Basis of Presentation and Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Principles of Consolidation | Principles of Consolidation |
The consolidated financial statements include the accounts of Ellie Mae and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. |
Certain adjustments primarily related to the Company’s tax provision for the year ended December 31, 2013 have been made as further described in Note 2, under “Correction of Immaterial Errors.” In addition, certain amounts in prior periods have been reclassified to conform to current period presentation, with no effect on previously reported net income or stockholders’ equity. |
Use of Estimates | Use of Estimates |
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates estimates on a regular basis including those relating to revenue recognition, the allowance for doubtful accounts, goodwill, intangible assets, the valuation of deferred income taxes, stock-based compensation and unrecognized tax benefits, among others. Actual results could differ from those estimates and such differences may have a material impact on the Company’s consolidated financial statements and footnotes. |
Cash and Cash Equivalents | Cash and Cash Equivalents |
All highly liquid investments with original maturities of 90 days or less are considered to be cash equivalents. Cash equivalents are recorded at cost, which approximates fair value. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
The fair values of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short maturities of the instruments. The fair value of the Company’s capital lease obligations approximates the carrying value due to the terms continuing to approximate prevailing market terms. |
All of the Company’s investments that have maturities of greater than 90 days are classified as available-for-sale and are carried at fair value. The Company invests excess cash primarily in investment-grade interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, corporate bonds, municipal and government agency obligations and guaranteed obligations of the U.S. government. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves. The cost of available-for-sale marketable securities sold is based on the specific identification method. Unrealized gains and losses are reported in stockholders’ equity as accumulated other comprehensive (income) loss. Realized gains and losses are included in other income (expense), net. Interest and dividends are included in other income (expense), net when they are earned. |
Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts |
Trade accounts receivable consist of amounts billed to customers in connection with sales of services. The Company analyzes individual trade accounts receivable by considering historical bad debts, customer creditworthiness, current economic trends, changes in customer payment terms and collection trends when evaluating the adequacy of the allowance for doubtful accounts. Allowances for doubtful accounts are recognized in the period in which the associated receivable balance is not considered recoverable. Any change in the assumptions used in analyzing accounts receivable may result in changes to the allowance for doubtful accounts and is recognized in the period in which the change occurs. The Company writes off a receivable when all rights, remedies and recourses against the account and its principals are exhausted and records a benefit when previously reserved accounts are collected. |
Concentration of Credit Risk | Concentration of Credit Risk |
The financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. The Company’s cash and cash equivalents are deposited with major financial institutions in the United States. At times, such deposits may be in excess of federally insured limits. Management believes that the Company’s investments in cash equivalents and available-for-sale investments are financially sound. The Company’s accounts receivable are derived from revenue earned from customers located in the United States. The Company had no customers that represented 10% or more of revenues for the years ended December 31, 2014, 2013 and 2012. No customer represented more than 10% of accounts receivable as of December 31, 2014 and 2013. |
Software and Web Site Development Costs | Software and Website Development Costs |
The Company capitalizes internal and external costs incurred to develop internal-use software and website applications. Capitalized internal costs include salaries, benefits and stock-based compensation charges for employees that are directly involved in developing the software or website application, and depreciation of assets used in the development process. Capitalized external costs include third-party consultants involved in the development process, as well as other direct costs incurred as part of the development process. |
Capitalization of costs begins when the preliminary project stage has been completed, management authorizes and commits to funding a project and it is probable that the project will be completed and the software or website application will be used to perform the function intended. Internal and external costs incurred as part of the preliminary project stage are expensed as incurred. |
Capitalization ceases at the point at which the project is substantially complete and ready for its intended use. Internal and external training costs and maintenance costs during the post-implementation operation stage are expensed as incurred. |
