| Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2018 |
| Policy Text Blocks | |
| Basis of Presentation | Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU, No. 2014-09”), Revenue from Contracts with Customers (“ASC 606”), on a full retrospective basis as discussed in detail in Note 2. All amounts and disclosures set forth in these financial statements have been updated to comply with ASC 606.
The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), permits an “emerging growth company” such as the Company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has irrevocably elected to “opt out” of this provision and, as a result, the Company will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. |
| Use of Estimates | 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, allowances for doubtful accounts, stock‑based compensation, valuation allowances for deferred tax assets, the valuation of common stock and preferred stock, the valuation of preferred stock and common stock warrant liabilities, and the valuation of assets acquired and liabilities assumed in business combinations, including identifiable intangible assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from the Company’s estimates. |
| Segment Information | Segment Information
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which discrete financial information is available and is regularly reviewed by the chief operating decision maker, or decision‑making group, in making decisions regarding resource allocation and performance assessment. The Company has determined that its chief operating decision maker is its President and Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. |
| Foreign Currency Translation | Foreign Currency Translation
The functional currency of each of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities that are denominated in a foreign currency are revalued into U.S. dollars at the exchange rates in effect at each reporting date. Income and expense accounts are revalued into U.S. dollars on the date of the transaction using the exchange rate in effect on the transaction date. Nonmonetary assets, liabilities, and equity transactions are converted at historical exchange rates in effect at the time of the transaction. All resulting foreign currency transaction gains and losses are recorded in the consolidated statements of operations as other income or expense. The net foreign currency transaction (losses) gains recorded by the Company for the years ended December 31, 2018, 2017 and 2016 were $(874), $227, and $(511), respectively. |
| Revenue Recognition and Deferred Revenue | Revenue Recognition
The Company generates revenue through relationships with channel partners and through its direct sales force primarily from three sources: (i) the sale of subscription (i.e., term-based) and perpetual licenses for the Company’s CB Protection and CB Response software products along with access to and the right to utilize the threat intelligence capabilities of the CB Predictive Security Cloud, as well as maintenance services and customer support (collectively, “support”), (ii) cloud-based software-as-a-service (“SaaS”) subscriptions for access to the Company’s CB Response and CB Defense software products, and (iii) professional services and training (collectively, “services”).
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for these products or services. The Company applies the following five steps to recognize revenue:
(i)
Identification of the contract, or contracts, with a customer
The Company considers the terms and conditions of the Company’s contracts and the Company’s customary business practices to identify contracts under ASC 606. The Company considers that it has a contract with a customer when the contract is approved, the Company can identify each party’s rights regarding the products or services to be transferred, the Company can identify the payment terms for the products or services to be transferred, the Company has determined that the customer has the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.
(ii)
Identification of the performance obligation(s) in the contract
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are capable of being distinct, whereby the customer can benefit from the product or services either on their own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company applies judgment to determine whether promised products or services are capable of being distinct, and are distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation.
(iii)
Determination of the transaction price
The transaction price is determined based on the consideration that the Company will be entitled to in exchange for transferring products or services to the customer. Variable consideration is included in the transaction price, if, in the Company’s judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur.
In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its products and services, not to receive financing from its customers or to provide customers with financing. An example is invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.
(iv)
Allocation of the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on relative standalone selling price (“SSP”) basis. The Company determines SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, the Company estimates the SSP taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligation.
(v)
Recognition of revenue when, or as, a performance obligation is satisfied
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to a customer. The Company recognizes revenue when it transfers control of the products or services to the customer for an amount that reflects the consideration that the Company expects to receive in exchange for those products or services.
Subscription, License and Support Revenue
Substantially all of the Company’s software arrangements contain multiple performance obligations that include a combination of software licenses, cloud-based subscriptions, support, professional services and training.
The Company’s CB Protection and CB Response products are offered through subscription or perpetual software licenses, with a substantial majority of its customers selecting a subscription license. Subscription licenses include access to and the right to utilize the threat intelligence capabilities of the CB Predictive Security Cloud as well as ongoing support, which provides customers with telephone and web-based support, bug fixes and repairs and software updates on a when-and-if-available basis. The CB Predictive Security Cloud automatically distributes real-time threat intelligence, such as detection algorithms, reputation scores and attack classifications, to the Company’s customers. Substantially all customers who purchase licenses on a perpetual basis also purchase an agreement for support and an agreement for access to and the right to utilize the threat intelligence capabilities of the CB Predictive Security Cloud. For subscription or perpetual license sales of CB Protection and CB Response, the Company considers the software license and access to the threat intelligence capabilities of the CB Predictive Security Cloud to be a single performance obligation.
Subscription (i.e. term-based) revenue is recognized on a ratable basis over the contract term beginning on the date the software is delivered to the customer. Revenue for cloud-based subscriptions is recognized on a ratable basis over the term of the subscription beginning on the date the customer is given access to the platform. Maintenance services and customer support revenue related to subscription licenses is recognized ratably over the term of the maintenance and support arrangement as this performance obligation is satisfied. Revenue from the infrequent sales of perpetual software licenses is recognized ratably over the customer’s estimated economic life, which the Company has estimated to be five years, beginning on the date the software is delivered to the customer. Maintenance services and customer support revenue related to perpetual licenses is recognized ratably over the term of the maintenance and support arrangement as this performance obligation is satisfied.
Services Revenue
The Company provides professional services to customers, primarily in the form of deployment, and training services. Services are typically sold together with licenses of the Company’s software products and, to a lesser extent, on a stand-alone basis. Services are priced separately and are considered distinct from the Company’s software license. The professional services can be performed by a third party and have a history of consistent pricing by the Company. Professional services are sold as time-and-materials contracts based on the number of hours worked and at contractually agreed-upon hourly rates, and also on a fixed-fee basis. Revenue from professional services and training sold on a stand-alone basis or in a combined arrangement is recognized as those services are rendered as control of the services passes to the customer over time.
The Company’s employees may incur out-of-pocket expenses when providing services to customers that are reimbursable from the customer under the terms of the service contract. The Company bills any out-of-pocket expenses incurred in the performance of these services to the customer. The expenses are classified on a gross basis as revenue and costs of revenue in the consolidated statements of operations. The Company’s determination of a gross presentation is based on an assessment of the relevant facts and circumstances, including the fact that the Company’s customers, rather than the Company, benefit from the expenditures and the Company bears the credit risk of the reimbursement until it receives reimbursement from the customer.
Variable Consideration
Revenue is recorded at the net sales price, which is the transaction price. The Company does not offer refunds, rebates or credits to customers in the normal course of business. The impact of variable consideration has not been material.
Contract Costs
The Company capitalizes commission costs that are incremental and directly related to the acquisition of customer agreements. Commissions are earned by the Company’s sales force and paid in full upon the receipt of customer orders for new arrangements or renewals. Commission costs are capitalized when earned and are amortized as expense over an estimated customer relationship period of five years. The Company determined the estimated customer relationship period by taking into consideration the contractual term and expected renewals of customer contracts, its technology and other factors, including the fact that commissions paid on renewals are not commensurate with commissions paid on new sales.
Commissions paid relating to contract renewals are deferred and amortized over the related renewal period. Costs to obtain a contract for service arrangements are expensed as incurred in accordance with the practical expedient as the contractual period for services is one year or less.
As of December 31, 2018 and 2017, the Company recorded $38,154 and $29,955 of deferred commission costs in the consolidated balance sheet. Commission costs capitalized as deferred commissions during December 31, 2018, 2017, and 2016, totaled $20,955, $18,308 and $13,871, respectively. Amortization of deferred commissions as of December 31, 2018, 2017, and 2016 totaled $12,756, $10,047, and $6,483, respectively, and is included in sales and marketing expense in the consolidated statements of operations. The Company periodically reviews these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred sales commissions.
The Company does not incur any material costs to fulfill customer contracts.
Deferred Revenue
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. During the year ended December 31, 2018, the Company recognized revenue of $127,487 which was included in the deferred revenue balance as of December 31, 2017.
The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. The Company generally bills its customers in advance, and payment terms on invoiced amounts are typically 30 to 90 days. Contract costs include amounts related to its contractual right to consideration for completed and partially completed performance obligations that may not have been invoiced; such amounts have been insignificant to date. |
| Concentrations of Credit Risk and Significant Customers | Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains the majority of its cash and cash equivalents with one financial institution, which management believes to be of a high credit quality, in amounts that at times may exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
As of December 31, 2018, two channel partners accounted for 22.7% and 20.4% of outstanding accounts receivable, respectively. As of December 31, 2017, two channel partners accounted for 20.2% and 16.2% of outstanding accounts receivable, respectively.
For the year ended December 31, 2018, two channel partners accounted for 20.4% and 18.9% of total revenue, respectively. For the years ended December 31, 2017 and 2016, one channel partner accounted for 26.9% and 31.3% of total revenue, respectively.
The Company does not have significant operations outside of the United States. During the years ended December 31, 2018, 2017 and 2016, revenue from customers located outside of the United States in the aggregate accounted for 17.3%, 13.8%, and 11.1%, respectively, of the Company’s total revenue, with no country representing greater than 10% of total revenue for those periods. Additionally, substantially all of the Company’s long‑lived tangible assets (consisting of property and equipment) were held within the United States as of December 31, 2018 and 2017. |
| Accounts Receivable, Net | Accounts Receivable, Net
Accounts receivable are presented net of an allowance for doubtful accounts, which is an estimate of amounts that may not be collectible. The Company generally does not require collateral to secure accounts receivable. In determining the amount of the allowance at each reporting date, the Company makes judgments about general economic conditions, historical write‑off experience and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. Account balances are written off after all means of collection are exhausted and the potential for non‑recovery is determined to be probable. Adjustments to the allowance for doubtful accounts are recorded as general and administrative expenses in the consolidated statements of operations. |
| Fair Value Measurements | Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
·
Level 1—Quoted prices in active markets for identical assets or liabilities.
·
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
·
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents, short-term investments, preferred stock warrant liabilities and common stock warrant liability are carried at their fair values as determined according to the fair value hierarchy described above (see Note 5). The carrying values of accounts receivable, accounts payable and accrued expenses approximate their respective fair values due to the short‑term nature of these assets and liabilities. |
| Cash Equivalents | Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company’s cash equivalents consist of highly liquid investments in money market funds.
The Company considers all high quality investments purchased with original maturities at the date of purchase greater than three months to be short-term investments. Investments are available to be used for current operations and are, therefore, classified as current assets even though maturities may extend beyond one year. Short-term investments are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive loss, which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of interest income, net in the consolidated statement of operations. |
| Property and Equipment | Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is recognized using the straight‑line method over the estimated useful lives of the assets. Computer equipment is depreciated over three or four years. Computer software, furniture and fixtures and office equipment are depreciated over three years. Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of seven years. Repair and maintenance costs are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations. |
| Software Development Costs | Software Development Costs
The Company capitalizes certain costs related to the development of software for internal use and the development of software for license or sale to customers, including costs incurred for certain upgrades and enhancements that are expected to result in increased functionality.
Costs incurred to develop software to be licensed or sold to customers are expensed prior to the establishment of technological feasibility of the software and are capitalized thereafter until commercial release of the software. The Company has not historically capitalized software development costs as the establishment of technological feasibility typically occurs shortly before the commercial release of its software products. As such, all software development costs related to software for license or sale to customers are expensed as incurred and included within research and development expense in the consolidated statements of operations.
Qualifying costs incurred to develop internal‑use software are capitalized when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completed and performed as intended. These capitalized costs include salaries for employees who devote time directly to developing internal‑use software and external direct costs of services consumed in developing the software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Capitalized internal‑use software development costs are amortized using the straight‑line method over an estimated useful life of three years. Such amortization expense for internal‑use software is classified as cost of subscription, license and support revenue in the consolidated statements of operations. |
| Business Combinations | Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Transaction costs related to business combinations are expensed as incurred.
Determining the fair value of assets acquired and liabilities assumed and the allocation of the purchase price requires management to use significant judgment and estimates, especially with respect to intangible assets. Critical estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, estimates of future revenue and cash flows, expected long‑term market growth, future expected operating expenses, costs of capital and appropriate discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, which could last up to one year after the transaction date, all adjustments are recorded in the consolidated statements of operations.
Contingent payments that are dependent upon post‑combination services, if any, are considered separate transactions outside of the business combination and are, therefore, included in the post‑combination consolidated statements of operations. In addition, uncertain tax positions assumed and valuation allowances related to the net deferred tax assets acquired in connection with a business combination are estimated as of the acquisition date and recorded as part of the purchase. Thereafter, any changes to these uncertain tax positions and valuation allowances are recorded as part of the provision for income taxes in the consolidated statements of operations. |
| Goodwill | Goodwill
Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. Management considers the following potential indicators of impairment: significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of acquired assets or the strategy of the Company’s overall business, significant negative industry or economic trends and a significant decline in the Company’s stock price for a sustained period and a reduction of the Company’s market capitalization relative to net book value.
The Company performs an annual impairment test on December 1 or whenever events or changes in circumstances indicate that goodwill may be impaired. Significant judgments required in testing goodwill for impairment and changes in estimates and assumptions could materially affect the determination of whether impairment exists and, if so, the amount of that impairment.
The Company has determined that there is one reporting unit for purposes of testing goodwill for impairment. In testing goodwill for impairment, the Company first considers qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, entity‑specific financial performance and other events, such as changes in management, strategy and primary customer base. The Company also has the option to perform step one of the goodwill impairment test. The Company will compare the fair value of the reporting unit to the carrying amount of a reporting unit, including goodwill. If the fair value exceeds the carrying amount, no impairment loss is recognized. However, if the carrying amount of the reporting unit exceeds its fair value, the Company will record an impairment charge in the consolidated statements of operations to reduce the carrying value of the assets to the reporting unit's implied fair value. Based on the qualitative assessment performed on December 1, 2018, the Company determined it was unlikely that its reporting unit fair value was less than its carrying value and no two-step impairment test was required. In each of its annual goodwill impairment tests performed as of December 1, 2017 and 2016, the estimated fair value of the Company’s single reporting unit significantly exceeded its carrying amount. During the years ended December 31, 2018, 2017 and 2016, the Company did not recognize any impairment charges related to goodwill. |
| Intangible Assets, Net | Intangible Assets, Net
Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired and reported net of accumulated amortization, separately from goodwill. Intangible assets with finite lives are amortized over their estimated useful lives. Intangible assets include developed technology, trade name and customer relationships obtained through business acquisitions that occurred during the year ended December 31, 2016. |
| Impairment of Long Lived Assets | Impairment of Long‑Lived Assets
Long‑lived assets consist of property and equipment, including internal‑use software, and finite‑lived acquired intangible assets, such as developed technology, trade name and customer relationships. Long‑lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long‑lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long‑lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. To date, the Company has not recorded any impairment losses on long‑lived assets. No events or changes in circumstances existed to require an impairment assessment during the years ended December 31, 2018, 2017 and 2016. |
| Deferred Offering Costs | Deferred Offering Costs
Deferred offering costs consisted of fees and expenses incurred in connection with the anticipated sale of the Company’s common stock in an IPO, including legal, accounting, printing and other IPO-related costs. As of December 31, 2017, the Company recorded $2,167 of deferred offering costs in other long‑term assets in the consolidated balance sheet. Upon the closing of the Company’s IPO, $4,858 of deferred offering costs were recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the IPO. |
| Deferred Rent | Deferred Rent
The Company records rent expense on a straight‑line basis using a constant periodic rate over the term of its lease agreements. The excess of the cumulative rent expense incurred over the cumulative amounts due under the lease agreements is deferred and recognized over the term of the leases. Leasehold improvement reimbursements from landlords are recorded as deferred rent and amortized as reductions to lease expense over the lease term. |
| Preferred Stock Warrant Liability | Preferred Stock Warrant Liability and Common Stock Warrants
Preferred Stock Warrant Liability
The Company classified warrants to purchase shares of its preferred stock as a liability on its consolidated balance sheets as the warrants were free‑standing financial instruments that may have required the Company to transfer assets upon exercise (see Note 13). The warrants were initially recorded at their fair values on date of issuance, and were subsequently remeasured to fair value at each balance sheet date. Changes in the fair values of the warrants were recognized as other income or expense in the consolidated statements of operations.
The Company used the Black‑Scholes option‑pricing model, which incorporated assumptions and estimates, to value the preferred stock warrants. The Company assessed the assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained. Estimates and assumptions impacting the fair value measurement of each warrant included the fair value per share of the underlying preferred stock, the remaining contractual term of the warrant, risk‑free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock. The Company determined the fair value per share of the underlying preferred stock by taking into consideration the most recent sales of its redeemable convertible preferred stock, results obtained from third‑party valuations and additional factors that were deemed relevant. The Company historically had been a private company and lacked company‑specific historical and implied volatility information of its stock. Therefore, it estimated the expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of each warrant at the time. The risk‑free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of each warrant. Expected dividend yield was determined based on the fact that the Company had never paid cash dividends and did not expect to pay any cash dividends in the foreseeable future.
Common Stock Warrants
The Company also issued warrants to purchase shares of common stock to an investor in connection with the issuance of the Series D redeemable convertible preferred stock and to a lender in connection with the issuance of debt.
The warrant to purchase common stock issued in connection with the Series D redeemable convertible preferred stock was exercisable upon completion of the Company’s IPO into the number of shares of common stock equal to 12.5% of the sum of (a) the number of shares of common stock into which the shares of Series A convertible preferred stock, including shares issuable upon the exercise of outstanding options to purchase shares of Series A convertible preferred stock, convert upon an IPO (see Note 13) and (b) the number of shares of common stock underlying the warrant. The warrants met the definition of a derivative instrument under the relevant accounting guidance and were recorded as a liability in the consolidated balance sheets. The fair value of the warrant on the date of issuance was recorded as a reduction of the carrying value of the Series D redeemable convertible preferred stock and as a long‑term liability in the consolidated balance sheets. As a result, the warrant liability was remeasured to its fair value at the end of each reporting period, with the related change in fair value recorded as other income or expense in the consolidated statements of operations.
The Company used the Black-Scholes option-pricing model, which incorporated assumptions and estimates, to value the common stock warrant. The Company assessed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained. Estimates and assumptions impacting the fair value measurement of the warrant included the fair value per share of the underlying common stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying common stock. The Company determined the fair value per share of the underlying common stock by taking into consideration the most recent sales of its redeemable convertible preferred stock, results obtained from third-party valuations and additional factors that were deemed relevant. The Company historically had been a private company and lacked company-specific historical and implied volatility information of its stock. Therefore, it estimated the expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. Expected dividend yield was determined based on the fact that the Company had never paid cash dividends and did not expect to pay any cash dividends in the foreseeable future. |
| Common Stock Warrants | The warrants to purchase common stock issued in connection with the Mezzanine Term Loan (see Note 13) represented rights to a fixed number of shares and were indexed to the Company’s stock because their values were based upon the value of the underlying shares. As such, the warrants were classified within stockholders’ equity (deficit) under the relevant accounting guidance. The Company recorded a discount to the carrying value of the Mezzanine Term Loan based on the relative fair values of such debt and the warrants issued in conjunction with the debt. The debt discount under this arrangement was amortized to interest expense using the effective interest rate method over the term of the related debt to its date of maturity.
Upon closing of the IPO, the common stock warrant issued in connection with the Series D redeemable convertible preferred stock became exercisable and was net exercised at an exercise price of $0.002 per share to purchase 485,985 shares of common stock. Additionally, the warrants to purchase the Series D preferred stock became warrants to purchase common stock.
Subsequent to the IPO and during the twelve months ended December 31, 2018, these common stock warrants were net exercised at an exercise price of $2.9891 per share to purchase 130,965 shares of common stock and the common stock warrant issued to a lender in connection with the issuance of debt was net exercised at an exercise price of $3.02 per share to purchase 95,113 shares of common stock.
As of December 31, 2018, there are no preferred stock warrants or common stock warrants outstanding. |
| Advertising Costs | Advertising Costs
Advertising costs are expensed as incurred and are included in sales and marketing expense in the consolidated statements of operations. During the years ended December 31, 2018, 2017 and 2016, advertising costs were $5,692, $4,712, and $4,024, respectively. |
| Research and Development Costs | Research and Development Costs
Research and development costs, other than capitalized software development costs discussed above, are expensed as incurred. Research and development expenses include payroll, employee benefits and other expenses associated with product development. |
| Stock Based Compensation | Stock‑Based Compensation
The Company measures all stock options and other stock‑based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options to employees with only service‑based vesting conditions and records the expense for these awards using the straight‑line method.
The Company measures stock‑based awards granted to non‑employee consultants based on the fair value of the award on the date on which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such non‑employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then‑current fair value of the Company’s common stock and updated assumption inputs in the Black‑Scholes option‑pricing model.
The Company classifies stock‑based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.
The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre‑vesting forfeitures for service‑based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock‑based compensation expense in future periods.
The fair value of each stock option grant is estimated on the date of grant using the Black‑Scholes option‑pricing model. The Company historically has been a private company and lacks company‑specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain‑vanilla” options. The expected term of stock options granted to non‑employees is equal to the contractual term of the option award. The risk‑free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The fair value of each restricted stock award or restricted stock unit award is measured as the difference between the purchase price per share of the award, if any, and the fair value per share of the Company’s common stock on the date of grant. |
| Carrying Value of Redeemable Convertible Preferred Stock | Carrying Value of Redeemable Convertible Preferred Stock
The Company recognized changes in the redemption values of its Series B, C, D, E, E‑1 and F redeemable convertible preferred stock immediately as they occurred and adjusted the carrying value of each series of the redeemable convertible preferred stock to equal its redemption value at the end of each reporting period as if the end of each reporting period were the redemption date. Adjustments to the carrying values of the Series B, C, D, E, E‑1 and F redeemable convertible preferred stock at each reporting date resulted in an increase or decrease to net income (loss) attributable to common stockholders.
Because shares of the Company’s Series D, E and F redeemable convertible preferred stock were redeemable in an amount equal to the greater of the original issue price per share of each series plus all declared but unpaid dividends thereon or the estimated fair value of the Series D, E or F redeemable convertible preferred stock at the date of the redemption request, and because shares of the Company’s Series E‑1 redeemable convertible preferred stock were redeemable in an amount equal to the estimated fair value of the Series E‑1 redeemable convertible preferred stock at the date of the redemption request, it was necessary for the Company to determine the fair value of each of these series of preferred stock in order to determine the redemption value at each reporting date. As there had been no public market for the Company’s preferred stock, the estimated fair value of the Company’s preferred stock was determined by management as of each reporting date based, in part, on the results of third‑party valuations of the Company’s preferred stock performed as of each reporting date as well as management’s assessment of additional objective and subjective factors that it believed were relevant. These third‑party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately‑Held‑Company Equity Securities Issued as Compensation. The Company’s preferred stock valuations at each reporting date were prepared using either a probability‑weighted expected return method (“PWERM”) or a hybrid method, which used a combination of market and income approaches or a market approach to estimate the Company’s enterprise value. The hybrid method is a PWERM where the equity value in one or more of the scenarios is allocated using an option‑pricing method (“OPM”).
The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management judgment.
Upon closing of the IPO, all outstanding shares of redeemable convertible preferred stock automatically converted into shares of common stock. |
| Comprehensive Loss | Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders.
Accumulated other comprehensive loss is reported as a component of stockholders’ equity and, as of December 31, 2018, was comprised of unrealized losses on available-for-sale securities of $(49). The Company did not hold any available-for-sale securities as of December 31, 2017. |
| Income Taxes | Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns in different periods. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by considering taxable income in carryback years, existing taxable temporary differences, prudent and feasible tax planning strategies and estimated future taxable profits.
The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two‑step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more‑likely‑than‑not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. |
| Net Loss per Share | Net Loss per Share
The Company follows the two‑class method when computing net income (loss) per share as the Company has issued shares that met the definition of participating securities. The two‑class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two‑class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted‑average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options, unvested restricted stock units and warrants for the purchase of preferred stock and common stock. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted‑average number of common shares outstanding for the period, including potential dilutive common shares, assuming the dilutive effect of outstanding stock options, unvested restricted stock units and warrants for the purchase of preferred stock and common stock.
The Company’s redeemable convertible and convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti‑dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2018, 2017 and 2016. |
| New Accounting Pronouncements | Impact of Recently Adopted Accounting Standards
Revenue
In May 2014, the Financial Accounting Standards Board (“FASB”), issued ASC 606, which supersedes existing revenue recognition guidance under GAAP. The Company adopted ASC 606 effective January 1, 2018 using the full retrospective method, which required the Company to restate each prior reporting period presented for the impact of adoption of the standard.
The Company’s recognition of total revenue related to subscription (i.e., term-based) licenses, cloud-based subscriptions, access to the threat intelligence capabilities of the CB Predictive Security Cloud, maintenance services and customer support, and stand-alone professional services remain substantially unchanged under the new standard. However, as further discussed herein, the timing of recognition related to certain aspects of subscription (i.e. term-based) licenses, perpetual licenses and associated professional services is different under the new standard.
For subscription license sales of CB Protection and CB Response, under the new standard, the Company considers the software license and the access to the threat intelligence capabilities of the CB Predictive Security Cloud, which provides continuous updates of real-time threat intelligence, to be a single performance obligation. As a result, the arrangement consideration allocated to the software license is deferred on the Company’s balance sheet and recognized ratably over the term of the subscription as the performance obligation is satisfied. However, under the new standard, the Company is no longer required to delay the commencement of revenue recognition of subscription licenses until the commencement of any professional services and training sold with the subscription license due to the lack of vendor specific objective evidence (“VSOE”) of its longest delivered service elements, maintenance and support. While under the new standard, maintenance services and customer support related to subscription licenses are a stand-alone performance obligation, the related revenue continues to be recognized ratably over the term of the maintenance and support arrangement as the performance obligation is satisfied.
For its infrequent sales of perpetual licenses of CB Protection and CB Response, prior to the adoption of ASC 606, the Company recognized revenue ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for its maintenance and support offerings. Under the new standard, the Company is no longer required to delay revenue recognition of perpetual licenses until the commencement of any bundled professional services and training sold with the perpetual license. Further, the Company recognizes the revenue related to the sale of perpetual software licenses ratably over the customer’s estimated economic life, which the Company has estimated to be five years, rather than over the initially committed period of maintenance and support.
In addition, under the new standard, for subscription and perpetual licenses that are sold with professional services in a combined arrangement, the professional services represent a separate performance obligation and the Company recognizes revenue associated with the professional services as such services are performed. Revenue associated with professional services sold in a combined arrangement with subscription and perpetual licenses was previously recognized ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for the Company’s maintenance and support offerings.
Another significant provision of the new standard requires the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Under the new standard, all incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. Under the previous standard, the Company capitalized commission costs that were incremental and directly related to the acquisition of a customer arrangement. The commission costs were capitalized when earned and were amortized as expense over the period that the revenue was recognized for the related non-cancelable customer arrangement in proportion to the recognition of revenue, without regard to anticipated customer renewals. Under the new standard, the Company continues to capitalize all incremental commission costs to obtain a customer arrangement, but now amortizes the capitalized costs on a straight-line basis over the estimated customer relationship period, which includes anticipated customer renewals, because the Company anticipates that a majority of customers will renew their license and cloud-based subscriptions and the commissions paid by the Company for such renewals are not commensurate with the commissions paid for new sales. Accordingly, this has resulted in the Company’s capitalized commission costs being amortized to expense over a longer period under the new standard than under the prior guidance. The Company has estimated the customer relationship period to be five years.
The Company adjusted its consolidated financial statements due to the adoption of ASC 606. The cumulative impact to the accumulated deficit as of December 31, 2015 as a result of the adoption of ASC 606 resulted in an adjusted balance of ($175,592). As of December 31, 2016, the previously reported deficit of ($224,115) changed to ($220,301) as a result of the adoption of ASC 606, which included the $3,969 deficit impact from 2015 and the ($155) impact to 2016 net income. Select consolidated financial statements, which reflect the adoption of ASC 606 are as follows:
As of December 31, 2017
Adjustments for
As Previously
ASC 606
Reported
Adoption
As Adjusted
Consolidated Balance Sheet
Assets:
Deferred commissions, current portion
$
15,195
$
(5,644)
$
9,551
Deferred commissions, net of current portion
$
3,811
$
16,593
$
20,404
Liabilities, redeemable convertible and convertible preferred stock and stockholders' equity (deficit):
Deferred revenue, current portion
$
132,278
$
(2,113)
$
130,165
Deferred revenue, net of current portion
$
31,902
$
6,633
$
38,535
Accumulated deficit
$
(279,942)
$
6,429
$
(273,513)
Year Ended December 31,
2017
2016
As Previously
Adjustments
As Adjusted
As Previously
Adjustments
As Adjusted
Consolidated Statements of Operations
Subscription, license and support
$
149,262
$
(472)
$
148,790
$
104,786
$
(2,962)
$
101,824
Services
$
12,752
$
(764)
$
11,988
$
11,453
$
(420)
$
11,033
Total revenue
$
162,014
$
(1,236)
$
160,778
$
116,239
$
(3,382)
$
112,857
Gross profit
$
126,376
$
(1,236)
$
125,140
$
95,200
$
(3,382)
$
91,818
Sales and marketing
$
107,190
$
(3,851)
$
103,339
$
80,997
$
(3,227)
$
77,770
Total operating expenses
$
181,574
$
(3,851)
$
177,723
$
140,779
$
(3,227)
$
137,552
Loss from operations
$
(55,198)
$
2,615
$
(52,583)
$
(45,579)
$
(155)
$
(45,734)
Loss before income taxes
$
(55,749)
$
2,615
$
(53,134)
$
(46,745)
$
(155)
$
(46,900)
Net loss and comprehensive loss
$
(55,827)
$
2,615
$
(53,212)
$
(44,554)
$
(155)
$
(44,709)
Net loss attributable to common stockholders
$
(83,883)
$
2,615
$
(81,268)
$
(48,123)
$
(155)
$
(48,278)
Net loss per share attributable to common stockholders—basic and diluted
$
(8.08)
$
0.25
$
(7.83)
$
(5.85)
$
(0.02)
$
(5.87)
Year Ended December 31,
2017
2016
As Previously
Adjustments
As Adjusted
As Previously
Adjustments
As Adjusted
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net loss
$
(55,827)
$
2,615
$
(53,212)
$
(44,554)
$
(155)
$
(44,709)
Changes in operating assets and liabilities, excluding the impact of acquisition of businesses:
Deferred commissions
$
(4,412)
$
(3,851)
$
(8,263)
$
(4,163)
$
(3,227)
$
(7,390)
Deferred revenue
$
50,781
$
1,236
$
52,017
$
27,787
$
3,382
$
31,169
Restricted Cash
On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB’s EITF) , referred to herein as ASU 2016-18, which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The adoption of ASU 2016-18 impacted the presentation of the consolidated statement of cash flows with the inclusion of restricted cash for the year ended December 31, 2016.
Cash and cash equivalents subject to contractual restrictions and not readily available for use are classified as restricted cash. The Company’s restricted cash balances as of December 31, 2015 were primarily made up of cash posted as collateral for its lease of its corporate office facilities. As of December 31, 2018, 2017 and 2016, the Company had no restricted cash balances. The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the consolidated balance sheets, to the total of the amounts reported in the consolidated statement s of cash flows included herein:
Year Ended December 31,
2018
2017
2016
2015
Consolidated Balance Sheet
Assets:
Cash and cash equivalents
$
67,868
$
36,073
$
51,503
$
66,996
Restricted cash, current, included in prepaid expenses and other current assets
—
—
—
62
Restricted cash, net of current portion
—
—
—
1,441
Cash, cash equivalents and restricted cash
$
67,868
$
36,073
$
51,503
$
68,499
Impact of Recently Issued Accounting Standards
Internal-Use Software
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”). ASU 2018-15 was issued in order to address a customer's accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is considered a service contract. Under this guidance, implementation costs for a CCA should be evaluated for capitalization using the same approach as implementation costs associated with internal-use software. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which includes any reasonably certain renewal periods. The pronouncement is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.
Stock Compensation
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 was issued in order to expand the guidance for stock-based compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company will adopt ASU 2018-07 in the first quarter of 2019 and its adoption is not expected to have a material impact on its consolidated financial statements.
Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (“ASU 2018-02”), which provides for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income to retained earnings resulting from the Tax Cuts and Jobs Act (“Tax Act”). The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company will adopt ASU 2018-02 in the first quarter of 2019 and its adoption is not expected to have a material impact on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The Company will be adopting the new standard effective January 1, 2019 using the modified retrospective transition method. The Company will not apply the standard to the comparative periods presented in the year of adoption. The Company will elect available practical expedients permitted under the guidance, which among other items, allow the Company to carry forward its historical lease classification and not reassess leases for the definition of lease under the new standard. Upon the adoption of ASC 842, the Company does not expect to record a right-of-use asset and related lease liability for leases with an initial term of 12 months or less and plans to account for lease and non-lease components as a single lease component. The standard will have a material impact on the Company’s consolidated balance sheet but will not have a material impact on the Company’s consolidated statement of operations, consolidated statement of comprehensive loss, or consolidated statement of cash flows. The most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases as the Company expects the obligations under existing operating leases, as disclosed in Note 15 to the consolidated financial statements, will be reported in the consolidated balance sheet upon adoption. The Company is currently evaluating the potential changes from this guidance to future financial reporting and disclosures and designing and implementing related processes and controls. The Company is still assessing the incremental borrowing rates to be used in determining the quantitative impact of adoption on the Company’s financial position. |
