Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation 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. Use of Estimates 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. Revenue Recognition 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. Revenue Recognition for Multiple-Element Arrangements 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 value to its customers. For arrangements when implementation services do not have standalone 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 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. Sales taxes collected from customers and remitted to government authorities are excluded from revenue. 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 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. Deferred Commissions 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. Concentrations As of December 31, 2015 and 2014, no individual customer comprised more than 10% of the accounts receivable balance. During each of the years ended December 31, 2015, 2014 and 2013, no individual customer comprised more than 10% of the Company’s revenues. During the year’s ended December 31, 2015, 2014 and 2013, approximately 88%, 87% and 89%, respectively, of the Company’s revenue was from sales transactions originating in the United States. As of December 31, 2015 and 2014, all of the Company’s long-lived assets were located in North America. Cash and Cash Equivalents 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. Short-Term Investments 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 December 31, 2015 and 2014. Realized gains and losses are included in other income based on the specific identification method. There were no realized gains or losses for the years ended December 31, 2015, 2014 or 2013. Net unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive loss, net of tax. As of December 31, 2015 and 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 December 31, 2015 or 2014. Accounts Receivable 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 $473 and $1,100 at December 31, 2015 and 2014, respectively. Property and Equipment 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. Software Development Costs 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. Goodwill 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 indicated 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 Company performed its annual assessments on December 31, 2015 and 2014. The estimated fair value of the Company’s reporting unit exceeded its carrying amount, including goodwill, and as such, no goodwill impairment was recorded. Long-Lived Assets The Company evaluates the recoverability of its property and equipment and other long-lived assets, including acquired technology and customer relationships, when events change or circumstances indicate the carrying amount may not be recoverable. If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset is impaired. An impairment loss is recognized when, and to the extent, the net book value of such assets exceeds the fair value of the assets or the business to which the assets relate. Cash flows would include the estimated terminal value of the asset and exclude any interest charges. The discount rate utilized would be based on the Company’s best estimate of the related risks and return at the time the impairment assessment is made. There were no impairments losses recognized related to the Company’s long-lived assets during the years ended December 31, 2015, 2014, and 2013. Sales and Marketing Expenses Sales and marketing expenses consist primarily of costs, including salaries and sales commissions, of all personnel involved in the sales process. Sales and marketing expenses also include costs of advertising, trade shows, certain indirect costs and allocated fixed asset depreciation and facilities costs. Advertising costs are expensed as incurred. Advertising expenses totaled approximately $646, $883 and $678 for the years ended December 31, 2015, 2014 and 2013, respectively. Stock-Based Compensation Stock-based payments to employees, including grants of employee stock options, are recognized in the consolidated statement of operations and comprehensive 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 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. The expected term for the years ended December 31, 2015, 2014 and 2013, 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. Foreign Currency and Operations 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. At December 31, 2015 and 2014, accumulated other comprehensive loss was $(6,055) and $(3,055), respectively, which is predominantly due to the intercompany balance with the Company’s Canadian subsidiary not expected to be settled in the foreseeable future and the goodwill balance on the Company’s Canadian subsidiary. Realized foreign currency transaction gains and losses are included in the other income section of the consolidated statements of operations and comprehensive loss. Income ( Loss) Per Share Basic net income (loss) per share is computed by dividing net 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 and restricted stock. 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 income (loss) per share: Year Ended December 31, 2015 2014 2013 Basic: Net income (loss) $ 1,862 $ (69 ) $ (4,734 ) Weighted average common shares, basic 27,721 26,609 23,044 Basic net income (loss) per share $ 0.07 $ (0.00 ) $ (0.20 ) Diluted: Net income (loss) $ 1,862 $ (69 ) $ (4,734 ) Weighted average common shares, basic 27,721 26,609 23,044 Dilutive effect of: Options to purchase common stock 122 - - Nonvested shares of restricted stock 34 - - Shares of employee stock purchase plan 12 - - Weighted average common shares, diluted 27,889 26,609 23,044 Diluted net income (loss) per share $ 0.07 $ (0.00 ) $ (0.20 ) The following equity instruments have been excluded from diluted net income (loss) per common share as they would be anti-dilutive. Year Ended December 31, 2015 2014 2013 Common stock options 602 373 77 For the years ended December 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 years ended December 31, 2014 and 2013, diluted net loss per share excluded the impact of 361 and 430 outstanding stock options, 13 and 28 nonvested shares of restricted stock, and approximately 18 shares of common stock issuable Segment Data 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 reporting segment. Income Taxes 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 greater than fifty percent likely 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. Recent Accounting Pronouncements In November 2015, the FASB issued new guidance related to balance sheet classification of deferred taxes. The new guidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We early adopted this guidance during the year ended December 31, 2015. The retrospective application of this guidance decreased Current assets by $400 and increased Other assets by $400 to include the current portion of the deferred tax assets within the non-current portion of the deferred tax assets in the consolidated Balance Sheet as of December 31, 2014. 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. The new standard was originally effective for fiscal years and interim periods within those years beginning after December 15, 2016 and early adoption was not permitted. In August 2015, the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. The Company will adopt this standard in the first quarter of 2018. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements. |