Internal-developed core software is amortized on a straight-line basis over its estimated useful life, generally three to five years. Amortization of product related internal-use software and website applications is typically recorded to cost of revenues, and amortization of other internal-use software and website applications is typically recorded to the operating expense line to which it most closely relates. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The capitalized costs are included in property and equipment, net in the accompanying consolidated balance sheets. For the years ended December 31, 2014, 2013 and 2012, the Company capitalized software and website application development costs of $15.9 million, $5.1 million, and $0.5 million, respectively. |
During the year ended December 31, 2014, the Company recorded a $0.7 million impairment loss on the write-off of internal-use software. There were no such write-offs during the years ended December 31, 2013 and 2012. |
Property and Equipment | Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over their estimated useful lives, which is generally three to seven years. Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or over the term of the lease, whichever is shorter. |
Business Combinations | Business Combinations |
The Company recognizes and measures the identifiable assets acquired in a business combination, the liabilities assumed and any non-controlling interest in the acquiree, measured at their fair values as of the acquisition date. The Company recognizes contingent consideration arrangements at their acquisition-date fair values with subsequent changes in fair value reflected in earnings, recognizes pre-acquisition loss and gain contingencies at their acquisition-date fair values (with certain exceptions), capitalizes in-process research and development assets and expenses acquisition-related transaction costs as incurred. Due to the inherent uncertainty in the Company’s best estimates and assumptions, they are subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any subsequent adjustments, including changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period, are recognized in earnings rather than as an adjustment to the cost of the acquisition. |
Goodwill and Other Intangible Assets | isition. |
Goodwill |
The Company records goodwill in a business combination when the consideration paid exceeds the fair value of the net assets acquired. Goodwill is not amortized, but is tested for impairment at least annually in the fourth quarter of the Company’s fiscal year, or whenever changes in circumstances indicate that the fair value of a reporting unit is less than its carrying amount, including goodwill. The annual test is performed at the reporting unit level using a fair-value based approach. The Company’s operations are organized as one reporting unit. In testing for a potential impairment of goodwill, the Company first compares the carrying value of assets and liabilities to the estimated fair value. If estimated fair value is less than carrying value, then potential impairment exists. The amount of any impairment is then calculated by determining the implied fair value of goodwill using a hypothetical purchase price allocation. Impairment is equivalent to any excess of goodwill carrying value over its implied fair value. There were no impairment charges related to goodwill during the years ended December 31, 2014, 2013, and 2012. |
The process of evaluating the potential impairment of goodwill requires significant judgment at many points during the analysis, including calculating fair value of the reporting unit based on estimated future cash flows and discount rates to be applied. |
Intangible Assets |
Intangible assets are stated at cost less accumulated amortization. Intangible assets include developed technology, trade names and customer lists and contracts. Intangible assets with finite lives are amortized on a straight-line basis over the estimated periods of benefit, as follows: |
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Developed technology | 2-5 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade names with finite lives | 2-3 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer lists and contracts | 4-9 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intangible assets with indefinite useful lives, including the AllRegs trade name, are stated at cost. The Company evaluates the remaining useful life of indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. |
The Company evaluates its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets or asset groups are considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amounts of the assets or asset groups exceed the fair value of the assets or asset groups. Assets to be disposed of are reported at the lower of the carrying amount and fair value less costs to sell. Except as described in Note 6, there has been no loss on impairment or disposal of intangible assets. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets |
The Company evaluates its long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Except for the impairment losses recorded on internal-use software and intangible assets described elsewhere in this note, there has been no loss on impairment or disposal of long-lived assets. |
Revenue Recognition | Revenue Recognition |
The Company generates revenues primarily from transaction-based fees and fees for software and related services. On-demand revenues are revenues generated from company-hosted software subscriptions that customers access through the Internet and revenues from customers that pay fees based on a per closed loan, or success, basis subject to monthly base fees, which the Company refers to as Success-Based Pricing. Additionally, on-demand revenues are comprised of software services sold transactionally; Ellie Mae Network transaction fees; education and training, loan product and guideline data and analytics services under the AllRegs brand; and professional services which include consulting, implementation and training services. On-premise revenues are revenues generated from maintenance services, sales of customer-hosted software licenses, and professional services. Sales taxes assessed by governmental authorities are excluded from revenue. |
The Company commences revenue recognition when all of the following conditions are satisfied: |
•There is persuasive evidence of an arrangement; |
•The service has been or is being provided to the customer; |
•The collection of the fees is reasonably assured; and |
•The amount of fees to be paid by the customer is fixed or determinable. |
On-Demand Revenues |
Subscription Services and Usage-Based Fee Arrangements. Subscription services and usage-based fee arrangements generally include a combination of the Company’s products delivered as software-as-a-service (“SaaS”) and support services. These arrangements are generally non-cancelable and do not contain refund-type provisions. These revenues typically include the following: |
SaaS Encompass Revenues. The Company offers web-based, on-demand access to Encompass software for a monthly recurring fee. The Company provides the right to access its loan origination software and handles the responsibility of managing the servers, providing security, backing up the data and applying updates. Customers under SaaS arrangements may not take possession of the software at any time during the term of the agreement. Subscription revenues are recognized ratably over the contract terms as subscription services are provided, beginning on the commencement date of each contract, which is the date the Company’s service is made available to customers. Contracts generally range from one year to five years. |
Alternatively, customers can elect to pay on a success basis. Success basis contracts generally have a term of one to five years and are subject to monthly base fees, which enable customers to close loans up to a contractually agreed-to minimum number of transactions, and additional closed loan fees, which are assessed for loans closed in excess of the minimum. Revenue is earned from both base fees and additional closed loan fees as the result of the customer’s usage of Encompass. Monthly base fees are recognized over the respective monthly service period as the subscription services are provided. Additional closed loans fees are recognized when the loans are reported as closed. This offering also includes Encompass CenterWise, Encompass Compliance Service and Encompass Docs Solution as integrated components, which are combined elements of the arrangement that are delivered in conjunction with the SaaS Encompass offering and therefore are not accounted for separately. |
Encompass CenterWise Revenues. Encompass CenterWise is a bundled offering of electronic document management (“EDM”) and websites used for customer relationship management. Generally, revenue is recognized for Encompass CenterWise after the service is rendered, except when Encompass CenterWise is automatically included as an integrated component of the SaaS Encompass offering, in which case the associated revenue is recognized as described above. |
Services Revenues. The Company provides a variety of mortgage-related and other business services, including automated documentation; fraud detection, valuation, validation and risk analysis; income verification; marketing and customer management; flood zone certifications; and compliance reports. Services revenues are recognized upon completion of the services. |
Transactional Revenues. The Company has entered into agreements with various lenders, service providers and certain government-sponsored entities participating in the mortgage origination process that provide them access to, and ability to interoperate with, mortgage originators on the Ellie Mae Network. Under these agreements, the Company earns transaction fees when transactions are processed through the Ellie Mae Network. Transaction revenues are recognized when there is evidence that the qualifying transactions have occurred on the Ellie Mae Network and collection of the resulting receivable is reasonably assured. |
Subscriptions to Online Research and Data Resources: The Company provides mortgage originators and underwriters with access to online databases of various federal and state laws and regulations and forms as well as mortgage investor product guidelines. Subscription fees are recognized ratably over the subscription term as subscription services are provided, which is typically one year. |
Professional Services Revenues: Professional services revenues are generally recognized when milestones are achieved for fixed price contracts or as the services are rendered for time and material contracts. The majority of our professional services contracts are on fixed price basis. Training revenues are recognized as the services are rendered. |
On-Premise Revenues |
Revenue from the sale of software licenses is recognized in the month in which the required revenue recognition criteria are met, generally in the month in which the software is delivered. Revenue from the sale of maintenance services and professional services is recognized over the period in which the services are provided. |
Multiple Element Arrangements |
The Company has entered into both subscription services and software arrangements with multiple elements. For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. |
Subscription services agreements with multiple elements generally include multiple subscriptions and professional services. When such agreements involve multiple elements that qualify as separate units of accounting, the Company allocates arrangement consideration to all deliverables at the inception of an arrangement based on the relative selling price method in accordance with the selling price hierarchy, which includes: (i) vendor specific objective evidence (“VSOE”) if it is available; (ii) third-party evidence (“TPE”) if VSOE is not available; and (iii) the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. |
VSOE. The Company determines VSOE based on its historical pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. The Company has not historically priced its subscription services within a narrow range. As a result, the Company has not been able to establish selling prices for subscription services based on VSOE. |
TPE. When VSOE cannot be established for deliverables in multiple element arrangements, the Company applies judgment with respect to whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’s go-to-market strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of services with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor services’ selling prices are on a standalone basis. As a result, the Company has not been able to establish selling prices based on TPE. |
BESP. When the Company is unable to establish a selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the service was sold on a standalone basis. When establishing BESP, the Company reviews company specific factors used to determine list price and makes adjustments as appropriate to reflect current market conditions and pricing behavior. The Company’s process for establishing list price includes assessing the cost to provide a particular product or service, surveying customers to determine market expectations, analyzing customer demographics and taking into account similar products and services historically sold by the Company. The Company continues to review the factors used to establish list price and adjusts BESP as necessary. |
Because the Company has determined that neither VSOE nor TPE is available, it uses BESP to allocate the selling price to multiple elements in subscription services arrangements. The amount of revenue allocated to delivered items is limited by contingent revenue, if any. |
Subscription services have standalone value as such services are often sold separately. Additionally, the Company has concluded that professional services included in multiple element arrangements have standalone value. In establishing standalone value, the Company considered the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, and the timing of when the professional services contract was signed in comparison to the subscription service start date. |
For software arrangements with multiple elements (e.g., maintenance and support contracts bundled with licenses), revenue is allocated to the delivered elements of the arrangement when VSOE is determinable, using the residual value method based on objective evidence of the fair value of the undelivered elements, which is specific to the Company. When VSOE is not determinable, the entire arrangement is recognized ratably over the term of the contract. Revenue is recognized under this model upon receipt of cash payment from the customer if collectability is not reasonably assured and when other revenue recognition criteria have been met. The VSOE of fair value for maintenance and support obligations related to licenses is based upon the prices paid for the separate renewal of these services by customers. Maintenance revenues are recognized ratably over the period of the maintenance contract. |
Deferred Revenue | uses BESP to allocate the selling price to multiple elements in subscription services arrangements. The amount of revenue allocated to delivered items is limited by contingent revenue, if any. |
Subscription services have standalone value as such services are often sold separately. Additionally, the Company has concluded that professional services included in multiple element arrangements have standalone value. In establishing standalone value, the Company considered the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, and the timing of when the professional services contract was signed in comparison to the subscription service start date. |
For software arrangements with multiple elements (e.g., maintenance and support contracts bundled with licenses), revenue is allocated to the delivered elements of the arrangement when VSOE is determinable, using the residual value method based on objective evidence of the fair value of the undelivered elements, which is specific to the Company. When VSOE is not determinable, the entire arrangement is recognized ratably over the term of the contract. Revenue is recognized under this model upon receipt of cash payment from the customer if collectability is not reasonably assured and when other revenue recognition criteria have been met. The VSOE of fair value for maintenance and support obligations related to licenses is based upon the prices paid for the separate renewal of these services by customers. Maintenance revenues are recognized ratably over the period of the maintenance contract. |
Deferred Revenue |
Deferred revenue represents billings or payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. Balances consist primarily of prepaid subscription services and professional, training and maintenance services not yet provided as of the balance sheet date. Deferred revenue that will be recognized during the succeeding 12 month period is recorded as current deferred revenue, and the remaining portion is recorded as other long-term liabilities. Long-term deferred revenue at December 31, 2014 and 2013 was not material. |
Deferred Commission Expense | Deferred Commission Expense |
Deferred commission expenses are the incremental costs that are directly associated with non-cancelable subscription contracts with customers and consist of sales commissions paid to our direct sales force. Commissions are calculated based on a percentage of the revenues for the non-cancelable term of subscription contracts, which are typically one to five years. |
Prior to 2013, commissions were paid and recognized as sales expense when customer payments for contracted services were received on a monthly basis because commissions were earned based on receipt of customer payments. In 2013, the Company amended its commission plans to provide for payment after the customer’s contract is signed. As a result of the change in commission plans, beginning in 2013, commission expense was deferred and amortized to sales expense over the non-cancelable terms of the related subscription contracts. The deferred commission expense amounts are recoverable through the future revenue streams under the non-cancelable customer contracts. The plans also include claw back provisions, which require repayment of a proportionate amount of commissions, should customers cancel their contracts prior to the end of the initial contractual term. |
During the years ended December 31, 2014 and 2013, the Company deferred $2.5 million and $1.9 million of commission expense, respectively. No amounts were deferred during the year ended December 31, 2012. |
At December 31, 2014 and 2013, $3.3 million and $1.6 million of deferred commission remained on our consolidated balance sheets, respectively. |
Warranties and Indemnification | Warranties and Indemnification |
The Company provides a warranty for its software products and services to its customers and accounts for its warranties as a contingent liability. The Company’s software is generally warranted to perform substantially as described in the associated product documentation and to satisfy defined levels of uptime reliability. The Company’s services are generally warranted to be performed consistent with industry standards. The Company has not provided for a warranty accrual as of December 31, 2014 or 2013. To date, the Company’s product warranty expense has not been significant. |
The Company generally agrees to indemnify its customers against legal claims that the Company’s software products infringe certain third-party intellectual property rights and accounts for its indemnification obligations as a contingent liability. In addition, the Company may also incur liability under its contracts if it breaches its warranties as well as certain security and/or confidentiality obligations. To date, the Company has not been required to make any payment resulting from either infringement claims asserted against its customers or from claims in connection with a breach of the security and/or confidentiality obligations in the Company’s contracts. The Company has not recorded a liability for related costs as of December 31, 2014 or 2013. |
The Company has obligations under certain circumstances to indemnify each member of the Company’s board of directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under Delaware law and the Company’s bylaws and certificate of incorporation. |
Cost of Revenues | Cost of Revenues |
The Company’s cost of revenues consists primarily of salaries, benefits and related costs (including stock-based compensation), allocated facilities costs, customer support, data centers, expenses for document preparation, income verification and compliance services, depreciation on computer equipment used in supporting the Ellie Mae Network, the Company’s SaaS Encompass and Encompass CenterWise offerings, amortization of acquired intangible assets and capitalized internal-use software and website applications directly involved in revenue producing activities and professional services associated with implementation of software. |
Research and Development Costs | Research and Development Costs |
The Company’s research and development expenses consist primarily of: salaries and benefits, including bonuses and stock-based compensation expense; fees to contractors engaged in the development and support of the Ellie Mae Network, Encompass software and other products; and allocated facilities costs. Research and development costs that are not capitalized as internal-use software are expensed as they are incurred. |
Advertising Expenses | Advertising Expenses |
The Company expenses advertising costs as incurred. |
