securities and are stated at fair value at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013.~~2014. Realized gains and losses are included in other income (expense) based on the specific identification method. There were no realized gains or losses for the three or ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 or ~~2013.~~2014. Net unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive ~~loss,~~income (loss), net of tax. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, there were no unrealized gains or losses on available-for-sale securities. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. Management believes no such declines in value existed at ~~September~~June 30, ~~2014~~2015 or December 31, ~~2013.~~2014.

The Company assesses the need for an allowance for doubtful accounts based on estimates of probable credit losses. This assessment is based on several factors including aging of customer accounts, known customer specific risks, historical experience and existing economic conditions. The Company generally does not require collateral for receivable balances. Accounts would be charged against the allowance after all means of collection were exhausted and recovery was considered remote. Based on management’s analysis of its outstanding accounts receivable, the Company recorded an allowance of $295 and $1,100 ~~and $556~~ at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, respectively.

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which are usually seven years for furniture and three to five years for computer software and equipment. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remainder of the lease term. Costs for repairs and maintenance are expensed as incurred. Upon retirement or sale, the cost of the disposed assets and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to operations.

The Company incurs certain costs associated with the development of its cloud-based solution, which are accounted for as internal-use software. Certain qualifying costs incurred during the application development phase are capitalized and amortized to expense over the estimated useful life of the related applications, which is generally three years.

Although the Company’s development efforts are primarily focused on its hosted, cloud-based solution, the Company also incurs costs in connection with the development of certain of its software products licensed to customers on a perpetual basis, which are accounted for as costs of software to be sold, leased or otherwise marketed. Under this guidance, capitalization of software development costs begins upon the establishment of technological feasibility (based on a working model approach), subject to net realizable value considerations. To date, the dates between achieving technological feasibility and the general availability of such software have substantially coincided; therefore, software development costs for these products that would qualify for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs related to these software products and has charged all such costs to research and development expense.

Goodwill represents the excess of the cost of an acquired entity over the net fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but rather is assessed for impairment at least annually. Additionally, the Company would also review the carrying value of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company has concluded that it has one reporting unit for purposes of its annual goodwill impairment testing. To assess goodwill impairment, the first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. The results of our most recent annual assessment did not indicate any impairment of goodwill, and as such, the second step of the impairment test was not required. Additionally, we do not believe there have been any triggering events that would result in potential impairment of goodwill as of ~~September~~June 30, ~~2014.~~2015.

Stock-based payments to employees, including grants of employee stock options, are recognized in the consolidated statement of operations and comprehensive ~~loss~~income (loss) based on their fair values. Stock-based compensation costs are measured at the grant date based on the fair value of the award and are recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for stock ~~options.~~options and a lattice model on the date of grant for performance-based restricted stock units. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The Company uses the historical volatility of its stock price to calculate the expected volatility. Prior to the second half of 2013, the expected volatility rates were estimated based on the actual volatility of comparable public companies over the expected term, as the Company did not have enough trailing history in its own shares. The expected term for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, represents the average time that options that vest are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards.

The reporting currency for all periods presented is the U.S. dollar. The functional currency for the Company’s foreign subsidiaries is generally their local currency. The translation of each subsidiary’s financial statements into U.S. dollars is performed for assets and liabilities using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. The resulting translation adjustments are recognized in accumulated other comprehensive loss, a separate component of stockholders’ equity. ~~Also included in~~At June 30, 2015 and December 31, 2014, accumulated other comprehensive loss was ($4,236) and ($3,055), respectively, which is ~~the foreign translation loss adjustment of $3,137 and $1,729 at September 30, 2014 and December 31, 2013, respectively, related~~predominantly due to the intercompany balance with the Company’s Canadian subsidiary not expected to be settled in the foreseeable future. Realized foreign currency transaction gains and losses are included in other income (expense) in the consolidated statements of operations and comprehensive ~~loss.~~income (loss).

The Company manages its operations on a consolidated basis for purposes of assessing performance and making operating decisions. Accordingly, the Company has determined that it has a single reportable segment.

Basic net ~~loss~~income (loss) per share is computed by dividing net ~~loss~~income (loss) by the weighted-average number of shares of common stock outstanding for the period. Outstanding unvested restricted stock purchased by employees is subject to repurchase by the Company and therefore is not included in the calculation of the weighted-average shares outstanding until vested. Diluted net income (loss) per share is computed giving effect to all potentially dilutive common stock, including options, restricted stock, and ~~restricted stock.~~common stock issuable pursuant to the employee share purchase plan. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.

The following summarizes the calculation of basic and diluted net ~~loss~~income (loss) per share:

	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	September 30,						September 30,						June 30,					June 30,
	2014			2013			2014			2013			2015		2014			2015		2014
Basic:
Net loss	$	(430	)	$	(2,382	)	$	(437	)	$	(3,514	)
Net income (loss)													$	382	$	(73	)	$	93	$	(7	)
Weighted average common shares, basic		27,514			23,068			26,295			22,803			27,646		27,423			27,615		25,675
Basic net loss per share	$	(0.02	)	$	(0.10	)	$	(0.02	)	$	(0.15	)
Basic net income (loss) per share													$	0.01	$	(0.00	)	$	0.00	$	(0.00	)
Diluted:
Net loss	$	(430	)	$	(2,382	)	$	(437	)	$	(3,514	)
Net income (loss)													$	382	$	(73	)	$	93	$	(7	)
Weighted average common shares, basic		27,514			23,068			26,295			22,803			27,646		27,423			27,615		25,675
Dilutive effect of:
Options to purchase common stock		-			-			-			-			300		-			306		-
Nonvested shares of restricted stock		-			-			-			-			36		-			29		-
Shares of employee stock purchase plan														7		-			5		-
Weighted average common shares, diluted		27,514			23,068			26,295			22,803			27,989		27,423			27,955		25,675
Diluted net loss per share	$	(0.02	)	$	(0.10	)	$	(0.02	)	$	(0.15	)
Diluted net income (loss) per share													$	0.01	$	(0.00	)	$	0.00	$	(0.00	)

The following equity instruments have been excluded from diluted net income (loss) per common share as they would be anti-dilutive.

For the three and ~~nine~~six months ended ~~September~~June 30, 2014, ~~and 2013,~~ the Company incurred net losses and, therefore, the effect of the Company’s outstanding stock options, nonvested restricted stock and common stock issuable pursuant to the employee stock purchase plan was not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. For the three and ~~nine~~six months ended ~~September~~June 30, 2014, diluted net loss per share excluded the impact of ~~257~~362 and ~~400~~474 outstanding stock options, 7respectively, 8 and 1316 nonvested shares of restricted stock, respectively, and ~~approximately 1~~7 and 2312 shares of common stock issuable pursuant to the employee stock purchase plan. For the three and nine months ended September 30, 2013, diluted net loss per share excluded the impact of 425 and 400 outstanding stock options, 23 and 30 nonvested shares of restricted stock, and approximately 0 and 15 shares of common stock issuable pursuant to the employee stock purchase plan.plan, respectively.

Deferred income taxes are provided using tax rates enacted for periods of expected reversal on all temporary differences. Temporary differences relate to differences between the book and tax basis of assets and liabilities, principally intangible assets, property and equipment, deferred subscription revenues, accruals and stock-based compensation. Valuation allowances are established to reduce deferred tax assets to the amount that will more likely than not be realized. To the extent that a determination is made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.

Judgment is required in determining the provision for income taxes. Additionally, the income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities and to changes in tax law and rates in many jurisdictions. The Company would adjust its income tax provision in the period in which it becomes probable that actual results differ from management estimates.

The Company accounts for uncertain tax positions by recognizing and measuring tax benefits taken or expected to be taken on a tax return. A tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If the recognition threshold is met, only the portion of the tax benefit that is more likely than not to be realized upon settlement with a taxing authority is recorded. The tax benefit that is not recorded is considered an unrecognized tax benefit. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

In August 2014, the FASB issued new accounting guidance which addresses management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. This guidance is effective for the fiscal year ending after December 15, 2016, and for fiscal years and interim

periods thereafter. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its financial statements.

In May 2014, the FASB issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance iswas to be effective for fiscal years and interim periods within those years beginning after December 15, ~~2016.~~2017; however, on July 9, 2015 the FASB decided to defer the effective date by one year. Early adoption is ~~not permitted. The~~permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Pending any further deferral, the Company will adopt this standard in the first quarter of ~~2017.~~2018. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.

In July 2013, the FASB issued a revised accounting standard, which clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This standard is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company adopted this guidance on January 1, 2014. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, or cash flows.

On August 30, 2013, the Company acquired all of the outstanding capital stock of CombineNet, Inc. (“CombineNet”), a leading provider of advanced sourcing software. The acquisition of CombineNet expands the Company’s strategic sourcing footprint with an advanced, cloud-based tool that improves procurement decisions for spend categories that are typically beyond the capabilities of traditional eSourcing software.

