| Basis of Presentation and Summary of Significant Accounting Policies | 2. Basis of Presentation and Summary of Significant Accounting
Policies
Fiscal Year
The Company’s fiscal year end is April 30. References to
fiscal year 2015, for example, refer to the fiscal year ending
April 30, 2015.
Basis of Presentation
The consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”).
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 and disclosure of
contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. On an ongoing basis, the Company evaluates
its estimates, including those related to revenue recognition,
allowance for doubtful accounts, income taxes, stock-based expense,
accrued liabilities, useful lives of property and equipment and
capitalized software development costs, among others. The Company
bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results could
differ from the estimates made by management with respect to these
items.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and the accounts of the Company’s
wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated upon consolidation.
Foreign Currency Translation
The U.S. dollar is the reporting currency for all periods
presented. The functional currency of the Company’s foreign
subsidiaries is generally the local currency. All assets and
liabilities denominated in a foreign currency are translated into
U.S. dollars at the exchange rate on the balance sheet date.
Revenue and expenses are translated at the average rate during the
period. Equity transactions are translated using historical
exchange rates. Adjustments resulting from translating foreign
currency financial statements into U.S. dollars are included in
accumulated other comprehensive loss. Foreign currency transaction
gains and losses are included in net loss for the period. The
Company recognized net foreign currency gains (losses) of $(1.0)
million, $0.4 million and $0.4 million for fiscal years 2015,
2014 and 2013, respectively.
Derivative Financial Instruments
As a result of the Company’s international operations, it is
exposed to various market risks that may affect its consolidated
results of operations, cash flows and financial position. These
market risks include, but are not limited to, fluctuations in
currency exchange rates. The Company’s primary foreign
currency exposures are in Euros and British Pound Sterling. The
Company faces exposure to adverse movements in currency exchange
rates as the financial results of certain of its operations are
translated from local currency into U.S. dollars upon
consolidation. Additionally, foreign exchange rate fluctuations on
transactions denominated in currencies other than the functional
currency result in gains and losses that are reflected in
income.
The Company may enter into derivative instruments to hedge certain
net exposures of non-U.S. dollar-denominated assets and
liabilities, even though it does not elect to apply hedge
accounting or hedge accounting does not apply. Gains and losses
resulting from a change in fair value of these derivatives are
reflected in income in the period in which the change occurs and
are recognized on the consolidated statement of operations in other
income (expense). Cash flows from these contracts are classified
within net cash used in operating activities on the consolidated
statements of cash flows.
The Company does not use financial instruments for trading or
speculative purposes. The Company recognizes all derivative
instruments on the balance sheet at fair value, and its derivative
instruments are generally short-term in duration.
Derivative contracts were not material as of April 30, 2015
and 2014. The Company is exposed to the risk that counterparties to
derivative contracts may fail to meet their contractual
obligations.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments,
including cash equivalents, accounts receivable, accounts payable
and accrued liabilities, approximate their respective fair values,
due to the short-term nature of the instruments.
The Company applies the authoritative guidance on fair value
measurements for financial assets and liabilities. The guidance
defines fair value and increases disclosures surrounding fair value
calculations. The guidance establishes a three-tiered fair value
hierarchy that prioritizes inputs to valuation techniques used in
fair value calculations. The three levels of inputs are defined as
follows:
Level 1: Unadjusted quoted prices for identical assets or
liabilities in active markets accessible by the Company.
Level 2: Inputs that are observable in the marketplace
other than those inputs classified as Level 1.
Level 3: Inputs that are unobservable in the marketplace
which require the Company to develop its own assumptions.
The valuation techniques used to determine the fair value of our
financial instruments having Level 2 inputs are valued using
unadjusted, non-binding market consensus prices that are
corroborated by observable market data, quoted market prices for
similar instruments, or pricing models. Our procedures include
controls to ensure that appropriate fair values are recorded by a
review of the valuation methods and assumptions. The Company did
not hold any cash equivalents, restricted cash or short-term
investments categorized as Level 3 as of April 30, 2015 or
2014.
Cash and Cash Equivalents
The Company considers all highly liquid investments acquired with
an original maturity of three months or less at the date of
purchase and readily convertible to known amounts of cash to be
cash equivalents. Cash and cash equivalents are deposited with
banks in demand deposit accounts. Cash equivalents are stated at
cost, which approximates market value, because of the short
maturity of these instruments.