Stock-Based Compensation | were $0.4 million, $0.4 million, and $0.3 million, respectively. |
Stock-Based Compensation |
The Company recognizes stock-based compensation related to awards granted under its 2009 Stock Option and Incentive Plan (the “2009 Plan”), 2011 Equity Incentive Award Plan (the “2011 Plan”) and Employee Stock Purchase Plan (“ESPP”). |
The Company recognizes compensation expense related to stock option grants that are ultimately expected to vest based on estimated fair values on the date of grant using the Black-Scholes option-pricing model. Such expense is recognized on a straight-line basis over the requisite service period of the award, which generally equals the vesting period. |
The Company recognizes compensation expense related to restricted awards, restricted stock unit awards (“RSUs”), and performance share awards (“Performance Awards”) based on the fair market value of the underlying shares of common stock as of the date of grant. Expense related to the restricted awards and the RSUs are recognized on a straight-line basis over the requisite service period of the award, which generally equals the vesting period. Expense related to the Performance Awards is recognized under the graded vesting method over the requisite service period of the award, which recognizes a larger portion of the expense during the beginning of the vesting period than in the end of the vesting period. Management estimates the probable number of shares of common stock that will be granted until the achievement of the performance goals is known. |
The date of grant is the date at which the Company and the employee reach a mutual understanding of the key terms and conditions of the award, appropriate approvals are received by approval by the board of directors and the Company becomes contingently obligated to issue equity instruments to the employee who renders the requisite service. |
The Company is required to estimate potential forfeitures of stock grants and adjust recorded compensation cost accordingly. The estimate of forfeitures is based on historical experience and is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from the prior estimates. Changes in estimated forfeitures will be recognized in the period of change and will impact the amount of stock-based compensation expense to be recognized in future periods. |
All stock option awards to non-employees are accounted for at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes option-pricing model. The measurement of stock-based compensation for non-employees is subject to periodic adjustments as the options vest, and the expense is recognized over the period services are rendered. |
Income Taxes | Income Taxes |
The Company accounts for income taxes under the asset and liability method, which requires the recognition of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that the Company believes is more likely than not to be realized. The Company’s determination of its valuation allowance is based upon a number of assumptions, judgments and estimates, including forecasted earnings, future taxable income and the relative proportions of revenue and income before taxes in the various jurisdictions in which it operates. |
The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. Tax positions are based upon their technical merits, relevant tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax positions. A tax position is only recognized in the financial statements if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments that could result in recognition of additional tax benefits or additional charges to the tax provision and may not accurately reflect actual outcomes. The Company has a policy to classify accrued interest and penalties associated with uncertain tax positions together with the related liability, and the expenses incurred related to such accruals are included in the provision for income taxes. |
Comprehensive Income | Comprehensive Income |
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net income, specifically unrealized gains (losses) on available-for-sale investments. Except for net realized loss on investments which was not significant, there were no reclassifications out of accumulated other comprehensive income (loss) that affected net income during the years ended December 31, 2014 and 2013. |
Geographical Information | Geographical Information |
The Company is domiciled in the United States and had no international operations or sales to customers outside of the United States for the years ended December 31, 2014, 2013 and 2012. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company has not yet developed an expectation of the impact that adoption will have on its consolidated financial statements. |
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter; early adoption is permitted. The Company does not believe that adoption of ASU 2014-15 will have a material impact on its consolidated financial statements. |
Correction of Immaterial Errors | Correction of Immaterial Errors |
During 2013 and the first three quarters of 2014, in preparing its quarterly and annual tax provisions, the Company incorrectly excluded a portion of compensation to the Company’s executive officers as nondeductible for income tax purposes under Section 162(m) of the Internal Revenue Code. During the fourth quarter of 2014, management determined that such compensation was, in fact, deductible and should have been included in the computation of the Company’s historical income tax computations. The Company assessed the materiality of this misstatement on prior periods’ financial statements in accordance with SEC’s Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250, ("ASC 250"), Presentation of Financial Statements, and concluded that the misstatement was not material to any prior annual or interim periods, but the cumulative adjustment necessary to correct the classification would be material to the three months ended December 31, 2014. In accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the financial statements as of December 31, 2013 and for the year ended December 31, 2013, which are presented herein, have been corrected. The financial statements have also been revised to reflect the correction of certain other previously uncorrected immaterial prior period errors. |
The following tables summarize the previously reported and corrected amounts of the impacted balances presented in the accompanying consolidated financial statements (in thousands except per share data). |
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| As Previously Reported |
| Three months ended | | Year ended |
| Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, | | Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, |
2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2013 |
Revenues | $ | 42,798 | | | $ | 39,984 | | | $ | 32,178 | | | $ | 30,350 | | | $ | 33,006 | | | $ | 34,270 | | | $ | 30,855 | | | $ | 128,481 | |
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Cost of revenues | 11,669 | | | 10,576 | | | 9,200 | | | 8,198 | | | 8,332 | | | 8,607 | | | 7,611 | | | 32,748 | |
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Gross profit | 31,129 | | | 29,408 | | | 22,978 | | | 22,152 | | | 24,674 | | | 25,663 | | | 23,244 | | | 95,733 | |
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Operating expenses | | | | | | | | | | | | | | | |
Sales and marketing | 6,521 | | | 6,451 | | | 6,095 | | | 6,098 | | | 5,163 | | | 5,167 | | | 4,903 | | | 21,331 | |
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Research and development | 6,456 | | | 6,077 | | | 6,815 | | | 6,044 | | | 6,573 | | | 6,530 | | | 5,548 | | | 24,695 | |
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General and administrative | 9,556 | | | 9,551 | | | 8,993 | | | 7,745 | | | 7,547 | | | 7,975 | | | 7,586 | | | 30,853 | |
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Total operating expenses | 22,533 | | | 22,079 | | | 21,903 | | | 19,887 | | | 19,283 | | | 19,672 | | | 18,037 | | | 76,879 | |
|
Income from operations | 8,596 | | | 7,329 | | | 1,075 | | | 2,265 | | | 5,391 | | | 5,991 | | | 5,207 | | | 18,854 | |
|
Other income, net | 134 | | | 109 | | | 100 | | | 105 | | | 83 | | | 151 | | | 121 | | | 460 | |
|
Income before income taxes | 8,730 | | | 7,438 | | | 1,175 | | | 2,370 | | | 5,474 | | | 6,142 | | | 5,328 | | | 19,314 | |
|
Income tax provision | 4,675 | | | 3,082 | | | 393 | | | 752 | | | 2,114 | | | 2,457 | | | 1,415 | | | 6,738 | |
|
Net income | $ | 4,055 | | | $ | 4,356 | | | $ | 782 | | | $ | 1,618 | | | $ | 3,360 | | | $ | 3,685 | | | $ | 3,913 | | | $ | 12,576 | |
|
| | | | | | | | | | | | | | | |
Net income per share | | | | | | | | | | | | | | | |
Basic | $ | 0.14 | | | $ | 0.16 | | | $ | 0.03 | | | $ | 0.06 | | | $ | 0.13 | | | $ | 0.14 | | | $ | 0.15 | | | $ | 0.47 | |
|
Diluted | $ | 0.14 | | | $ | 0.15 | | | $ | 0.03 | | | $ | 0.06 | | | $ | 0.12 | | | $ | 0.13 | | | $ | 0.14 | | | $ | 0.44 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments |
| Three months ended | | Year ended |
| Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, | | Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, |
2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2013 |
Revenues | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
Cost of revenues | — | | | — | | | 118 | | | (44 | ) | | (44 | ) | | (30 | ) | | — | | | (118 | ) |
|
Gross profit | — | | | — | | | (118 | ) | | 44 | | | 44 | | | 30 | | | — | | | 118 | |
|
Operating expenses | | | | | | | | | | | | | | | |
Sales and marketing | (276 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
Research and development | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
General and administrative | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
Total operating expenses | (276 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
Income from operations | 276 | | | — | | | (118 | ) | | 44 | | | 44 | | | 30 | | | — | | | 118 | |
|
Other income, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
Income before income taxes | 276 | | | — | | | (118 | ) | | 44 | | | 44 | | | 30 | | | — | | | 118 | |
|
Income tax provision | (686 | ) | | (368 | ) | | (118 | ) | | (49 | ) | | (242 | ) | | (188 | ) | | (145 | ) | | (624 | ) |
Net income | $ | 962 | | | $ | 368 | | | $ | — | | | $ | 93 | | | $ | 286 | | | $ | 218 | | | $ | 145 | | | $ | 742 | |
|
| | | | | | | | | | | | | | | |
Net income per share | | | | | | | | | | | | | | | |
Basic | $ | 0.04 | | | $ | 0.01 | | | $ | — | | | $ | — | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.03 | |
|
Diluted | $ | 0.03 | | | $ | 0.01 | | | $ | — | | | $ | — | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.03 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Corrected |
| Three months ended | | Year ended |
| Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, | | Sep 30, | | Jun 30, | | Mar 31, | | Dec 31, |