The purchase price consisted of approximately $26,575 in cash and 820 shares of the Company’s common stock at a fair value of $17,055. The purchase price was subject to an adjustment based on the closing amount of working capital of CombineNet and accordingly as a result of this adjustment, the Company paid an additional $59 in cash and issued approximately 1 shares of common stock at a fair value of $38. The purchase price included $2,465 in cash and 76 shares of common stock that were deposited in escrow to satisfy potential indemnification claims. The Company incurred acquisition costs of approximately $431 during the three and nine months ended September 30, 2013, which are included in general and administrative expense in the consolidated statements of operations and comprehensive loss. The acquisition was accounted for under the purchase method of accounting. The operating results of CombineNet are included in the accompanying consolidated financial statements from the date of acquisition.

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a fifteen-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

~~The allocation of the purchase price as of the acquisition date was as follows:~~

~~The measurement period for the acquisition purchase accounting was closed December 31, 2013.~~

The following unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2013 assume that the CombineNet acquisition occurred at the beginning of 2012. The unaudited pro forma information combines the historical results for the Company with the historical results for CombineNet for the same period. The unaudited pro forma financial information includes amortization of acquired intangible assets of $554 and $1,691 for the three and nine months ended September 30, 2013, respectively, and includes the fair value adjustment for deferred revenue of $3 and $2,364 for the three and nine months ended September 30, 2013, respectively.

~~The following unaudited pro forma information is not intended to be indicative of future operating results.~~

On October 1, 2012, the Company completed the acquisition of substantially all of the assets of Spend Radar LLC (“Spend Radar”), a leading provider of spend analysis solutions. The acquisition of Spend Radar added cloud-based software for cleansing and classifying spend data to drive and measure cost savings to the Company’s existing business automation solutions for spend management.

The purchase price consisted of $8,000 in cash and 113 shares of the Company’s common stock at a fair value of $2,087. The purchase agreement also contained an earnout provision for up to $6,000 in cash and 85 shares of the Company’s common stock based on the successful achievement of certain performance targets and continued employment with the Company from the closing date to December 31, 2013. The performance conditions for Q4 2012 and Q1 2013 were met and the Company paid $2,400 and issued 34 shares of common stock on April 29, 2013. Additionally, the performance conditions for Q2, Q3 and Q4 2013 were met and the Company paid $3,600 on January 31, 2014 and issued 51 shares of common stock on February 3, 2014. The cash earn-out was recognized as compensation expense in the consolidated statement of operations and comprehensive loss in the period in which it was

earned. The fair value of the shares under the stock earn-out was recognized as stock-based compensation expense in the consolidated statement of operations and comprehensive loss over the requisite service period of the award. During the three and nine months ended September 30, 2013, the Company recognized compensation expense of $1,200 and $3,600, respectively, and recognized stock-based compensation expense of $313 and $939, respectively, related to this earn-out arrangement.

The acquisition was accounted for under the purchase method of accounting. The operating results of Spend Radar are included in the accompanying consolidated financial statements from the date of acquisition.

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a five-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill, which is deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

~~The allocation of the purchase price as of the acquisition date was as follows:~~

~~The measurement period for the acquisition purchase accounting was closed December 31, 2012.~~

On August 1, 2012, the Company completed the acquisition of substantially all of the assets of Upside Software, Inc. (“Upside”), a privately-owned Canadian corporation that provides contract lifecycle management solutions. The acquisition of Upside added a contract lifecycle management solution, which includes collaborative contract creation and maintenance technology, to the Company’s existing business automation solutions for spend management.

The purchase price consisted of $22,447 in cash. The acquisition was accounted for under the purchase method of accounting. The operating results of Upside are included in the accompanying consolidated financial statements from the date of acquisition.

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a ten-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill which is deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

~~The allocation of the purchase price as of the acquisition date was as follows:~~

~~The measurement period for the acquisition purchase accounting was closed December 31, 2012.~~

On December 21, 2010, the Company entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of capital stock of AECsoft USA, Inc., a Texas corporation, and AEC Global (Shanghai) Co., Ltd., a Chinese corporation (collectively, “AECsoft”), which together are a leading provider of supplier management and sourcing technology.

The Company completed the acquisition of AECsoft, USA, Inc. on January 1, 2011 and the acquisition of AEC Global (Shanghai) Co., Ltd. on March 31, 2011. The acquisition of AECsoft added comprehensive supplier management, sourcing and compliance reporting to the Company’s existing business automation solutions for spend management.

The total purchase price of $13,795 consisted of $9,256 in cash and 351 shares of the Company’s common stock at a fair value of $4,539. The issuance of 25 of these shares, with an estimated fair value of $300, was subject to successful completion of certain performance targets under an earn-out arrangement with a former shareholder of AECsoft. Additionally, 300 shares of the Company’s common stock were issuable under an earn-out arrangement with the other former shareholders of AECsoft, upon the successful achievement of performance conditions over three fiscal years, including continued employment with the Company. The performance conditions for 2012 and 2011 were met in full, and the Company issued 122 shares of common stock on March 20, 2013 and April 14, 2012, respectively. The performance conditions for 2013 were met in full, and the Company issued 81 shares of common stock on February 5, 2014. The fair value of these shares was recognized as stock-based compensation expense in the consolidated statement of operations and comprehensive loss over the requisite service period of the award. During the three and nine months ended September 30, 2013, the Company recognized stock-based compensation expense of $244 and $732, respectively, related to this earn-out arrangement.

The components of cash equivalents and short-term investments at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013~~2014 are as follows:

	September 30, 2014				December 31, 2013				June 30, 2015				December 31, 2014
			Fair Market				Fair Market				Fair Market				Fair Market
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Cash Equivalents:
Money market accounts	$	1,195	$	1,195	$	5,349	$	5,349	$	2,242	$	2,242	$	2,130	$	2,130
Commercial paper		41,342		41,342		-		-		48,930		48,930		46,339		46,339
Short-term investments:
Variable rate demand notes		14,725		14,725		15,105		15,105		12,980		12,980		14,030		14,030
Commercial paper		62,635		62,635		-		-		57,441		57,441		57,463		57,463
Total	$	119,897	$	119,897	$	20,454	$	20,454	$	121,593	$	121,593	$	119,962	$	119,962

There were no unrealized gains or losses as of ~~September~~June 30, ~~2014~~2015 or December 31, ~~2013.~~2014.

Under GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents and short-term investments.

As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, the Company had cash equivalents of ~~$42,537~~$51,172 and ~~$5,349,~~$48,469, respectively, which consist of money market accounts and commercial paper. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, the Company had short-term investments of ~~$77,360~~$70,421 and ~~$15,105,~~$71,493, respectively, which consist of commercial paper and variable rate demand notes that are invested in corporate and municipal bonds. The variable rate demand notes have final maturities between ~~2017~~2025 and 2042, but are puttable by the Company at any time with seven days notice. These cash equivalents and short-term investments are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, the Company did not have any financial assets or liabilities with observable inputs not quoted on active markets (Level 2), or without observable market values that would require a high level of judgment to determine fair value (Level 3).

The fair value measurements of the Company’s financial assets at ~~September~~June 30, ~~2014~~2015 are as follows:

	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash equivalents	$	42,537	$	42,537	$	-	$	-	$	51,172	$	51,172	$	-	$	-
Short-term investments		77,360		77,360		-		-		70,421		70,421		-		-
Total	$	119,897	$	119,897	$	-	$	-	$	121,593	$	121,593	$	-	$	-

The fair value measurements of the Company’s financial assets at December 31, ~~2013~~2014 are as follows:

	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash equivalents	$	5,349	$	5,349	$	-	$	-	$	48,469	$	48,469	$	-	$	-
Short-term investments		15,105		15,105		-		-		71,493		71,493		-		-
Total	$	20,454	$	20,454	$	-	$	-	$	119,962	$	119,962	$	-	$	-

Property and equipment consist of the following as of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013:~~2014:

	September 30,			December 31,			June 30,			December 31,
	2014			2013			2015			2014
Furniture and fixtures	$	1,576		$	1,284		$	1,555		$	1,560
Computer software and equipment		23,130			17,036			29,391			25,039
Leasehold improvements		391			715			634			624
Total costs		25,097			19,035			31,580			27,223
Less accumulated depreciation and amortization		(12,043	)		(9,007	)		(16,982	)		(13,628	)
Property and equipment, net	$	13,054		$	10,028		$	14,598		$	13,595

Depreciation expense related to property and equipment (excluding capitalized internal-use software) was ~~$729~~$687 and ~~$558~~$640 for the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, and was ~~$1,979~~$1,427 and ~~$1,575~~$1,250 for the ~~nine~~six months ended ~~September~~June 30, 2015 and 2014, ~~and 2013,~~ respectively.

During the three months ended September 30, 2014, the Company entered into a lease assignment, pursuant to which the Company assigned all of its right, title and interest in the Company’s office lease at its former headquarters. In accordance with the assignment, certain fixed assets were transferred with the office space. Accordingly, the Company wrote off furniture and fixtures and leasehold improvements with an original cost of $1,366 and accumulated depreciation of $936. The Company recognized a loss of $430 in the accompanying consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2014 related to these disposals.

