Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Summary of Significant Accounting Policies | ' |
3. Summary of Significant Accounting Policies |
Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Opower and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current period presentation. |
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Registration Statement on Form S-1 (Registration No. 333-194264) filed with the SEC on March 3, 2014, as amended on March 24, 2014 (the “Registration Statement”) and declared effective by the SEC on April 3, 2014. There have been no changes to the Company’s significant accounting policies described in the Registration Statement that have had a material impact on our condensed consolidated financial statements and related notes. |
In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s results of operations, financial position and cash flows have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The year-end condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP. |
Reclassifications and Adjustments |
During the first quarter of 2014, the Company updated its methodology for allocating certain general and administrative costs to more closely align these costs to the functional departments consuming the related services. As a result, certain prior period costs have been reclassified from general and administrative expenses to cost of revenue, sales and marketing expenses, and research and development expenses primarily based on the headcount in each of these functional areas. The reclassifications for the three months ended September 30, 2013 reduced general and administrative expenses by $1.4 million and increased cost of revenue, sales and marketing expenses, and research and development expenses by $0.2 million, $0.6 million and $0.6 million, respectively. The reclassifications for the nine months ended September 30, 2013 reduced general and administrative expenses by $3.5 million and increased cost of revenue, sales and marketing expenses, and research and development expenses by $0.4 million, $1.6 million, and $1.5 million, respectively. These reclassifications had no effect on previously reported operating loss, net loss or cash flows. |
During the first quarter of 2014, the Company recorded adjustments related to prior periods which increased revenue by $0.3 million for the nine months ended September 30, 2014, and increased gains on foreign currency by $0.2 million for the nine months ended September 30, 2014. The Company has concluded that these changes do not have a material effect on the reported results of operations for the nine months ended September 30, 2014 after consideration of quantitative and qualitative factors. The impact to all prior interim and annual periods was also not material. |
Use of Estimates |
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include revenue recognition, the useful lives and recoverability of property and equipment, stock-based compensation and income taxes. Actual results could differ significantly from those estimates. |
Concentration of Credit Risk |
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company maintains the majority of its cash and cash equivalents with one financial institution, which management believes to be financially sound and with minimal credit risk. The Company’s deposits periodically exceed amounts guaranteed by the Federal Deposit Insurance Corporation. |
To manage accounts receivable risk, the Company monitors and evaluates the credit worthiness of its customers and maintains an allowance for doubtful accounts as deemed necessary. Collection efforts from long-established utilities have been historically successful, so the Company believes credit risk to be low. |
The following table summarizes those customers who represented at least 10% of revenue or accounts receivable for the periods presented: |
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| | Revenue | | Revenue | | Accounts Receivable |
| | Three Months Ended | | Nine Months Ended | | December 31, | | September 30, |
September 30, | September 30, | 2013 | 2014 |
| | 2013 | | 2014 | | 2013 | | 2014 | | | | |
Customer A | | 16% | | 15% | | 12% | | 12% | | * | | * |
Customer B | | 14% | | 10% | | 14% | | 10% | | * | | * |
Customer C | | 13% | | 10% | | 14% | | * | | 22% | | 23% |
Customer D | | * | | * | | * | | * | | * | | 11% |
Customer E | | * | | * | | * | | * | | 12% | | * |
Customer F | | * | | * | | * | | * | | 10% | | * |
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* | =xA0;Represented less than 10% | | | | | | | | | | | |
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Fair Value Measurement |
The Company applies fair value accounting for all financial assets and liabilities that are reported at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a defined three-tier hierarchy to classify and disclose the fair value of assets and liabilities on both the date of their initial measurement as well as all subsequent periods. The hierarchy prioritizes the inputs used to measure fair value by the lowest level of input that is available and significant to the fair value measurement. The three levels are described as follows: |
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| • | | Level 1: Observable inputs. Quoted prices in active markets for identical assets and liabilities; | | | | | | | | | |
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| • | | Level 2: Observable inputs other than the quoted price. Includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets and amounts derived from valuation models where all significant inputs are observable in active markets; and | | | | | | | | | |
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| • | | Level 3: Unobservable inputs. Includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions. | | | | | | | | | |
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification as of each reporting period. |
Derivative Financial Instruments |
The Company has entered into derivative contracts to reduce the risk that foreign currency exchange rate fluctuations will adversely affect its cash flows and earnings. These derivative contracts are designed to be hedging instruments, meaning any changes in cash flow are expected to be completely offset by the hedging derivative due to the fact that the critical terms of the forward contracts and forecasted sales transactions are aligned. The Company’s unsettled foreign currency derivative contracts are recorded at their fair value as either assets or liabilities on the consolidated balance sheets and are marked-to-market at the end of each reporting period. Unrealized gains and losses from the cash flow hedges are recognized as part of other comprehensive income to the extent the hedge is effective. These gains and losses are recognized in the consolidated statements of operations in revenue once the forward contracts are settled and the forecasted transaction they are designed to hedge has impacted the statements of operations. Any portions of the hedging arrangement deemed to be ineffective are recognized in the consolidated statements of operations immediately. |
In March 2013, the Company entered into a convertible debt agreement that contained certain conversion features and a change in control premium that were deemed to represent derivative financial instruments valued collectively. The fair value of the derivative was measured at inception and recorded as a noncurrent liability on the consolidated balance sheet. This derivative financial instrument was re-measured and marked-to-market at the end of each reporting period, and changes in fair value from period to period were recognized within other income (expense), net on the statements of operations. Upon the closing of the IPO, the Company’s convertible debt automatically converted into common stock. |
Comprehensive Loss |
Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that are recorded as a separate element of stockholders’ equity (deficit) and are excluded from net loss. The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments and unrealized gains or losses on hedge transactions. |
Operating Segment |
Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s CODM, the Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as one operating segment. |
Recently Issued Accounting Standards |
In July 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance states that a liability related to an unrecognized tax benefit should be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance is effective on a prospective basis for annual and interim periods beginning after December 15, 2013, but early adoption and retrospective application are permitted. The Company adopted the guidance effective January 1, 2014 and it did not have a material impact on its consolidated financial statements. |
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360). The ASU raises the threshold for a disposal to qualify as discontinued operations and requires new disclosures for individually significant disposal transactions that do not meet the definition of a discontinued operation. Under the new standard, companies report discontinued operations when they have a disposal that represents a strategic shift that has or will have a major impact on operations or financial results. The ASU will be applied prospectively and is effective for annual periods, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted. The Company does not currently expect the adoption of this guidance to have a material impact on its consolidated financial statements |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. |