2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2013 |
Revenues | $ | 42,798 | | | $ | 39,984 | | | $ | 32,178 | | | $ | 30,350 | | | $ | 33,006 | | | $ | 34,270 | | | $ | 30,855 | | | $ | 128,481 | |
|
Cost of revenues | 11,669 | | | 10,576 | | | 9,318 | | | 8,154 | | | 8,288 | | | 8,577 | | | 7,611 | | | 32,630 | |
|
Gross profit | 31,129 | | | 29,408 | | | 22,860 | | | 22,196 | | | 24,718 | | | 25,693 | | | 23,244 | | | 95,851 | |
|
Operating expenses | | | | | | | | | | | | | | | |
Sales and marketing | 6,245 | | | 6,451 | | | 6,095 | | | 6,098 | | | 5,163 | | | 5,167 | | | 4,903 | | | 21,331 | |
|
Research and development | 6,456 | | | 6,077 | | | 6,815 | | | 6,044 | | | 6,573 | | | 6,530 | | | 5,548 | | | 24,695 | |
|
General and administrative | 9,556 | | | 9,551 | | | 8,993 | | | 7,745 | | | 7,547 | | | 7,975 | | | 7,586 | | | 30,853 | |
|
Total operating expenses | 22,257 | | | 22,079 | | | 21,903 | | | 19,887 | | | 19,283 | | | 19,672 | | | 18,037 | | | 76,879 | |
|
Income from operations | 8,872 | | | 7,329 | | | 957 | | | 2,309 | | | 5,435 | | | 6,021 | | | 5,207 | | | 18,972 | |
|
Other income, net | 134 | | | 109 | | | 100 | | | 105 | | | 83 | | | 151 | | | 121 | | | 460 | |
|
Income before income taxes | 9,006 | | | 7,438 | | | 1,057 | | | 2,414 | | | 5,518 | | | 6,172 | | | 5,328 | | | 19,432 | |
|
Income tax provision | 3,989 | | | 2,714 | | | 275 | | | 703 | | | 1,872 | | | 2,269 | | | 1,270 | | | 6,114 | |
|
Net income | $ | 5,017 | | | $ | 4,724 | | | $ | 782 | | | $ | 1,711 | | | $ | 3,646 | | | $ | 3,903 | | | $ | 4,058 | | | $ | 13,318 | |
|
| | | | | | | | | | | | | | | |
Net income per share | | | | | | | | | | | | | | | |
Basic | $ | 0.18 | | | $ | 0.17 | | | $ | 0.03 | | | $ | 0.06 | | | $ | 0.14 | | | $ | 0.15 | | | $ | 0.16 | | | $ | 0.5 | |
|
Diluted | $ | 0.17 | | | $ | 0.16 | | | $ | 0.03 | | | $ | 0.06 | | | $ | 0.13 | | | $ | 0.14 | | | $ | 0.15 | | | $ | 0.47 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Previously Reported | | Adjustments | | As Corrected | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Items as of December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid expenses and other current assets | $ | 6,473 | | | $ | (297 | ) | | $ | 6,176 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total current assets | 98,284 | | | (297 | ) | | 97,987 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Property and equipment, net | 12,751 | | | 118 | | | 12,869 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Deposits and other assets | 5,112 | | | 1,210 | | | 6,322 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total assets | 228,572 | | | 1,031 | | | 229,603 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Accrued and other current liabilities | 10,224 | | | (898 | ) | | 9,326 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total current liabilities | 20,724 | | | (898 | ) | | 19,826 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Other long-term liabilities | 777 | | | 898 | | | 1,675 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Additional paid-in capital | 212,043 | | | 289 | | | 212,332 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Accumulated deficit | (5,116 | ) | | 742 | | | (4,374 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | 206,896 | | | 1,031 | | | 207,927 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | 228,572 | | | 1,031 | | | 229,603 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Previously Reported | | Adjustments | | As Corrected | | | | | | | | | | | | | | | | | | | | | | | |
Statement of Stockholders’ Equity Items for the Year Ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income for the year ended December 31, 2013 | 12,576 | | | 742 | | | 13,318 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Excess tax benefit from exercise of stock options for the year ended December 31, 2013 | 6,666 | | | 289 | | | 6,955 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Additional paid-in capital at December 31, 2013 | 212,043 | | | 289 | | | 212,332 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated deficit at December 31, 2013 | (5,116 | ) | | 742 | | | (4,374 | ) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity at December 31, 2013 | 206,896 | | | 1,031 | | | 207,927 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Previously Reported | | Adjustments | | As Corrected | | | | | | | | | | | | | | | | | | | | |
Statement of Cash Flows Items for the Year Ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | $ | 12,576 | | | $ | 742 | | | $ | 13,318 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Depreciation | 4,845 | | | (118 | ) | | 4,727 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Excess tax benefit from exercise of stock options (operating activities) | (6,666 | ) | | (289 | ) | | (6,955 | ) | | | | | | | | | | | | | | | | | | | | |
Deferred income taxes | (2,987 | ) | | (1,377 | ) | | (4,364 | ) | | | | | | | | | | | | | | | | | | | | |
Change in prepaid expenses and other current assets | 3,466 | | | 753 | | | 4,219 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | 29,248 | | | (289 | ) | | 28,959 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Excess tax benefit from exercise of stock options (financing activities) | 6,666 | | | 289 | | | 6,955 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net cash provided by financing activities | 12,414 | | | 289 | | | 12,703 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |