| Summary of Significant Accounting Policies | 2. 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.
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 unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related notes included in our Annual
Report on Form 10-K for the year ended December 31, 2015.
There have been no changes to the Company’s significant
accounting policies described in the Form 10-K 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
statement 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.
Reclassification
Certain items in the prior period financial statements have been
reclassified for comparative purposes to conform to the current
period presentation.
Use of Estimates
The preparation of 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.
Investments
Management determines the appropriate classification of investments
at the time of purchase based upon management’s intent with
regard to such investments. Investments are classified as
available-for-sale at the time of purchase if they are available to
support either current or future operations. This classification is
re-evaluated at each balance sheet date. Investments not considered
cash equivalents with remaining contractual maturities of one year
or less from the balance sheet date are classified as short-term
investments, and those with remaining contractual maturities
greater than one year from the balance sheet date are classified as
long-term investments as maturities have been sequenced based upon
expected cash needs to support current operations. All investments
are recorded at their estimated fair value, and any unrealized
gains and losses are recorded in accumulated other comprehensive
income (loss). Realized gains and losses on sales and maturities of
investments are recognized in the consolidated statements of
operations in other income (expense).
The Company performs periodic evaluations to determine whether any
declines in the fair value of investments below cost are
other-than-temporary. The evaluation consists of qualitative and
quantitative factors regarding the severity and duration of the
unrealized loss, as well as the Company’s ability and intent
to hold the marketable securities until a forecasted recovery
occurs. The impairments are considered to be other-than-temporary
if they are related to deterioration in credit risk or if it is
likely that the underlying securities will be sold prior to a full
recovery of their cost basis. Other-than-temporary fair value
impairments are determined based on the specific identification
method and are reported in other income (expense) in the
consolidated statements of operations.
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:
• Level 1:
• Level 2:
• Level 3:
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash,
cash equivalents, investments and accounts receivable. The Company
maintains the majority of its cash, cash equivalents and
investments with two financial institutions, both of 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:
Revenue Accounts Receivable
Three Months Ended March 31, December 31,
2016 2015 2016 2015
Customer A 17 % 19 % 23 % 17 %
Customer B 13 % * 19 % 31 %
* = Represented less than 10%
Revenue Recognition
The Company derives its revenue from contractual agreements with
utilities through subscriptions and services, which include
analyzing data provided by the utilities and using that data to
encourage utility customers to reduce energy consumption or improve
satisfaction or both. The Company generates its revenue from
subscriptions to its cloud-based data analytics platform and
provision of services to its clients.
Subscription fees primarily pay for the ongoing integration of
utility data into our software platform and the analysis and
presentation of this data to energy consumers. The Company provides
two main subscription service deliverables: (i) data analytics
services and (ii) web platform services. Revenue for
subscription fees is generally recognized ratably over the contract
term beginning on the date the service is available to the client,
which typically coincides with website launch or first reports
delivered to households. Subscription contracts typically have a
term of one to six years. Our subscription contracts generally do
not provide the right to take possession of the supporting software
and grant limited access to our platform. Therefore, our
arrangements are accounted for as service contracts.
Service fees cover specific services performed for our utility
clients, which may include program enablement services, research,
program customizations and training, custom development on top of
the Company’s software platform, as well as services provided
by third party providers for which the Company is the principal in
the arrangement with the client. Program enablement services, which
tend not to provide stand-alone value, are deferred and recognized
ratably over the expected customer relationship period, which is
generally the greater of four years or the contract period.
Services revenues are generally recognized over the term of the
contract, or on a completed contract basis for deliverables that
are determined to be separate units of accounting.
Cost of Revenue
Cost of revenue for subscriptions generally consists of information
services necessary to perform data analysis, the costs of data
center capacity, employee-related expenses, including salaries,
benefits and stock-based compensation related to operating and
servicing our internal applications, channel delivery fees,
including printing and mailing for delivery of reports to utility
customers, and amortization of internally capitalized software that
delivers our services. In addition, we allocate a portion of
overhead costs, including rent, information technology and employee
benefit costs, to cost of revenue.
Cost of revenue for services primarily consists of personnel costs,
including salaries, benefits and stock-based compensation,
allocated overhead, and third-party costs.
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 and are excluded from net loss. The
Company’s other comprehensive loss is comprised of foreign
currency translation adjustments, unrealized gains or losses on
available-for-sale securities 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 May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers Principal versus Agent
Considerations (Reporting Revenue Gross versus Net) Identifying Performance
Obligations and Licensing
In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill
and Other-Internal-Use Software Customer’s Accounting
for Fees Paid in a Cloud Computing Arrangement
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation
of Interest: Simplifying the Presentation of Debt Issuance
Costs Interest—Imputation
of Interest: Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit
Arrangements
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes,
In January 2016, the FASB issued ASU 2016-01, Financial
Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities
In February 2016, the FASB issued ASU No. 2016-02
, Leases (Topic
842) Leases (Topic 840)
In March 2016, the FASB issued ASU No. 2016-09: Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting |
