| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial information presented in the accompanying unaudited
consolidated financial statements as of June 30, 2015, and for
the three and six months ended June 30, 2015 and 2014 has been
prepared in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”) and in accordance with rules
and regulations of the U.S. Securities and Exchange Commission
(“SEC”) regarding interim financial reporting.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying
unaudited consolidated financial statements reflect all
adjustments, consisting primarily of normal recurring accruals,
necessary for a fair presentation of the financial position as of
June 30, 2015, the results of operations for the three and six
months ended June 30, 2015 and 2014, and cash flows for the
six months ended June 30, 2015 and 2014. These unaudited
consolidated financial statements should be read in conjunction
with the annual audited consolidated financial statements and notes
thereto.
(b) Reclassification
Certain items in the prior period financial statements have been
reclassified for comparative purposes to conform to the current
period presentation.
(c) Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting principles
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 consolidated
financial statements and the reported amounts of revenue and
expenses during the reporting period. Significant estimates and
assumptions made by management include estimated useful lives of
property and equipment and capitalized software development costs,
goodwill and intangibles, determination of estimated selling
prices, allowances for doubtful accounts, valuation of deferred tax
assets, valuation assumptions in purchase accounting, certain
assumptions related to stock-based compensation and legal and other
contingencies. Actual results could differ from those estimates and
assumptions.
(d) Cash and Cash Equivalents
Highly liquid financial instruments purchased with original
maturities of 90 days or less at the date of purchase are reported
as cash equivalents. Cash equivalents are recorded at cost, which
approximates fair value.
Included in cash and cash equivalents are funds representing
amounts reserved for the face value of registration fees or tickets
sold on behalf of customers. While these funds are not restricted
as to their use, a liability for amounts due to customers under
these arrangements has been recorded in accounts payable in the
accompanying consolidated balance sheets. The Company had amounts
due to customers of $5.3 million and $3.4 million included within
cash and cash equivalents as of June 30, 2015 and
December 31, 2014, respectively.
(e) Short-term Investments
The Company’s short-term investments consist of highly liquid
financial instruments with original maturities greater than 90 days
but less than one year. These short-term investments are comprised
of certificates-of-deposit.
(f) Revenue Recognition
The Company derives revenue from two primary sources: platform
subscription-based solutions and hospitality cloud solutions. These
services are generally provided under annual or multi-year
contracts that are generally only cancellable for cause. Revenue is
generally recognized on a straight-line basis over the life of the
contract. The Company recognizes revenue when all of the following
conditions are met:
(i) persuasive evidence exists of an
arrangement with the customer reflecting the terms and conditions
under which the solutions or services will be provided;
(ii) delivery to customers has occurred or
services have been rendered;
(iii) the fee is fixed or determinable;
and
(iv) collection of the fees is reasonably
assured.
The Company considers a signed agreement or other similar
documentation to be persuasive evidence of an arrangement.
Collectability is assessed based on a number of factors, including
transaction history and the creditworthiness of a customer. If it
is determined that collection is not reasonably assured, revenue is
not recognized until collection becomes reasonably assured, which
is generally upon receipt of cash.
The Company applies the provisions of Financial Accounting
Standards Board (“FASB”) ASU 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements
Platform Subscription Revenue
Event Management
The Company generates the majority of its revenue through
Software-as-a-Service (“SaaS”) subscriptions to the
event management platform, pricing for which is subject to the
features and functionality selected. No features or functionality
within the subscription-based services have stand-alone value apart
from one another and, therefore, the entire subscription fee is
recognized on a straight-line basis over the term of the
subscription arrangement.
SaaS subscriptions may include functionality that enables customers
to manage the registration of participants attending the
customer’s event or events. In some cases, the negotiated fee
for the subscription is based on a maximum number of event
registrations permitted over the subscription term. At any time
during the subscription term, customers may elect to purchase
blocks of additional registrations, which are referred to as
subscription up-sells. The fees associated with the up-sells are
added to the original subscription fee, and the revenue is
recognized over the remaining subscription period. No portion of
the subscription fee is refundable regardless of the actual number
of registrations that occur.
Mobile Apps
Subscription-based solutions also include the sale of mobile event
apps. The revenue for mobile event apps solutions is generally
recognized on a straight-line basis over the life of the contract.
A customer may use a singular mobile event app for any number of
events. At any time during the subscription term, customers may
elect to purchase additional mobile event apps, which are referred
to as mobile up-sells. The fees associated with the up-sells are
added to the original subscription fee, and the revenue is
recognized over the remaining subscription period. No portion of
the subscription fee is refundable.
Audience Management Platform
Revenue related to the Audience Management Platform is generated
primarily through convenience and order processing fees charged to
the end user purchasing tickets at the time a ticket for an event
is sold and is recorded at the time of the event, net of the face
value of the ticket. Revenue for these ticket fees collected in
advance of the event is recorded as deferred revenue until the
event occurs. If an event is cancelled, the customer receives a
full refund of the ticket price and fees paid.
Other subscription-based solutions include the sale of survey
solutions, which are contracted though annual or multiyear
arrangements.
Subscription agreements do not provide customers with the right to
take possession of the underlying software at any time.
Hospitality Cloud Revenue
In 2014, the Hospitality Cloud was branded to provide a full
spectrum of cloud-based solutions across the hotel group sales
lifecycle. Prior to this branding, the Company primarily
concentrated on servicing the hospitality sector with marketing
solutions through the Cvent Supplier Network (“CSN”),
which continues to provide substantially all of the revenue for
this product line as it did in the prior periods. Marketing
solutions revenue is generated through the delivery of various
forms of advertising sold through annual or multi-year contracts to
marketers, principally hotels and venues. Such solutions include
prominent display of a customer’s venue within CSN, the Cvent
Destination Guide, the Elite Meetings magazine or additional
sourcing websites such as EliteMeetings.com and SpeedRFP.com, each
of which are designed for a different planner audience. Pricing for
the advertisements is based on the term of the advertisement,
targeted geography, number of advertisements and prominence of the
ad placement.
The Company enters into arrangements with multiple deliverables
that generally include various marketing solutions that may be sold
individually or bundled together and delivered over various periods
of time. In such situations, the Company applies the provisions of
FASB, Accounting Standards Codification (“ASC”),
No. 605-25, Revenue Recognition – Multiple Element
Arrangements
Certain one-time marketing solutions, which can run for a month,
several months, or a year, are primarily sold in a package. In
determining whether the marketing solutions sold in packages have
standalone value, the Company considers the availability of the
services from other vendors, the nature of the solutions, and the
contractual dependence of the solutions to the rest of the package.
Based on these considerations, the Company has determined the
estimated selling price for each marketing solution sold in a
package.
Revenue arrangements with multiple deliverables are divided into
separate units of accounting and the arrangement consideration is
allocated to all deliverables based on the relative selling price
method. In such circumstances, the Company uses the selling price
hierarchy of: (i) Vendor-specific objective evidence, or VSOE,
if available, (ii) third-party evidence of selling price, or
TPE, and (iii) best estimate of selling price. VSOE is limited
to the price charged when the same element is sold separately by
the Company. Due to the unique nature of some multiple deliverable
revenue arrangements, the Company may not be able to establish
selling prices based on historical stand-alone sales using VSOE or
TPE; therefore the Company may use its best estimate to establish
selling prices for these arrangements. The Company establishes the
best estimates within a range of selling prices considering
multiple factors including, but not limited to, size of
transaction, customer demand and price lists.
(g) Deferred Revenue
Deferred revenue consists of contractual billings or payments
received in advance of revenue recognition from platform
subscription services or Hospitality Cloud solutions that are
subsequently recognized when the revenue recognition criteria are
met. The Company generally invoices customers in advance in annual
or quarterly installments.
(h) Business Combinations
The Company is required to allocate the purchase price of acquired
companies to the identifiable tangible and intangible assets
acquired and liabilities assumed at the acquisition date based upon
their estimated fair values.
Goodwill as of the acquisition date represents the excess of the
purchase consideration of an acquired business over the fair value
of the underlying net tangible and intangible assets acquired and
liabilities assumed. This allocation and valuation require
management to make significant estimates and assumptions,
specifically with respect to the value of long-lived and intangible
assets.
Critical estimates in valuing intangible assets include but are not
limited to estimates about: future expected cash flows from
customer contracts, customer lists, distribution agreements,
proprietary technology and non-competition agreements; the acquired
company’s brand awareness and market position, assumptions
about the period of time the brand will continue to be used in the
Company’s product portfolio; as well as expected costs to
develop the in-process research and development into commercially
viable products and estimated cash flows from the projects when
completed, and discount rates. The Company’s estimates of
fair value are based upon assumptions the Company believes to be
reasonable, but which are inherently uncertain and unpredictable.
Assumptions may be incomplete or inaccurate, and unanticipated
events and circumstances may occur.
In addition, uncertain tax positions and tax-related valuation
allowances assumed in connection with a business combination are
initially estimated as of the acquisition date. The Company
continues to evaluate these items quarterly and records any
adjustments to the preliminary estimates to goodwill provided that
the Company is within the measurement period. Subsequent to the
measurement period, changes to these uncertain tax positions and
tax related valuation allowances will affect the Company’s
provision for income taxes in the consolidated statements of
operations in the current period.
Other estimates associated with the accounting for these
acquisitions may change as additional information becomes available
regarding the assets acquired and liabilities assumed. Costs
incurred related to acquisitions are expensed as incurred.
(i) Goodwill
Goodwill represents the excess of: (i) the aggregate of the
fair value of consideration transferred in a business combination,
over (ii) the fair value of assets acquired, net of
liabilities assumed. Goodwill is not amortized, but is subject to
annual impairment tests. The goodwill impairment test is a two-step
test. Under the first step, the fair value of the reporting unit is
compared with its carrying value, including goodwill. If the fair
value of the reporting unit is less than its carrying value, an
indication of goodwill impairment exists for the reporting unit and
the entity must perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized for
any excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of that goodwill. The implied
fair value of goodwill is determined by allocating the fair value
of the reporting unit in a manner similar to a purchase price
allocation and the residual fair value after this allocation is the
implied fair value of the reporting unit goodwill. Fair value of
the reporting unit is estimated using a discounted cash flow
analysis. If the fair value of the reporting unit exceeds its
carrying value, step two is not performed.
In September 2011, the FASB issued ASU
2011-08, Intangibles—Goodwill and Other (Topic 350):
Testing Goodwill for Impairment
The Company performs its annual impairment review of goodwill on
November 30 and when a triggering event occurs between annual
impairment tests. There were no triggering events or indications of
impairment as of June 30, 2015.
(j) Capitalized Software Development Costs
Costs to develop internal use software to support the
Company’s platform are capitalized and recorded as
capitalized software in accordance with the provisions of FASB ASC
Subtopic 350-40, Intangibles-Goodwill and Other Subtopic 40
Internal-Use Software
(k) Deferred Tax Assets and Liabilities
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. To the
extent that it is not considered to be more likely than not that a
deferred tax asset will be realized, a valuation allowance is
established. The Company applies the provisions of FASB
interpretation No. 48, Accounting for Uncertainty in Income
Taxes Income
Taxes—Overall
(l) Stock-Based Compensation
The Company accounts for its employee stock-based compensation
awards in accordance with FASB ASC Topic 718,
Compensation—Stock Compensation
Determining the fair value of stock options under the Black-Scholes
model requires judgment, including estimated volatility, risk free
rate, expected term and estimated dividend yield. The assumptions
used in calculating the fair value of stock-based compensation
awards represent the Company’s best estimates, based on
management judgment. The estimate of the value per share of the
Company’s common stock used in the option-pricing model prior
to the Company’s IPO in August 2013 was based on the
contemporaneous valuations performed with the assistance of an
unrelated third-party valuation specialist and management’s
analysis of market transactions in proximity to the valuation
dates. The estimated dividend yield is zero since the Company has
not issued dividends to date and does not anticipate issuing
dividends. The risk-free interest rate is based on the implied
yield currently available on U.S. Treasury zero coupon issues with
an equivalent remaining term. Due to its limited trading history,
the Company estimates volatility for option grants by evaluating
the average historical volatility of a peer group of similar public
companies. The expected term of the Company’s stock options
represent the period that its stock-based awards are expected to be
outstanding. For purposes of determining the expected term, the
Company applies the simplified approach, in which the expected term
of an award is presumed to be the mid-point between the vesting
date and the expiration date of the award. Awards generally vest
over a service period of four years, with a maximum contractual
term of ten years.
Pursuant to FASB ASC Subtopic 718-10-35, Stock
Compensation
(m) Foreign Currency
The Company’s foreign subsidiary in India designates the U.S.
dollar as the functional currency. For the subsidiary, assets and
liabilities denominated in foreign currency are remeasured into
U.S. dollars at current exchange rates for monetary assets and
liabilities and historical exchange rates for nonmonetary assets
and liabilities. Foreign currency gains and losses associated with
remeasurement are included in general and administrative expense in
the consolidated statements of operations.
Foreign currency gains (losses) associated with transactions and
remeasurement were $(1.0) million and less than $0.1 million for
the three months ended June 30, 2015 and 2014, respectively;
and $(0.8) million and $0.5 million for the six months ended
June 30, 2015 and 2014, respectively.
The Company’s foreign subsidiary in the UK designates the
British Pound as its functional currency. For the subsidiary,
assets and liabilities denominated in foreign currency are
translated into U.S. dollars at current exchange rates. Foreign
currency gains and losses associated with translation are included
in accumulated other comprehensive gain (loss) in the consolidated
balance sheets.
(n) Non-Monetary Transactions
The Company occasionally participates in non-monetary transactions
with its customers in exchange for marketing and other services. In
accordance with FASB ASC Topic 845 – Nonmonetary
transactions |