Short-term Investments
Short-term investments which are classified as available-for-sale
securities consist of certificates of deposit, municipal bonds,
commercial paper, U.S. Treasury notes and bonds that are a
guaranteed obligation of the U.S. Government, corporate notes and
corporate bonds. The Company may or may not hold securities with
stated maturities greater than one year until maturity. After
consideration of its risks versus reward objectives, as well as its
liquidity requirements, the Company may sell these securities prior
to their stated maturities. As the Company views these securities
as available to support current operations, it has classified all
available-for-sale securities as short-term. Available-for-sale
securities are carried at fair value with unrealized gains and
losses reported as a component of accumulated other comprehensive
income (loss) in stockholders’ equity. For the periods
presented, realized and unrealized gains and losses on short-term
investments were not material. An impairment charge is recorded in
the consolidated statements of operations for declines in fair
value below the cost of an individual investment that are deemed to
be other-than-temporary. The Company assesses whether a decline in
value is temporary based on the length of time that the fair market
value has been below cost, the severity of the decline, as well as
the intent and ability to hold, or plans to sell, the investment.
There have been no impairment charges recognized related to
short-term investments for the fiscal years ended April 30,
2015, 2014 or 2013.
Restricted Cash
In fiscal 2014, the Company’s restricted cash consisted of a
standby letter of credit under its Pledge and Security Agreement
for corporate credit card services, secured by its money market
account (See Note 10).
Accounts Receivable
Accounts receivable represent trade receivables from clients for
whom the Company has provided services and not yet received
payment. The Company presents accounts receivable net of an
allowance for doubtful accounts. The Company maintains an allowance
for doubtful accounts for estimated losses resulting from the
inability of clients to make required payments. In estimating this
allowance, the Company considers factors such as: historical
collection experience, a client’s current credit-worthiness,
client concentrations, age of the receivable balance, both
individually and in the aggregate and general economic conditions
that may affect a client’s ability to pay. Any change in the
assumptions used in analyzing a specific account receivable might
result in an additional allowance for doubtful accounts being
recognized in the period in which the change occurs.
The allowance for doubtful accounts was $4.0 million and $2.3
million at April 30, 2015 and 2014, respectively.
Property, Equipment and Capitalized Internal-Use Software
Development Costs
Property and equipment is carried at cost less accumulated
depreciation and amortization.
Depreciation and amortization is computed utilizing the
straight-line method over the estimated useful lives of the related
assets as follows:
Computer equipment 3 years
Furniture and fixtures 5 years
Office equipment 5 years
Software 3 years
Leasehold improvements
Shorter of estimated useful life or the lease term
When depreciable assets are sold or retired, the related cost and
accumulated depreciation are removed from the accounts. Any gain or
loss is included in other income (expense), net in the
Company’s statement of operations. Major additions and
betterments are capitalized. Maintenance and repairs which do not
materially improve or extend the lives of the respective assets are
charged to operating expenses as incurred.
The Company capitalizes certain development costs incurred in
connection with its internal-use software. These capitalized costs
are primarily related to its proprietary social commerce platform
that is hosted by the Company and accessed by its clients on a
subscription basis. Costs incurred in the preliminary stages of
development are expensed as incurred. Once an application has
reached the development stage, direct internal and external costs
are capitalized until the software is substantially complete and
ready for its intended use. Maintenance and training costs are
expensed as incurred. Internal-use software development costs are
amortized on a straight-line basis over its estimated useful life,
generally three years, into cost of revenue.
Goodwill, Intangible Assets, Long-Lived Assets and Impairment
Assessments
The Company evaluates and tests the recoverability of its goodwill
for impairment at least annually during the fourth fiscal quarter
or more often if and when circumstances indicate that goodwill may
not be recoverable (See Note 7).
Intangible assets are amortized over their useful lives. Each
period the Company evaluates the estimated remaining useful life of
its intangible assets and whether events or changes in
circumstances warrant a revision to the remaining period of
amortization. The carrying amounts of these assets are periodically
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of these assets may not be
recoverable. Recoverability of these assets is measured by
comparison of the carrying amount of each asset to the future
undiscounted cash flows the asset is expected to generate. If the
undiscounted cash flows used in the test for recoverability are
less than the carrying amount of these assets then the Company will
recognize an impairment charge to reduce the assets to fair
value.
The Company evaluates the recoverability of its long-lived assets
for possible impairment annually in the fourth fiscal quarter or
more frequently if indicators that the carrying amount of such
assets may not be recoverable. Recoverability of these assets is
measured by comparison of the carrying amount of each asset to the
future undiscounted cash flows the asset is expected to generate.
If the undiscounted cash flows used in the test for recoverability
are less than the carrying amount of these assets then the Company
will recognize an impairment charge to reduce the assets to fair
value (See Note 5).
Comprehensive Loss
Comprehensive loss is comprised of net loss, unrealized investment
gains and losses and foreign currency translation adjustments, net
of tax. The accumulated comprehensive gain (loss) as of
April 30, 2015 and 2014 was primarily due to unrealized gains
(losses) on short-term investments and foreign currency translation
adjustments.
Concentrations of Credit Risk and Significant
Clients
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents
and account receivables. The Company’s cash and cash
equivalents are placed with high-credit-quality financial
institutions and issuers, and at times may exceed federally insured
limits. The Company has not experienced any loss relating to cash
and cash equivalents in these accounts to date. The Company
maintains an allowance for doubtful accounts receivable balances,
performs periodic credit evaluations of its clients and generally
does not require collateral of its clients.
No single client accounted for 10% or more of accounts receivable
as of April 30, 2015 or April 30, 2014. No single client
accounted for 10% or more of total revenue for the fiscal years
ended April 30, 2015 or April 30, 2014.
Revenue Recognition
In general, the Company recognizes revenue when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred
or services have been rendered to the client, (iii) the fee is
fixed or determinable and (iv) collectability is reasonably
assured.
The Company generates revenue primarily from sales of the following
services:
Software as a Service (“SaaS”)
The Company generates SaaS revenue from two sources: 1) various
subscription products; and 2) professional services. Subscription
revenue includes subscription fees from clients accessing the
Company’s cloud-based social commerce platform and
application services pursuant to service agreements that are
generally one year in length. Professional services consist of fees
associated with providing expert services that educate and assist
clients on the best use of the Company’s solutions as well as
assist in the implementation of the solutions. Professional
services are not required for clients to utilize the
Company’s solutions. The client does not have the right to
take possession of the software supporting the application service
at any time, nor do the arrangements contain general rights of
return.
Multiple Deliverable Arrangements
Typically, revenue from new clients consist of agreements with
multiple elements, comprised of subscription fees for the
Company’s products and professional services. The Company
evaluates each element in a multiple-element arrangement to
determine whether it represents a separate unit of accounting. An
element constitutes a separate unit of accounting when the
delivered item has standalone value and delivery of the undelivered
element is probable and within the Company’s control. Various
subscription based products have standalone value because they are
routinely sold separately by the Company. In determining whether
professional services can be accounted for separately from
subscription services, the Company considered the availability of
the professional services from other vendors, the nature of the
Company’s professional services and whether the Company sells
its applications to new clients without professional services. The
majority of the Company’s professional services contracts are
offered on a time and material basis. When these services are not
combined with subscription and support revenue in a
multiple-element arrangement, services revenue is recognized as the
services are rendered.
If the deliverables have standalone value upon delivery, the
Company accounts for each deliverable separately and revenue is
recognized for the respective deliverables over the respective
service period. If one or more of the deliverables does not have
standalone value upon delivery, the deliverables that do not have
standalone value are generally combined with the final deliverable
within the arrangement and treated as a single unit of accounting.
Revenue for arrangements treated as a single unit of accounting is
generally recognized over the period commencing upon delivery of
the final deliverable and over the remaining term of the
subscription contract.
The Company allocates revenue to each element in an arrangement
based on a selling price hierarchy. The selling price for a
deliverable is based on its vendor-specific objective evidence
(“VSOE”), if available, third-party evidence
(“TPE”), if VSOE is not available, or best estimated
selling price (“BESP”), if neither VSOE nor TPE is
available. Because the Company has been unable to establish VSOE or
TPE for the elements of our arrangements, the Company allocates the
arrangement fee to the separate units of accounting based on the
Company’s best estimate of selling price. The Company
determines BESP price for its deliverables based on the
Company’s overall pricing objectives, discounting practices,
the size and volume of the Company’s transactions, the client
demographic, the Company’s price lists, the Company’s
go-to-market strategy, historical standalone sales and contract
prices. The determination of BESP is made through consultation with
and approval by management, taking into consideration the
go-to-market strategy. As the Company’s go-to-market
strategies evolve, the Company may modify its pricing practices in
the future, which could result in changes in relative selling
prices, including both VSOE and BESP.
Subscription revenue is recognized ratably over the term of the
related agreement, commencing upon the later of the agreement start
date or when all revenue recognition criteria have been met.
Amounts that have been invoiced are recorded in accounts receivable
and in deferred revenue or revenue, depending on whether the
revenue recognition criteria have been met.
Media
Media revenue consists primarily of fees charged to advertisers
when their advertisements are displayed on websites owned by
various third-parties (“Publishers”). The Company has
revenue sharing agreements with these Publishers. The Company
receives a fee from the advertisers and pay the Publishers based on
their contractual revenue-share. Media revenues earned from the
advertisers are recognized on a net basis as the Company has
determined that it is acting as an agent in these transactions.
The Company’s agreements currently do not combine SaaS and
Media services.
Deferred Revenue
Deferred revenue consists of billings or payments received in
advance of revenue recognition and is recognized as the revenue
recognition criteria are met. The Company invoices clients in a
variety of installments and, consequently, the deferred revenue
balance does not represent the total contract value of its
non-cancelable subscription agreements. 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
non-current deferred revenue.
Cost of Revenue
Cost of revenue consists primarily of personnel costs and related
expenses together with allocated overhead costs, including
depreciation and facility and office related expenses, associated
with employees and contractors who provide our subscription
services. Cost of revenue also includes co-location and related
telecommunications costs, fees paid to third-parties for resale
arrangements, amortization of developed technology and amortization
of capitalized internal-use software development costs incurred in
connection with its application services.
Treasury Stock
Shares of common stock repurchased by the Company and held in
treasury are recorded at cost as treasury stock and result in a
reduction of stockholders’ equity.
Stock-Based Expense
The Company records stock-based expense based upon the fair value
for all stock options and restricted stock issued to all persons to
the extent that such options or restricted stock vest. The fair
value of each stock option is calculated using the Black-Scholes
option pricing model. The Company recognizes stock-based expense on
a straight-line basis over the respective vesting period, net of
estimated forfeitures. The Company includes an estimated effect of
forfeitures in its compensation cost and updates the estimated
forfeiture rate through the final vesting date of the awards.
The Company recognizes stock-based expense for shares issued
pursuant to its Employee Stock Purchase Plan (“ESPP”)
on a straight-line basis over the offering period of six months.
Stock-based expense was $12.8 million, $14.5 million and
$22.5 million for the years ended April 30, 2015, 2014
and 2013, respectively.
The Company currently recognizes an insignificant tax benefit
resulting from compensation costs expensed in the financial
statements, however the Company provides a valuation allowance
against the majority of deferred tax asset resulting from this type
of temporary difference since it expects that it will not have
sufficient future taxable income to realize such benefit.
Income Taxes
The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of
assets and liabilities. 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 of a change in tax
rates on deferred tax assets and liabilities will be recognized in
the period that includes the enactment date. A valuation allowance
is established against the deferred tax assets to reduce their
carrying value to an amount that is more likely than not to be
realized.
Earnings Per Share
The Company computes basic earnings per share available to common
stockholders by dividing net income available to common
stockholders by the weighted average number of common shares
outstanding during the reporting period. The Company computes
diluted earnings per share similarly to basic earnings per share
except that it reflects the potential dilution that could occur if
dilutive securities or other obligations to issue common stock were
exercised or converted into common stock. As the Company has only
incurred losses to date, diluted earnings per share is the same as
basic earnings per share.
Prior Period Financial Statements Presentation
The Statement of Comprehensive Loss included in the financial
statements in the Annual Report on Form10-K filed for the fiscal
year ended April 30, 2014 incorrectly excluded the loss from
discontinued operations in Comprehensive Loss for the fiscal years
ended April 30, 2014 and April 30, 2013. The Company has
revised the Statement of Comprehensive Loss for those periods
included in these financial statements. Management concluded these
errors were not material to the previously issued financial
statements.
Recent Accounting Pronouncements
Intangibles – Goodwill and Other – Internal Use
Software
In April 2015, the FASB issued accounting Standards Update 2015-05,
“Intangible-Goodwill and Other-Internal Use Software
(Subtopic 350-40): Customer’s Accounting for Fees Paid in a
Cloud Computing Arrangement,” (“ASU 2015-05”)
which provides guidance to customers with cloud computing
arrangements that include a software license. If a cloud computing
arrangement includes a software license, the customer is required
to account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If a
cloud computing arrangement does not include a software license,
the customer should account for the arrangement as a service
contract. ASU 2015-05 does not change the accounting for a
customer’s accounting for service contracts. As a result of
the ASU 2015-05, all software licenses within the scope of Subtopic
350-40 will be accounted for consistent with other licenses of
intangible assets. The updated guidance will be effective for
annual periods beginning after December 15, 2015 with early
adoption permitted. The updated guidance will be effective for the
fiscal year ending April 30, 2017 and the Company is currently
evaluating the impact of this standards update on the
Company’s consolidated financial statements.
Presentation of Financial Statements
In January 2015, the FASB issued Accounting Standards Update
2015-1, “Simplifying Income Statement presentation by
Eliminating the Concept of Extraordinary Items,” (“ASU
2015-1”) which eliminates the concept of extraordinary items
and the uncertainty in determining whether an item is considered
both unusual and infrequent. Presently, an event or transaction is
presumed to be ordinary and usual activity unless evidence clearly
supports its classification as an extraordinary item. If an event
or transaction is determined to be an extraordinary, it must be
segregated from the results of ordinary operations on the statement
of operations, net of tax, after income from continuing operations,
along with other financial statement disclosures. ASU 2015-1
eliminates the concept of extraordinary items from presentation on
the statement of operations; however, the presentation and
disclosure guidance for items that are unusual in nature or occur
infrequently will be retained and will be expanded to include items
that are both unusual in nature and infrequently occurring. The
updated guidance will be effective for annual periods beginning
after December 15, 2015 with early adoption permitted. The
updated guidance will be effective for the fiscal year ending
April 30, 2017 and is not expected to have a material impact
on the Company’s consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update
2014-15, “Presentation of Financial Statements – Going
Concern (Subtopic 205-40), Disclosure of Uncertainties about an
Entities Ability to Continue as a Going Concern,” (“ASU
2014-15”) which sets forth management’s responsibility
to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern as well as
required disclosures. ASU 2014-15 indicates that, when preparing
financial statements for interim and annual financial statements,
management should evaluate whether conditions or events, in the
aggregate, raise substantial doubt about the entity’s ability
to continue as a going concern for one year from the date the
financial statements are issued or are available to be issued. The
updated guidance will be effective for annual periods ending after
December 15, 2016 with early adoption permitted. The updated
guidance will be effective for the fiscal year ending
April 30, 2017 and is not expected to have a material impact
on the Company’s consolidated financial statements.
Stock-based Expense
In June 2014, the FASB issued Accounting Standards Update
2014-12, “
Revenue
In May 2014, the FASB issued Accounting Standards Update 2014-09,
“Revenue from Contracts with Customers,” (“ASU
2014-09”) which provides updated, comprehensive revenue
recognition guidance for contracts with customers, including a new
principles-based five step framework that eliminates much of the
industry-specific guidance in current accounting literature. Under
ASU 2014-09, revenue recognition is based on a core principle that
companies recognize revenue in an amount consistent with the
consideration it expects to be entitled to in exchange for the
transfer of goods or services. The standards update also requires
enhanced disclosures regarding the nature, amount, timing and
uncertainty of recognized revenue. The updated guidance will be
effective for annual periods beginning after December 15, 2016
and may be applied on either a full or modified retrospective
basis, with early adoption not permitted. The updated guidance will
be effective for the fiscal year ending April 30, 2018. In
April 2015, the FASB issued a proposal to defer the effective date
by one year which, if approved, would make this standard effective
for the fiscal year ending April 30, 2019. The Company is
currently evaluating the impact of this standards update on the
Company’s consolidated financial statements.
Discontinued Operations
In April 2014, the FASB issued Accounting Standards Update 2014-08,
“Reporting of Discontinued Operations and Disclosures of
Disposals of Components of an entity,” (“ASU
2014-08”) which changes the criteria for determining which
disposals can be presented as discontinued operations and requires
new disclosures for individually significant dispositions that do
not quality as discontinued operations. ASU 2014-08 is effective
prospectively for fiscal years and interim reporting periods within
those years beginning after December 15, 2014, with early
adoption permitted for transactions that have not been reported in
financial statements previously issued or available for issuance.
The standard will be effective for the fiscal year ending
April 30, 2016 and is not expected to have a material impact
on the Company’s consolidated financial statements. |
