Description of Business and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2013 |
Description of Business and Summary of Significant Accounting Policies | ' |
Description of Business and Summary of Significant Accounting Policies | ' |
1. Description of Business and Summary of Significant Accounting Policies |
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Control4 Corporation (‘‘Control4’’ or the ‘‘Company’’) is a leading provider of automation and control solutions for the connected home. The Company unlocks the potential of connected devices, making entertainment systems easier to use, homes more comfortable, appliances more energy efficient, and families more secure. The Company was incorporated in the state of Delaware on March 27, 2003. |
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Reclassifications |
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Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. The reclassification is related to gains or losses on inventory purchase commitments from accrued liabilities into the applicable caption on the statements of cash flows. This reclassification had no effect on the previously reported net cash (used in) provided by operating activities. |
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Unaudited Interim Financial Statements |
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The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive income (loss), and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, considered necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, or any other future interim or annual period. |
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These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Prospectus filed with the Securities and Exchange Commission (the “SEC”) on August 2, 2013. The December 31, 2012 consolidated balance sheet included herein was derived from the audited financial statements as of that date. |
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Basis of Presentation |
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The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements. |
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Initial Public Offering |
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On August 7, 2013, the Company completed its initial public offering (“IPO”) of common stock in which the Company sold and issued 4,600,000 shares of common stock at a price of $16.00 per share. As a result of the IPO, the Company raised a total of $73.6 million in gross proceeds, or approximately $65.6 million in net proceeds after deducting underwriting discounts and commissions of $5.2 million and offering expenses of approximately $2.8 million. |
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Stock Split |
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In July 2013, the Company’s board of directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation. The amendment provided for a 1-for-5.2 reverse stock split of the outstanding common stock and outstanding convertible preferred stock (collectively, “Capital Stock”), which became effective on July 18, 2013. Accordingly, (i) every 5.2 shares of Capital Stock have been combined into one share of Capital Stock, (ii) the number of shares of Capital Stock into which each outstanding option or warrant to purchase Capital Stock is exercisable, as the case may be, have been proportionately decreased on a 5.2-for-1 basis, and (iii) the exercise price for each such outstanding option or warrant to purchase Capital Stock has been proportionately increased on a 1-for-5.2 basis. All of the share numbers, share prices, and exercise prices have been adjusted within these financial statements, on a retroactive basis, to reflect this 1-for-5.2 reverse stock split. |
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Segment Reporting |
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Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and accessing performance. To date, the Company has viewed its operations and manages its business as one segment. |
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Concentrations of Risk |
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Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company deposits cash and cash equivalents with one high-credit-quality financial institution and maintains balances that exceed federally insured amounts. The Company has policies that limit its investments as to types of investments, maturity, liquidity, credit quality, concentration and diversification of issuers. |
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The Company’s accounts receivable are derived from revenue earned from customers primarily located in the United States and Canada. The Company’s sales to customers located outside the United States are generally denominated in United States dollars, except for sales to customers located in the United Kingdom, which are denominated in pounds sterling. There were no individual account balances greater than 10% of total accounts receivable at December 31, 2012 and September 30, 2013. |
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No customer accounted for more than 10% of total revenue for the three- and nine-month periods ended September 30, 2012 and 2013. |
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The Company relies on a limited number of suppliers for its contract manufacturing. A significant disruption in the operations of these manufacturers would impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on the Company’s business, financial condition and results of operations. |
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Geographic Information |
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The Company’s revenue includes amounts earned through sales to customers located outside of the United States. With the exception of Canada, no single foreign country accounted for more than 10% of total revenue for the three- and nine-month periods ended September 30, 2012 and 2013. The following table sets forth revenue from the U.S., Canadian and all other international customers combined (in thousands): |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2012 | | 2013 | | 2012 | | 2013 | |
Revenue-United States | | $ | 17,845 | | $ | 22,264 | | $ | 51,347 | | $ | 61,430 | |
Revenue-Canada | | 3,344 | | 3,641 | | 9,184 | | 10,690 | |
Revenue-all other international sources | | 7,416 | | 7,736 | | 18,316 | | 20,635 | |
Total revenue | | $ | 28,605 | | $ | 33,641 | | $ | 78,847 | | $ | 92,755 | |
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International revenue (excluding Canada) as a percent of total revenue | | 26 | % | 23 | % | 23 | % | 22 | % |
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Use of Accounting Estimates |
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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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty, inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances and income taxes. Actual results may differ from those estimates. |
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Product Warranty |
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The Company provides its customers a limited product warranty of two years, which requires the Company to repair or replace defective products during the warranty period at no cost to the customer. The Company estimates the costs that may be incurred to replace or repair defective products and records a reserve at the time revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed systems, the Company’s historical experience and management’s judgment regarding anticipated rates of product warranty returns. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary. |
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The following table presents the changes in the product warranty liability (in thousands): |
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| | Warranty Liability | | | | | | | | | | |
Balance at December 31, 2012 | | $ | 1,155 | | | | | | | | | | |
Warranty costs accrued | | 420 | | | | | | | | | | |
Warranty claims | | (414 | ) | | | | | | | | | |
Balance at September 30, 2013 | | $ | 1,161 | | | | | | | | | | |
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Fair Value of Financial Instruments |
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The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of the accounts. The fair value of the notes payable approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company. |
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Net Income (Loss) Per Share |
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Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and the assumed conversion of outstanding convertible preferred stock and warrants using the if-converted method. In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, as any additional common shares would be anti-dilutive. |
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The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands): |
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| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2012 | | 2013 | | 2012 | | 2013 | |
Numerator: | | | | | | | | | |
Net income (loss) | | $ | (4,092 | ) | $ | 1,731 | | $ | (6,256 | ) | $ | 1,233 | |
Denominator: | | | | | | | | | |
Weighted average common stock outstanding for basic net income (loss) per common share | | 2,363 | | 14,389 | | 2,324 | | 6,511 | |
Effect of dilutive securities—stock options, convertible preferred stock, and warrants to purchase common stock and preferred stock | | — | | 9,167 | | — | | 14,695 | |
Weighted average common shares and dilutive securities outstanding | | 2,363 | | 23,556 | | 2,324 | | 21,206 | |
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The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands): |
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| | Three Months Ended | | Nine Months Ended | | | | | |
| | September 30, | | September 30, | | | | | |
| | 2012 | | 2013 | | 2012 | | 2013 | | | | | |
Convertible preferred stock | | 15,294 | | — | | 15,294 | | — | | | | | |
Options to purchase common stock | | 4,366 | | 253 | | 4,312 | | 355 | | | | | |
Warrants to purchase common stock | | 541 | | — | | 541 | | — | | | | | |
Warrants to purchase preferred stock | | 194 | | — | | 194 | | 1 | | | | | |
Total | | 20,395 | | 253 | | 20,341 | | 356 | | | | | |
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Recent Accounting Pronouncements |
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In February 2013, the FASB issued ASU 2013-02, ‘‘Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.’’ The amended guidance requires an entity to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period. The guidance is effective prospectively for the reporting periods beginning after December 15, 2012. This new guidance was effective for the Company beginning January 1, 2013. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows as it relates only to financial statement presentation. |