Computer software and equipment includes capitalized software development costs incurred during development of the Company’s cloud-based solution. The Company capitalized software development costs of ~~$1,419~~$1,825 and ~~$949~~$1,476 during the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, and ~~$4,166~~$3,128 and ~~$2,932~~$2,747 during the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively. Net capitalized software development costs totaled ~~$7,501~~$9,033 and ~~$5,349~~$7,867 at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, respectively. Amortization expense for the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014 related to capitalized software development costs was ~~$791~~$1,072 and ~~$466,~~$673, respectively, and was ~~$2,022~~$1,989 and ~~$1,287~~$1,231 for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, which is classified within cost of revenues in the accompanying consolidated statements of operations and comprehensive ~~loss.~~income (loss).

The Company acquired goodwill and certain identifiable intangible assets as part of the acquisitions in August 2013, October 2012, August 2012 and January 2011 and the going private transaction in July 2004.

The changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 were as follows:

~~The Company recorded an adjustment to goodwill during the period based on a correction to the CombineNet deferred tax valuation, which resulted from a state tax apportionment change.~~

As the functional currency of the Company’s Canadian subsidiary, where certain of the Company’s goodwill is recorded, is its local currency, there are related foreign currency translation adjustments. The foreign currency is translated into U.S. dollars using the exchange rate in effect at period end, with any adjustment included in other comprehensive ~~loss.~~income (loss).

A summary of intangible assets at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013~~2014 follows:

	September 30, 2014								June 30, 2015
	Weighted Average								Weighted Average
	Amortization	Gross Carrying		Accumulated			Net Carrying		Amortization	Gross Carrying		Accumulated			Net Carrying
	Period	Amount		Amortization			Amount		Period	Amount		Amortization			Amount
Acquired technology	7.0 years	$	19,708	$	(11,313	)	$	8,395	7.0 years	$	19,350	$	(12,477	)	$	6,873
Customer relationships	12.1 years		26,957		(11,354	)		15,603	12.1 years		26,641		(13,391	)		13,250
Covenant not to compete	4.2 years		381		(186	)		195	4.2 years		379		(265	)		114
Acquired trademarks	4.5 years		1,102		(442	)		660	4.5 years		1,078		(630	)		448
Trademarks	indefinite		430		-			430	indefinite		430		-			430
Total		$	48,578	$	(23,295	)	$	25,283		$	47,878	$	(26,763	)	$	21,115

	December 31, 2013								December 31, 2014
	Weighted Average								Weighted Average
	Amortization	Gross Carrying		Accumulated			Net Carrying		Amortization	Gross Carrying		Accumulated			Net Carrying
	Period	Amount		Amortization			Amount		Period	Amount		Amortization			Amount
Acquired technology	7.0 years	$	19,889	$	(10,070	)	$	9,819	7.0 years	$	19,578	$	(11,699	)	$	7,879
Customer relationships	12.1 years		27,117		(9,013	)		18,104	12.1 years		26,842		(12,062	)		14,780
Covenant not to compete	4.2 years		382		(112	)		270	4.2 years		380		(212	)		168
Acquired trademarks	4.5 years		1,113		(246	)		867	4.5 years		1,093		(504	)		589
Trademarks	indefinite		430		-			430	indefinite		430		-			430
Total		$	48,931	$	(19,441	)	$	29,490		$	48,323	$	(24,477	)	$	23,846

As the functional currency of the Company’s Canadian subsidiary, where certain intangible assets are recorded, is its local currency, there are related foreign currency translation adjustments. The foreign currency is translated into U.S. dollars using the exchange rate in effect at period end, with any adjustment included in other comprehensive ~~loss.~~income (loss).

Amortization expense of intangible assets was ~~$1,314~~$1,230 and ~~$1,005~~$1,322 for the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, of which ~~$519~~$496 and ~~$402~~$519 is recorded in cost of revenues in the accompanying consolidated statements of operations and comprehensive ~~loss~~income (loss) for the three months ended ~~September 30,~~June 31, 2015 and 2014, ~~and 2013,~~ respectively. Amortization expense of intangible assets was ~~$3,953~~$2,462 and ~~$2,598~~$2,639 for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, of which ~~$1,558~~$993 and ~~$1,052~~$1,039 is recorded in cost of revenues in the accompanying consolidated statements of operations and comprehensive income (loss) for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively.

The Company estimates the following amortization expense related to its intangible assets for the years ended December 31:

2014 (remaining three months)	$	1,225
2015		4,610
2015 (remaining six months)			$	2,181
2016		4,189		4,044
2017		3,736		3,604
2018		3,128		3,010
2019				2,530
Thereafter		7,965		5,316
	$	24,853	$	20,685

On November 2, 2012, the Company established a $30,000 revolving credit facility which will be available for use until November 2, 2015. The revolving credit facility will be used for general corporate purposes. The facility consists of a $20,000 securities secured revolving credit facility and a $10,000 receivables secured revolving credit facility. The securities secured revolving credit facility and the receivables secured revolving credit facility bear interest equal to the BBA LIBOR Daily Floating Rate plus 0.75% and the BBA LIBOR Daily Floating Rate plus 1.50%, respectively. In addition, the Company pays a quarterly fee equal to 0.10% on any unused funds under the facility. As collateral for extension of credit under the facility, the Company and a domestic subsidiary granted security interests in substantially all of their assets, and the Company pledged the stock of a domestic subsidiary and 66% of the shares of one of its foreign subsidiaries. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, the Company had $0 outstanding under the revolving credit facility.

The Company is authorized to issue up to 5,000 shares of $0.001 par value preferred stock, of which 222 shares are designated as Series A redeemable preferred stock. The Company’s Board of Directors has the authority to issue up to 4,778 shares of preferred stock in one or more series and to fix the designations, rights, preferences and privileges and any qualifications, limitations or restrictions of the shares of each such series of preferred stock, including dividend rights and rates, conversion rights, voting rights, terms of redemption including price and sinking fund provisions, liquidation preferences and number of shares constituting any series or the designation of that series. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, no shares of preferred stock were issued or outstanding.

The Company’s 2013 Stock Incentive Plan (the “Plan”) allows the Company to grant common stock options, stock appreciation rights, restricted stock units, including performance-based restricted stock units, and restricted stock awards to employees, board members and others who contribute materially to the success of the Company. The Company reserved 3,500 shares of its common stock for issuance under the Plan. Additionally, per the terms of the Plan, shares of common stock previously reserved for issuance under the 2004 Stock Incentive Plan (the “Prior Plan”) as well as shares reserved for outstanding awards under the Prior Plan for which the awards are canceled, forfeited, repurchased or otherwise result in common stock not being issued will be added to the number of shares available for issuance under the Plan. Restricted stock units, including performance-based restricted stock units, and restricted stock awards that are granted shall count towards the total number of shares reserved for issuance under the Plan as 1.65 shares. As of ~~September~~June 30, ~~2014, 3,491~~2015, 2,913 shares of common stock were available for issuance under the Plan.

The following table summarizes the number of shares outstanding and the number of shares available for future grant under the stock incentive plan at ~~September~~June 30, ~~2014:~~2015:

	September 30, 2014			June 30, 2015
Number of shares reserved under the 2013 Plan		3,500			3,500
Number of shares remaining for future grants transferred from Prior Plan		863			1,004
Number of stock options outstanding under the 2013 Plan		(777	)		(1,081	)
Weighted average exercise price	$	24.83
Weighted average exercise price under the 2013 Plan				$	20.99
Weighted average term (in years)		9.2			8.8
Number of restricted stock units issued under the 2013 Plan		(95	)		(510	)
Number of shares remaining for future grants
SciQuest, Inc. 2013 Stock Incentive Plan		3,491			2,913

The Company’s Board of Directors approves the terms of stock options granted. Individual option grants generally become exercisable ratably over a period of four years from the grant date. The contractual term of the options is approximately ten years from the date of grant.

The Company recognizes compensation expense associated with restricted stock and common stock options based on the grant-date fair value of the award on a straight-line basis over the requisite service period of the individual grantees, which generally equals the vesting period.

The Company issues restricted stock units and performance-based restricted stock units to certain employees and non-employee directors. Restricted ~~stock units differ from restricted stock awards in that restricted~~ stock units represent the right to receive shares of common stock once such shares are vested and issuable in accordance with the terms of the restricted stock units. Once issued, such shares are not subject to further restrictions. Performance-based restricted stock units differ from restricted stock units in that the number of shares of common stock issuable under performance-based restricted stock units is variable based on over- or under- performance of the Company’s stock price over a specified period of time. Stock-based compensation expense related to these restricted stock units and performance-based restricted stock units is recognized in the consolidated statements of operations and comprehensive ~~loss~~income (loss) based on the fair value of these awards. For restricted stock units, the fair value of the awards ~~which~~ is the grant date market value of the Company’s common stock. For performance-based restricted stock units, the fair value of the awards is estimated using a lattice model with a volatility assumption based on the vesting period of the awards. Stock-based compensation expense of ~~$203~~$331 and ~~$123~~$187 was recorded during the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, and ~~$534~~$585 and ~~$397~~$331 was recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, in connection with these ~~restricted stock units.~~awards. The total unrecognized compensation cost related to these awards is approximately ~~$1,446~~$3,734 at ~~September~~June 30, ~~2014.~~2015. This amount is expected to be recognized over a weighted-average period of ~~2.7~~3.0 years.

The following summarizes the activity of restricted stock ~~units~~awards for the ~~nine~~six months ended ~~September~~June 30, ~~2014:~~2015:

				Weighted-					Weighted-
	Number of			Average Grant		Number of			Average Grant
	Shares			Date Fair Value		Units			Date Fair Value
Nonvested as of December 31, 2013		49		$	18.02
Nonvested as of December 31, 2014							83		$	22.20
Issued		58			24.71		295			13.98
Vested		(21	)		20.24		(35	)		22.49
Nonvested as of September 30, 2014		86		$	22.00
Forfeited							(49	)		16.04
Nonvested as of June 30, 2015							294		$	14.93

Additionally, the Company previously issued restricted shares of its common stock to certain employees under the Prior Plan. These awards are recognized in the consolidated statements of operations and comprehensive loss based on their fair values. Stock-based compensation expense of $15 and $32 was recorded during the three and nine months ended September 30, 2013, respectively, in connection with these restricted stock awards.

The Company also issues common stock options. The following summarizes stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2014:~~2015:

Weighted-

Aggregate

Average

Intrinsic Value

Weighted-

Remaining

as of

Number of

Average

Contractual

September 30,

Options

Exercise Price

Term (In Years)

2014

Balance outstanding as of December 31, 2013

1,967

$
15.22

8.0

$
26,168

Options granted

471

25.51

Options exercised

(92
)

4.92

Options cancelled

(87
)

20.61

Balance outstanding as of September 30, 2014

2,259

$
17.57

7.8

$
3,054

Vested and expected to vest at September 30, 2014

2,041

$
17.17

7.7

$
3,040

Exercisable as of September 30, 2014

1,169

$
14.09

7.0

$
2,934

						Weighted-		Aggregate
						Average		Intrinsic Value
				Weighted-		Remaining		as of
	Number of			Average		Contractual		June 30,
	Options			Exercise Price		Term (In Years)		2015
Balance outstanding as of December 31, 2014		2,220		$	17.56		7.5	$	2,389
Options granted		458			15.52
Options exercised		(197	)		7.73
Options cancelled		(271	)		20.05
Balance outstanding as of June 30, 2015		2,210		$	17.70		7.4	$	1,380
Vested and expected to vest at June 30, 2015		2,013		$	17.55		7.2	$	1,369
Exercisable as of June 30, 2015		1,223		$	16.43		6.2	$	1,293

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock at ~~September~~June 30, ~~2014~~2015 multiplied by the number of shares that would have been received by the option holders had all option holders exercised their options on ~~September~~June 30, ~~2014.~~2015. The aggregate intrinsic value of options exercised during the three months ended ~~September~~June 30, 2015 and 2014 was $1,463 and ~~2013 was $283 and $278,~~$300, respectively. The aggregate intrinsic value of options exercised during the ~~nine~~six months ended ~~September~~June 30, 2015 and 2014 was $1,545 and ~~2013 was $1,414 and $2,211,~~$1,132, respectively.

The total unrecognized compensation cost related to outstanding stock options is ~~$11,409~~$8,587 at ~~September~~June 30, ~~2014.~~2015. This amount is expected to be recognized over a weighted-average period of 2.7 years.

The following table summarizes information about stock options outstanding and exercisable at ~~September~~June 30, ~~2014:~~2015:

	Options Outstanding at September 30, 2014						Options Exercisable at September 30, 2014				Options Outstanding at June 30, 2015						Options Exercisable at June 30, 2015
			Weighted-										Weighted-
			Average										Average
			Remaining		Weighted-				Weighted-				Remaining
			Contractual Term		Average				Average				Contractual Term		Weighted-Average				Weighted-Average
Range of Exercise Price	Number		(In Years)		Exercise Price		Number		Exercise Price		Number		(In Years)		Exercise Price		Number		Exercise Price
$0.08 - $0.14		11		1.2	$	0.10		11	$	0.10
$0.14 - $1.90		3		4.0		1.34		3		1.34
$0.10 - $1.90												8		1.6	$	0.29		8	$	0.29
$2.04 - $8.18		194		5.3		3.85		194		3.85		87		4.4		5.67		87		5.67
$11.45 - $17.20		1,200		7.3		14.89		779		14.59
$17.41 - $27.64		685		9.0		23.82		158		23.25
$11.45 - $17.33												1,445		7.3		15.07		832		14.75
$17.50 - $27.64												529		7.8		24.20		246		24.00
$27.91 - $29.14		166		9.3		28.71		24		28.73		141		8.4		28.70		50		28.70
Total		2,259		7.8	$	17.57		1,169	$	14.09		2,210		7.4	$	17.70		1,223	$	16.43

The fair value of common stock options for employees and non-employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2014			2013			2015			2014
Estimated dividend yield		-	%		-	%		0	%		0	%
Expected stock price volatiliy	46.1 - 48.8		%	46.8 - 55.0		%
Expected stock price volatility							44.88 - 46.30		%	46.05 - 46.33		%
Weighted-average risk-free interest rate	1.8 - 2.0		%	0.9 - 2.0		%	1.36 - 1.89		%	1.75 - 1.94		%
Expected life of options (in years)		6.25			6.25			6.25			6.25

Stock-based compensation expense of ~~$1,297~~$1,038 and ~~$1,063~~$1,363 was recorded during the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, and ~~$3,898~~$2,183 and ~~$2,798~~$2,601 was recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, related to the Company’s outstanding stock options. The weighted average grant date fair value per share for stock options granted in the ~~nine~~six months ended ~~September~~June 30, 2015 and 2014 was $7.13 and ~~2013 was $11.96 and $10.06,~~$12.19, respectively. The aggregate fair value of stock options that vested during the ~~nine~~six months ended ~~September~~June 30, 2015 and 2014 was $2,335 and ~~2013 was $4,148 and $2,647,~~$2,741, respectively.

As discussed in Note 3, the Company recognized stock-based compensation expense of $313 and $939 in the accompanying consolidated statement of operations and comprehensive loss during the three and nine months ended September 30, 2013 related to the earn-out arrangement associated with the Spend Radar acquisition. In addition, the Company recognized stock-based compensation of $244 and $732 in the accompanying consolidated statement of operations and comprehensive loss during the three and nine months ended September 30, 2013 related to the earn-out arrangement with certain former shareholders of AECsoft.

The Company adopted an Employee Stock Purchase Plan (the “Purchase Plan”) effective June 1, 2012. Eligible employees can contribute up to 10% of their gross earnings for each pay period, up to a maximum of $25 for any calendar year. ~~The initial offering period that commenced on June 1, 2012 was a period of 12 months, and thereafter six~~Six month offering periods begin on December 1 and June 1 of each year. During the offering period eligible employees may elect to purchase shares of the Company’s common stock according to the terms of the offering. The per share purchase price is equal to the lesser of 85% of the fair market value of the Company’s common stock on the offering date or 85% of the fair market value of the Company’s common stock on the purchase date. The fair value of stock purchase rights granted under the Purchase Plan is estimated on the date of grant using the Black-Scholes option-pricing model. As of ~~September~~June 30, ~~2014, 910~~2015, 848 shares of common stock were available for issuance to participating employees under the Purchase Plan. During the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, the Company recognized stock-based compensation expense of ~~$78~~$76 and ~~$58,~~$81, respectively, and recognized ~~$240~~$146 and ~~$204~~$162 during the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, respectively, related to the Purchase Plan.

The fair value of stock purchase rights granted under the Purchase Plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2014			2013			2015			2014
Estimated dividend yield		-	%		-	%		0	%		0	%
Expected stock price volatiliy		47.2	%		52.2	%
Expected stock price volatility								47.20	%		46.69	%
Weighted-average risk-free interest rate		0.06	%		0.07	%		0.08	%		0.06	%
Expected life of options (in years)		0.5			0.5			0.5			0.5

The Company computes its provision for income taxes by applying the estimated annual effective tax rate, adjusted for any material items. The Company’s effective tax ~~rates~~rate of ~~(28)~~(31)% and ~~(42)~~(381.8)% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, respectively, ~~vary from~~was lower than the federal statutory rate of 34% primarily due to non-deductible expenses, including stock-based compensation. The Company’s effective tax ~~rates~~rate of ~~34%~~(29.8)% and ~~(15)~~(95.7)% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2013,~~2014, respectively, ~~vary from~~was lower than the federal statutory rate of 34% primarily due to ~~research and development credits generated, and~~ non-deductible expenses, including stock-based compensation and stock-based compensation associated with the earn-out arrangement. Additionally, North Carolina legislation centered around a change in the corporate income tax rate resulted in a change in the Company’s state deferred tax rate, which was treated as a discrete item, and resulted in income tax expense for the three months ended September 30, 2013.compensation.

On July 29, 2014, the Company entered into a lease assignment, pursuant to which the Company assigned all of its right, title and interest in the Company’s office lease at its former headquarters. The assignment required the Company to pay an amount equal to $20 as an estimate of additional rental adjustments that are expected to be payable under the lease, and a lump sum payment to the landlord in the amount of $685 as a partial prepayment of rental payments owed under the lease for the remaining lease term. These costs,

adjusted for the existing deferred rent balance of $468, are included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2014. In addition, in connection with the negotiation of the lease assignment, the Company incurred broker’s fees of $141, which are included in general and administrative expense for the three and nine months ended September 30, 2014.

As discussed in Note 6, certain fixed assets were transferred in accordance with the lease assignment. The Company recognized a loss of $430 in the accompanying consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2014 related to the disposal of these assets.

From time to time, the Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company records an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is not currently subject to any material legal proceedings.

The Company’s hosting service is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable under normal use and circumstances. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property rights. The Company to date has not incurred costs to settle claims or pay awards under these indemnification obligations. The Company accounts for these

indemnity obligations as contingencies and records a liability for these obligations when a loss is probable and reasonably estimable. To date, the Company has not incurred any material costs as a result of these indemnifications and has not accrued any liabilities related to the obligations in the accompanying consolidated financial statements.

The Company enters into service level agreements with its on-demand solution customers warranting certain levels of uptime reliability. To date, the Company has not incurred any material costs and has not accrued any liabilities related to such obligations.

The Company evaluated subsequent events from July 1, 2015 through August 7, 2015, the date the consolidated financial statements were issued. The Company concluded that no subsequent events have occurred that would require recognition or disclosure in the consolidated financial statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report under “Part II, Other Information--Item 1A, Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to SciQuest, Inc.

We provide leading cloud-based business automation solutions for spend management that include:

Our solutions are designed to meet customer needs to reduce costs, simplify and improve visibility into key business processes, further strategic initiatives, enhance control over spending decisions and improve compliance and risk management. By simplifying and streamlining cumbersome, and often manual, processes and creating a comprehensive view of spending and compliance across the organization, organizations can identify and capitalize on opportunities to reduce costs by gaining control over suppliers, contracts, purchases and payments.

We deliver our cloud-based solutions using a Software-as-a-Service, or SaaS, model, which enables us to offer greater functionality, faster innovation, easier integration and improved reliability with less cost and risk to the organization than traditional on-premise solutions. Customers pay us subscription fees and implementation service fees for the use of our solutions under either multi-year contracts that are generally three to five years in length or one-year contracts with annual renewal provisions.

In 2001, we began developing and marketing our procurement solutions. We initially acquired a critical mass of customers in the higher education and life sciences vertical markets and selectively expanded to serve the healthcare and state and local government markets. In 2010, we completed an initial public offering of our common stock. In 2011, we acquired all of the capital stock of AECsoft USA, Inc., or “AECsoft”, a leading provider of supplier management and sourcing solutions. In 2012, we acquired substantially all of the assets of Upside Software, Inc., or “Upside”, a leading provider of contract lifecycle management solutions, and substantially all of the assets of Spend Radar LLC, or “Spend Radar”, a leading provider of spend analysis solutions. In 2013, we acquired all of the capital stock of CombineNet, Inc., or “CombineNet”, a leading provider of advanced sourcing software to organizations with large and potentially complex strategic sourcing needs.

Due to our historical focus on vertical markets, we have had a relatively high concentration of higher education, life sciences, healthcare and state and local government customers. But a majority of our customers now span the general commercial market as a result of our acquisitions as well as our own marketing efforts. We currently market our solutions across the entire addressable market for spend management solutions.

We have several key financial terms and metrics. During the ~~nine~~six months ended ~~Septermber~~June 30, ~~2014,~~2015, there were no changes with respect to our key financial terms and metrics, which are discussed in more detail under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Financial Terms and Metrics” included in our annual report on Form 10-K for the year ended December 31, ~~2013,~~2014, which was filed with the Securities and Exchange Commission on February ~~21, 2014.~~23, 2015.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 2 to the financial statements, the following accounting policies involve a greater degree of judgment and complexity. A critical accounting policy is one that is both material to the preparation of our financial statements and requires us to make difficult, subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations:

During the ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, there were no significant changes in our critical accounting policies or estimates. See Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q and under the heading “Critical Accounting Policies” in our annual report on Form 10-K for the year ended December 31, ~~2013,~~2014, which was filed with the Securities and Exchange Commission on February ~~21, 2014,~~23, 2015, for additional information regarding our critical accounting policies, as well as a description of our other significant accounting policies.

The following table sets forth, for the periods indicated, our results of operations:

													Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended September 30,						Nine Months Ended September 30,					2015			2014			2015			2014
	2014				2013			2014		2013			(In thousands)						(In thousands)
Revenues	$	25,670		$	22,513		$	76,364		$	64,383		$	26,501		$	25,287		$	52,442		$	50,694
Cost of revenues (1) (2)		7,854			6,759			23,400			19,942
Costs of revenues (1) (2)														8,702			7,876			17,030			15,546
Gross profit		17,816			15,574			52,964			44,441			17,799			17,411			35,412			35,148
Operating expenses: (1)
Research and development		7,146			7,132			21,261			20,525			6,730			7,188			13,802			14,115
Sales and marketing		6,208			6,334			19,409			17,064			6,727			6,241			13,733			13,201
General and administrative		4,348			3,462			10,791			9,446			3,170			3,333			6,519			6,443
Amortization of intangible assets		795			602			2,395			1,545			734			803			1,469			1,600
Total operating expenses		18,497			17,530			53,856			48,580			17,361			17,565			35,523			35,359
Loss from operations		(681	)		(1,776	)		(892	)		(4,139	)
Income (loss) from operations														438			(154	)		(111	)		(211	)
Interest and other income (expense), net		87			(3	)		134			(8	)		116			50			78			47
Loss before income taxes		(594	)		(1,779	)		(758	)		(4,147	)
Income tax benefit (expense)		164			(603	)		321			633
Net loss	$	(430	)	$	(2,382	)	$	(437	)	$	(3,514	)
Income (loss) before income taxes														554			(104	)		(33	)		(164	)
Income tax (expense) benefit														(172	)		31			126			157
Net income (loss)													$	382		$	(73	)	$	93		$	(7	)

									Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,			2015		2014		2015		2014
	2014			2013		2014	2013		(In thousands)				(In thousands)
Cost of revenues	$	187	$	124	$	533	$	368	$	217	$	183	$	402	$	346
Research and development		201		442		582		1,288	163		201			291		381
Sales and marketing		338		533		1,112		1,415	371		412			741		774
General and administrative		852		717		2,445		2,031	694		835			1,480		1,593
	$	1,578	$	1,816	$	4,672	$	5,102	$	1,445	$	1,631	$	2,914	$	3,094

									Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,			2015		2014		2015		2014
	2014			2013		2014	2013		(In thousands)				(In thousands)
Amortization of capitalized software development costs	$	791	$	466	$	2,022	$	1,287	$	1,072	$	673	$	1,989	$	1,231
Amortization of acquired software		519		402		1,558		1,052		496		519		993		1,039
	$	1,310	$	868	$	3,580	$	2,339	$	1,568	$	1,192	$	2,982	$	2,270

The following table sets forth, for the periods indicated, our results of operations expressed as a percentage of revenues:

		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2014			2013		2014		2013			2015		2014		2015		2014
Revenues		100	%	100	%	100	%		100	%	100	%	100	%	100	%	100	%
Cost of revenues		30		30		31			31		33		31		33		30
Gross profit		70		70		69			69		67		69		67		70
Operating expenses:
Research and development		28		32		28			32		25		28		26		28
Sales and marketing		24		28		25			26		25		25		26		26
General and administrative		17		15		14			15		12		13		12		13
Amortization of intangible assets		3		3		3			2		3		3		3		3
Total operating expenses		72		78		70			75		65		69		67		70
Loss from operations		(2	)	(8	)	(1	)		(6	)
Interest and other (expense) income, net		—		—		—			—
Loss before income taxes		(2	)	(8	)	(1	)		(6	)
Income tax benefit (expense)		—		(3	)	—			1
Net loss		(2)	%	(11	)%	(1)	%		(5	)%
Income (loss) from operations											2		0		0		0
Interest and other income, net											0		0		0		0
Income (loss) before income taxes											2		0		0		0
Income tax (expense) benefit											(1)		0		0		0
Net income (loss)											1	%	0	%	0	%	0	%

Three Months Ended ~~September~~June 30, ~~2014~~2015 Compared to Three Months Ended ~~September~~June 30, ~~2013~~2014

Revenues. Revenues for the three months ended ~~September~~June 30, ~~2014~~2015 were ~~$25.7~~$26.5 million, an increase of ~~$3.2~~$1.2 million, or ~~14%~~5%, over revenues of ~~$22.5~~$25.3 million for the three months ended ~~September~~June 30, ~~2013.~~2014. The increase in revenues resulted primarily from the recognition of revenue for a full three-month period for the new customers added in, and subsequent to, the three months ended ~~September~~June 30, ~~2013, as well as revenue relating to customers acquired as a result of our acquisition of CombineNet in August 2013.~~2014.

Cost of Revenues. Cost of revenues for the three months ended ~~September~~June 30, ~~2014~~2015 was ~~$7.9~~$8.7 million, an increase of ~~$1.1~~$0.8 million, or ~~16%~~10%, over cost of revenues of ~~$6.8~~$7.9 million for the three months ended ~~September~~June 30, ~~2013.~~2014. As a percentage of revenues, cost of revenues ~~was 30%~~increased to 33% for ~~both~~ the three months ended ~~September~~June 30, ~~2014 and 2013.~~2015 from 31% for the three months ended June 30, 2014. The increase in dollar amount was primarily due to a ~~$0.5~~$0.4 million increase in amortization of capitalized software development costs, a $0.2 million increase in employee-related costs attributable to ~~personnel gained through our CombineNet acquisition, as well as~~ our additional and existing implementation services, supplier enablement services, customer support and client partner personnel, and a ~~$0.3~~$0.2 million increase in amortization of capitalized software development costs, a $0.1 million increase in amortization of acquired software due to our acquisition of CombineNet, and a $0.1 million increase in stock-based compensation expense.other spend. We had ~~205~~210 full-time equivalents in our implementation services, supplier enablement services, customer support and client partner organizations at ~~September~~June 30, ~~2014~~2015 compared to ~~206~~199 full-time equivalents at ~~September~~June 30, ~~2013.~~2014.

Research and Development Expenses. Research and development expenses ~~were $7.1 million~~ for ~~both~~ the three months ended ~~September~~June 30, ~~2014~~2015 were $6.7 million, a decrease of $0.5 million, or 7%, from research and ~~2013.~~development expenses of $7.2 million for the three months ended June 30, 2014. As a percentage of revenues, research and development expense decreased to 25% for the three months ended June 30, 2015 from 28% for the three months ended ~~September~~June 30, ~~2014 from 32% for the three months ended September 30, 2013. Employee-related~~2014. The decrease in dollar amount was due primarily to a $0.1 million decrease in employee-related costs attributable ~~primarily~~ to ~~personnel gained through our CombineNet acquisition, as well as our additional and~~the existing research and development personnel, ~~increased by $0.2~~a $0.1 million decrease in other research and ~~maintenance~~development spend, and ~~hardware costs required to support our growing business increased by~~a $0.3 million ~~which costs were offset by increases~~increase in capitalized software development ~~costs of $0.6 million.~~costs. We had ~~226~~209 full-time equivalents in our research and development organization at ~~September~~June 30, ~~2014~~2015 compared to ~~219~~222 full-time equivalents at ~~September~~June 30, ~~2013.~~2014.

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended ~~September~~June 30, ~~2014~~2015 were ~~$6.2~~$6.7 million, ~~a decrease~~an increase of ~~$0.1~~$0.5 million, or 2%8%, ~~from~~over sales and marketing expenses of ~~$6.3~~$6.2 million for the three months ended ~~September~~June 30, ~~2013.~~2014. As a percentage of revenues, sales and marketing expenses ~~decreased to 24%~~were 25% for both the three months ended ~~September~~June 30, ~~2014 from 28% for the three months ended September 30, 2013.~~2015 and 2014. The ~~decrease~~increase in dollar amount was due primarily to a ~~$0.2~~$0.4 million ~~reduction~~increase in ~~stock-based compensation expense.~~employee-related costs attributable to our existing sales and marketing personnel and a $0.1 million increase in other sales and marketing spend. We had ~~103~~102 full-time equivalents in our sales and marketing organization at ~~September~~June 30, ~~2014 compared to 101 full-time equivalents at September 30, 2013.~~2015 and 2014.

General and Administrative Expenses. General and administrative expenses for the three months ended ~~September~~June 30, ~~2014~~2015 were ~~$4.3~~$3.2 million, ~~an increase~~a decrease of ~~$0.8~~$0.1 million, or ~~23%~~3%, ~~over~~from general and administrative expenses of ~~$3.5~~$3.3 million for the three months ended ~~September~~June 30, ~~2013.~~2014. As a percentage of revenues, general and administrative expenses ~~increased~~decreased to ~~17%~~12% for the three months ended ~~September~~June 30, ~~2014~~2015 from ~~15%~~13% for the three months ended ~~September~~June 30, ~~2013.~~2014. The ~~increase~~decrease in dollar amount was primarily due to ~~$0.8~~a $0.1 million ~~of net headquarters relocation costs.~~decrease in stock-based compensation expense and a $0.2 million decrease in other general and administrative spend, which was offset by a $0.1 million increase in employee-related costs attributable to our existing general and administrative personnel. We had 2927 full-time equivalents in our general and administrative organization at ~~September~~June 30, ~~2014 compared to 31 full-time equivalents at September 30, 2013.~~2015 and 2014.

Amortization of Intangible Assets. Amortization of intangible assets for the three months ended ~~September~~June 30, ~~2014~~2015 were ~~$0.8~~$0.7 million, ~~an increase~~a decrease of ~~$0.2~~$0.1 million, or ~~33%~~12%, ~~over~~from amortization of intangible assets of ~~$0.6~~$0.8 million for the three months ended ~~September~~June 30, ~~2013.~~2014. As a percentage of revenues, amortization of intangible assets was 3% for both the three months ended ~~September~~June 30, ~~2014~~2015 and ~~2013. The increase in dollar amount was due to amortization attributable to intangible assets acquired in connection with our CombineNet acquisition in August 2013.~~2014.

Income Tax ~~Benefit~~ (Expense). Benefit. Income tax benefit for the three months ended September 30, 2014 was $0.2 million compared to income tax expense of $(0.6) million for the three months ended September 30, 2013. The change in income tax benefit (expense) was primarily due to differences in our pre-tax net loss and effective tax rates in each period. A state deferred tax rate change in 2013, which was treated as a discrete item, resulted in tax expense for the three months ended ~~September~~June 30, ~~2013.~~

~~Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013~~

~~Revenues.~~ ~~Revenues for the nine months ended September 30, 2014 were $76.4~~2015 was $(0.2) million an increase of $12 million, or 19%, over revenues of $64.4 million for the nine months ended September 30, 2013. The increase in revenues resulted primarily from the recognition of revenue for a full nine-month period for the new customers added in, and subsequent to, the nine months ended September 30, 2013, as well as revenue relating to customers acquired as a result of our acquisition of CombineNet in August 2013.

~~Cost of Revenues.~~ Cost of revenues for the nine months ended September 30, 2014 was $23.4 million, an increase of $3.5 million, or 18%, over cost of revenues of $19.9 million for the nine months ended September 30, 2013. As a percentage of revenues, cost of revenues was 31% for both the nine months ended September 30, 2014 and 2013. The increase in dollar amount was due to a $1.6 million increase in employee-related costs attributable primarily to personnel gained through our CombineNet acquisition, as well as our additional and existing implementation services, supplier enablement services, customer support and client partner personnel, a $0.7 million increase in amortization of capitalized software development costs, a $0.5 million increase in amortization of acquired software due to our acquisition of CombineNet, a $0.2 million increase in stock-based compensation, and a $0.2 million increase in other spend. We had 205 full-time equivalents in our implementation services, supplier enablement services, customer support and client partner organizations at September 30, 2014 compared to 206 full-time equivalents at September 30, 2013.

~~Research and Development Expenses.~~ Research and development expenses for the nine months ended September 30, 2014 were $21.3 million, an increase of $0.8 million, or 4%, from research and development expenses of $20.5 million for the nine months ended September 30, 2013. As a percentage of revenues, research and development expense decreased to 28% for the nine months ended September 30, 2014 from 32% for the nine months ended September 30, 2013. The increase in dollar amount was primarily due to a $0.9 million increase in employee-related costs attributable primarily to personnel gained through our CombineNet acquisition, as well as our additional and existing research and development personnel, and a $1.2 million increase in maintenance and hardware costs required to support our growing business, which costs were offset by increases in capitalized software development costs of $1.3 million. We had 226 full-time equivalents in our research and development organization at September 30, 2014 compared to 219 full-time equivalents at September 30, 2013.

~~Sales and Marketing Expenses.~~ Sales and marketing expenses for the nine months ended September 30, 2014 were $19.4 million, an increase of $2.3 million, or 13%, over sales and marketing expenses of $17.1 million for the nine months ended September 30, 2013. As a percentage of revenues, sales and marketing expenses decreased to 25% for the nine months ended September 30, 2014 from 26% for the nine months ended September 30, 2013. The increase in dollar amount was due primarily to a $0.8 million increase in employee-related costs attributable primarily to personnel gained through our CombineNet acquisition, as well as our additional and existing sales and marketing personnel, a $0.3 million increase in trade show related costs, a $0.5 million increase in travel costs, a $0.3 million increase in amortized commission expense, and a $0.4 million increase in other sales and marketing spend. We had 103 full-time equivalents in our sales and marketing organization at September 30, 2014 compared to 101 full-time equivalents at September 30, 2013.

~~General and Administrative Expenses.~~ General and administrative expenses for the nine months ended September 30, 2014 were $10.8 million, an increase of $1.4 million, or 15%, over general and administrative expenses of $9.4 million for the nine months ended September 30, 2013. As a percentage of revenues, general and administrative expenses decreased to 14% for the nine months ended September 30, 2014, from 15% for the nine months ended September 30, 2013. The increase in dollar amount was primarily due to a $0.2 million increase in employee-related costs attributable primarily to our additional and existing general and administrative personnel, as well as personnel gained through our CombineNet acquisition, $0.8 million of net headquarters relocation costs, and a $0.4 million increase in stock-based compensation expense. We had 29 full-time equivalents in our general and administrative organization at September 30, 2014 compared to 31 full-time equivalents at September 30, 2013.

~~Amortization of Intangible Assets.~~ Amortization of intangible assets for the nine months ended September 30, 2014 were $2.4 million, an increase of $0.9 million, or 60%, over amortization of intangible assets of $1.5 million for the nine months ended September 30, 2013. As a percentage of revenues, amortization of intangible assets increased to 3% for the nine months ended September 30, 2014, from 2% for the nine months ended September 30, 2013. The increase in dollar amount was due to amortization attributable to intangible assets acquired in connection with our CombineNet acquisition in August 2013.

~~Income Tax Benefit.~~ ~~Income tax benefit was $0.3 million for the nine months ended September 30, 2014~~ compared to income tax benefit of ~~$0.6~~$0.0 million for the ~~nine~~three months ended ~~September~~June 30, ~~2013.~~2014. The change in income tax (expense) benefit was primarily due to differences in our pre-tax net loss and effective tax rates in each period. ~~A state deferred tax rate change~~

Revenues. Revenues for the six months ended June 30, 2015 were $52.4 million, an increase of $1.7 million, or 3%, over revenues of $50.7 million for the six months ended June 30, 2014. The increase in ~~2013,~~revenues resulted primarily from the recognition of revenue for a full six-month period for the new customers added in, and subsequent to, the six months ended June 30, 2014.

Cost of Revenues. Cost of revenues for the six months ended June 30, 2015 was $17.0 million, an increase of $1.5 million, or 10%, over cost of revenues of $15.5 million for the six months ended June 30, 2014. As a percentage of revenues, cost of revenues increased to 33% for the six months ended June 30, 2014 from 30% from the six months ended June 30, 2014. The increase in dollar amount primarily resulted from a $0.5 million increase in employee-related costs attributable to our additional and existing implementation services, supplier enablement services, customer support and client partner personnel, a $0.8 million increase in amortization of capitalized software development costs, and a $0.2 million increase in other spend. We had 210 full-time equivalents in our implementation services, supplier enablement services, customer support and client partner organizations at June 30, 2015 compared to 199 full-time equivalents at June 30, 2014.

Research and Development Expenses. Research and development expenses for the six months ended June 30, 2015 were $13.8 million, a decrease of $0.3 million, or 2%, from research and development expenses of $14.1 million for the six months ended June 30, 2014. As a percentage of revenues, research and development expense decreased to 26% for the three months ended June 30, 2015 from 28% for the six months ended June 30, 2014. The decrease in dollar amount was primarily due to a $0.5 million increase in capitalized software development costs, which was ~~treated as~~offset by a ~~discrete item, resulted~~$0.1 million increase in employee-related costs attributable to the existing research and development personnel and a ~~reduced~~$0.1 million increase in other research and development spend. We had 209 full-time equivalents in our research and development organization at June 30, 2015 compared to 222 full-time equivalents at June 30, 2014.

Sales and Marketing Expenses. Sales and marketing expenses for the six months ended June 30, 2015 were $13.7 million, an increase of $0.5 million, or 4%, over sales and marketing expenses of $13.2 million for the six months ended June 30, 2014. As a percentage of revenues, sales and marketing expenses were 26% for both the six months ended June 30, 2015 and 2014. The increase in dollar amount was due primarily to a $0.7 million increase in employee-related costs attributable to our existing sales and marketing personnel, which was offset by a $0.2 million decrease in other sales and marketing spend. We had 102 full-time equivalents in our sales and marketing organization at June 30, 2015 and 2014.

General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2015 were $6.5 million, an increase of $0.1 million, or 2%, over general and administrative expenses of $6.4 million for the six months ended June 30, 2014. As a percentage of revenues, general and administrative expenses decreased to 12% for the six months ended June 30, 2015, from 13% for the six months ended June 30, 2014. The increase in dollar amount was primarily due to a $0.3 million increase in employee-related costs attributable primarily to our existing general and administrative personnel, which was offset by a $0.1 million decrease in stock-based compensation expense and a $0.1 million decrease in other general and administrative spend. We had 27 full-time equivalents in our general and administrative organization at June 30, 2015 and 2014.

Amortization of Intangible Assets. Amortization of intangible assets for the six months ended June 30, 2015 were $1.5 million, a decrease of $0.1 million, or 6%, over amortization of intangible assets of $1.6 million for the six months ended June 30, 2014. As a percentage of revenues, amortization of intangible assets was 3% for both the six months ended June 30, 2015 and 2014.

Income Tax Benefit. Income tax benefit for the ~~nine~~six months ended ~~September~~June 30, ~~2013.~~2015 was $0.1 million compared to income tax benefit of $0.2 million for the six months ended June 30, 2014. The change in income tax benefit was due to a difference in our pre-tax net loss and effective tax rates in each period.

Net cash ~~provided by~~used in operating activities was ~~$8.9~~$0.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2014.~~2015. Our cash flow from operations is primarily a result of the timing of cash payments from our customers, offset by the timing of our cash expenditures, which are primarily employee salaries. Since annual subscription fees are typically due on each anniversary of contract signing, the amount of cash received for annual subscription fees typically fluctuates on a quarterly basis based on the historical levels of new business sales in that quarter. Due to lower historical sales levels in our first quarter, combined with the payment of annual bonuses from the prior year in our first quarter, our cash flow from operations is typically lowest in our first quarter. Due ~~also~~ to the historical timing of ~~business~~client payments from second quarter sales, our cash flow from operations is lower in our second quarter as compared to our third and fourth quarters. The cash payments received from customers were approximately ~~$77~~$45 million during the ~~nine~~six months ended ~~September~~June 30, ~~2014.~~2015. The cash expenditures for employee salaries, including incentive payments, were approximately ~~$44~~$32 million during the ~~nine~~six months ended ~~September~~June 30, ~~2014.~~2015.

For the ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, net cash ~~provided by~~used in operating activities of ~~$8.9~~$0.6 million was primarily the result of ~~$0.4~~$0.1 million of net ~~loss~~income plus ~~$4.7~~$2.9 million of stock-based compensation, ~~$8.0~~and $5.9 million of depreciation and amortization, less a ~~$4.3~~$1.5 million decrease in ~~accounts receivable,~~accrued liabilities, a $7.8 million decrease in deferred revenues, and a ~~$0.4~~$0.2 million ~~decrease~~increase in prepaid expenses and other current ~~assets,~~assets.

For the six months ended June 30, 2014, net cash used in operating activities of $3.1 million was primarily the result of $3.1 million of stock-based compensation and $5.1 million of depreciation and amortization plus a $0.9 million increase in accounts payable, less a ~~$3.8~~$4.6 million decrease in deferred revenues, a $6.0 million decrease in accrued liabilities, and a ~~$4.3 million decrease in deferred revenues.~~

For the nine months ended September 30, 2013, net cash provided by operating activities of $9.3 million was primarily the result of $3.5 million of net loss plus a $2.7 million decrease in accounts receivable, $5.1 million of stock-based compensation, $5.5 million of depreciation and amortization, and a $1.1$1.8 million increase in ~~accrued liabilities, less a $1.6 million decrease in~~ accounts ~~payable.~~receivable.

As of ~~September~~June 30, ~~2014,~~2015, we had net operating loss carryforwards of approximately ~~$208.5~~$203.9 million available to reduce future federal taxable income. Use of these carryforwards is subject to significant limitations. In the future, we may fully utilize our available net operating loss carryforwards and would begin making income tax payments at that time. In addition, the limitations on utilizing net operating loss carryforwards and other minimum state taxes may also increase our overall tax obligations. We expect that if we

generate taxable income and/or we are not allowed to use net operating loss carryforwards for federal/state income tax purposes, our cash generated from operations will be adequate to meet our income tax obligations.

For the ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, net cash used in investing activities was ~~$69.8~~$3.5 million, consisting of ~~net~~ purchases of ~~$62.3~~$72.5 million of short-term investments, various capital expenditures of ~~$3.3~~$1.3 million and capitalization of ~~$4.2~~$3.3 million of software development ~~costs.~~costs, plus maturities of $73.6 million of short-term investments. In general, our capital expenditures are for our network

infrastructure to support our increasing customer base and growth in new business and for internal use, such as equipment for our increasing employee headcount.

For the ~~nine~~six months ended ~~September~~June 30, ~~2013,~~2014, net cash used in investing activities was ~~$15.8~~$51.5 million, consisting of ~~the acquisition~~net purchases of ~~CombineNet, net~~$47.2 million of ~~cash acquired, of $25.5 million, plus~~short-term investments, various capital expenditures of ~~$1.8~~$1.6 million and capitalization of ~~$2.9~~$2.8 million of software development ~~costs, offset by net maturities of $14.5 million of short-term investments.~~costs.

For the ~~nine~~three months ended ~~September~~June 30, 2015, net cash provided by financing activities was $2.0 million, consisting of $1.5 million in proceeds from the exercise of common stock options and $0.5 million in proceeds from the employee stock purchase plan.

For the six months ended June 30, 2014, net cash provided by financing activities was ~~$88.7~~$88.3 million, consisting of $87.4 million in proceeds from our public offering, net of underwriting discounts and offering costs, ~~$0.5~~$0.4 million in proceeds from the exercise of common stock options and ~~$0.8 million in proceeds from employee stock purchase plan activity.~~

~~For the nine months ended September 30, 2013, net cash provided by financing activities was $2.4 million, consisting of $1.6~~$0.5 million in proceeds from the ~~exercise of common stock options and $0.8 million in proceeds from~~ employee stock purchase ~~plan activity.~~plan.

On November 2, 2012, we established a $30 million revolving credit facility to cost effectively increase our liquidity, though we have no current plans to utilize it. The facility consists of a $20 million securities secured revolving credit facility and a $10 million receivables secured revolving credit facility and will be available for use until November 2, 2015. The securities secured facility and the receivables secured facility bear interest equal to the BBA LIBOR Daily Floating Rate plus 0.75% and the BBA LIBOR Daily Floating Rate plus 1.50%, respectively. We pay a quarterly fee equal to 0.10% on any unused funds under the facility. As of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, we had $0 outstanding.

As of ~~September~~June 30, ~~2014,~~2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space, we do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Our future capital requirements may vary materially from those now planned and will depend on many factors, including the costs to develop and implement new products and services, the sales and marketing resources needed to further penetrate our targeted vertical markets as well as the broader commercial market and gain acceptance of new products we develop or acquire, the expansion of our operations in the United States and internationally and the response of competitors to our products and services. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business. We expect our cost of revenues, research and development, sales and marketing, general and administrative and capital expenditures to increase in absolute dollars in the future. As a percentage of revenues, we expect cost of revenues and sales and marketing to remain relatively consistent and research and development, general and administrative and capital expenditures to decline in the future. In the future, we may also acquire complementary businesses, products or technologies. We have no formal agreements or commitments with respect to any acquisitions at this time.

We believe our cash and cash equivalents and our cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

During the last three years, inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

We have contractual obligations that require us to make future cash payments. During the ~~three~~six months ended ~~September~~June 30, ~~2014,~~2015, there were no material changes in the contractual and commercial commitments that are discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Contractual and Commercial Commitment Summary” included in our ~~quarterly~~annual report on Form ~~10-Q~~10-K for the ~~six months~~year ended ~~June 30,~~December 31, 2014, which was filed with the Securities and Exchange Commission on ~~August 8, 2014.~~February 23, 2015.

Historically, our new business sales have fluctuated as a result of seasonal variations in our business, principally due to the timing of client budget cycles, with lower new sales in our first and third quarters than in the remainder of our year. Due in large part to the expansion of our product portfolio and market focus, however, we do not believe that we currently experience material seasonality with respect to new business sales. Our expenses have not and do not vary significantly as a result of these historical factors, but they do fluctuate on a quarterly basis due to varying timing of expenditures. Our cash flow from operations normally fluctuates quarterly due to the combination of the historical timing of new business sales and the payment of annual bonuses. Since annual subscription fees are typically due on each anniversary of contract signing, the amount of cash payments for annual subscription fees typically fluctuates on a quarterly basis based on the historical levels of new business sales in that quarter. Due to lower historical sales levels in our first quarter, combined with the payment of annual bonuses from the prior year in our first quarter, our cash flow from operations is lowest in our first quarter. Due also to the historical timing of business sales, our cash flow from operations is lower in our second quarter as compared to our third and fourth quarters. In addition, deferred revenues can vary on a seasonal basis for the same reasons. These seasonal patterns for cash flow and deferred revenues may lessen or otherwise change in the future as the impact of our historical seasonality of new business sales lessens over time.

We bill and receive payments from our customers predominately in U.S. dollars as well as make payments predominately in U.S. dollars. ~~With the acquisition of Upside, the amount of~~Our primary exposure to foreign currencies results from payments ~~received and~~ made in Canadian dollars ~~has increased slightly while remaining an immaterial portion~~for payroll and other expenses relating to our office in Edmonton, Alberta, which represented approximately 10% of our ~~business. Given~~total expenses in the quarter ended June 30, 2015. Although our results of operations could be adversely affected by a decline in the value of the U.S. dollar relative to the Canadian dollar, such a decline would have to be significant in order to have a material impact on our results of operations given our limited exposure to foreign ~~currencies, the relative stability~~currencies. The majority of ~~currency exchange rates between the~~our sales contracts are currently denominated in U.S. ~~dollar and the Canadian dollar and our ability to monitor a single exchange rate,~~dollars. Therefore, we ~~believe that our results of operations and cash flows are not materially subject to fluctuations due to changes in~~have minimal foreign currency exchange ~~rates.~~risk with respect to our revenue. If we further grow ~~sales of~~ our ~~solution~~sales outside the United States or establish other material operations outside the United States, we may become subject to greater risks with respect to changes in currency exchange rates.

Interest income and expense are sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our investments, which are primarily cash and cash equivalents and short-term investments, we believe there is no material risk of exposure.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, an evaluation as of ~~September~~June 30, ~~2014~~2015 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief

Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities

Exchange Act of 1934, as amended). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of ~~September~~June 30, ~~2014,~~2015, were effective for the purposes stated above.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are not party to any material legal proceedings at this time. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business.

There have been no material changes to the Risk Factors we previously disclosed in our annual report on Form 10-K for the year ended December 31, ~~2013,~~2014, which was filed with the Securities and Exchange Commission on February ~~21, 2014.~~23, 2015.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Pages
	PART I. FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS	2
	Consolidated Balance Sheets as of ~~September~~June 30, ~~2014~~2015 (unaudited) and December 31, ~~2013~~2014	2
	Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	3
	Consolidated Statement of Stockholders’ Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 (unaudited)	4
	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2319
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2925
ITEM 4.	CONTROLS AND PROCEDURES	2925
	PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	3127
ITEM 1A.	RISK FACTORS	3127
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3127
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3127
ITEM 4.	MINE SAFETY DISCLOSURES	3127
ITEM 5.	OTHER INFORMATION	3127
ITEM 6.	EXHIBITS	3127
	SIGNATURES	3228

Cash	$	26,634
Fair value of common stock		17,093
Total purchase consideration		43,727
Cash acquired		1,042
Net purchase consideration	$	42,685

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2013			2013
Pro forma revenue	$	25,417		$	74,177
Pro forma net loss	$	(1,066	)	$	(2,798	)
Pro forma net loss per share, basic	$	(0.05	)	$	(0.12	)
Pro forma net loss per share, diluted	$	(0.05	)	$	(0.12	)

Cash	$	8,000
Fair value of common stock		2,087
Total purchase consideration		10,087
Cash acquired		259
Net purchase consideration	$	9,828

	Estimated	Estimated
	Useful Life	Fair Value
Accounts receivable		$	2,679
Prepaid expenses and other current assets			334
Property and equipment			464
Deferred project costs			121
Deferred tax assets			4,606
Other assets			30
Covenant not to compete	2 years		100
Trademarks	3 years		300
Acquired technology	7 years		4,100
Customer relationships	15 years		13,000
Goodwill			28,624
Accounts payable			(98	)
Accrued expenses			(786	)
Deferred tax liability			(6,349	)
Deferred revenues			(4,440	)
Total purchase consideration		$	42,685

Balance at December 31, 2013	$	65,280
Business combination adjustment		(284	)
Foreign currency translation		(706	)
Balance at September 30, 2014	$	64,290

SCIQUEST, INC.
(Registrant)
By:		/s/ ~~Rudy C. Howard~~Jennifer G. Kaelin
		~~Rudy C. Howard~~Jennifer G. Kaelin
		Chief Financial Officer
		(Principal Financial and Accounting Officer)
		Date: ~~November~~August 7, ~~2014~~2015