| Basis of Presentation, Significant Accounting Policies and Recently-Issued Accounting Pronouncements | Note 2—Basis of
presentation, significant accounting policies and recently-issued
accounting pronouncements
The accompanying
condensed consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial
information. Certain information and disclosures normally included
in consolidated financial statements prepared in accordance with
GAAP have been condensed or omitted. Accordingly, these condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the related
notes included in the Annual Report on Form 10-K Use of
estimates
The preparation of
consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ
from those estimates. Significant Accounting
Policies
There have been no
material changes in the accounting policies from those disclosed in
the audited consolidated financial statements and the related notes
included in the Annual Report on Form 10-K. Recently-issued accounting
standards
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
guidance related to revenue from contracts with customers. Under
this guidance, revenue is recognized when promised goods or
services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods
or services. The updated standard will replace all existing revenue
recognition guidance under GAAP when it becomes effective and
permits the use of either the retrospective or cumulative effect
transition method. In July 2015, the FASB voted to defer the
effective date to January 1, 2018, with early adoption
beginning January 1, 2017. In March, April, May, and December
2016, the FASB issued amendments to the new guidance relating to
reporting revenue on a gross versus net basis, identifying
performance obligations and licensing arrangements and other narrow
scope improvements. The Company will adopt the new revenue guidance
in the first quarter of 2018 though has not yet determined whether
to adopt using a full retrospective or modified retrospective
approach. The Company is currently assessing the impact of the new
revenue guidance on its arrangements. The Company currently
believes that the new guidance will impact the amount and timing of
incremental costs of obtaining a contract, such as sales
commissions. The Company generally does not pay sales commissions
upon contract renewal and therefore, under the new revenue
guidance, the sales commissions will be recognized over an
estimated customer life rather than over the non-cancelable
In February 2016, the
FASB issued new guidance which significantly changes the accounting
for leases. The new guidance requires a lessee recognize in the
balance sheet a liability to make lease payments (the lease
liability) and a right-of-use right-of-use
In March 2016, the FASB
issued new guidance to simplify various aspects relating to
accounting for stock-based compensation and related tax impacts,
the classification of excess tax benefits on the statement of cash
flows, statutory tax withholding requirements, and other
stock-based compensation classification matters. The guidance
was effective for annual reporting periods beginning after
December 15, 2016 and interim periods within those annual
periods. The Company adopted this guidance during the first
quarter ended March 31, 2017. Upon adoption, the Company
changed an accounting policy to account for forfeitures when they
occur rather than estimate a forfeiture rate. The impact of
this change in policy increased the Company’s accumulated
deficit and additional paid-in
In June 2016, the FASB
issued guidance which requires that financial assets measured at
amortized costs be presented at the net amount expected to be
collected. This guidance amends the accounting for credit losses
for available-for-sale
In November 2016, the
FASB issued guidance which requires that restricted cash and
restricted cash equivalents be included with cash and cash
equivalents when reconciling the beginning and ending total amounts
shown on the statement of cash flows. This guidance is effective
for fiscal years beginning after December 15, 2017, and
interim periods within those years, and should be applied using a
retrospective transition method to each period presented. Early
adoption is permitted, including adoption in an interim period. If
an entity early adopts the amendments in an interim period, any
adjustments should be reflected as of the beginning of the fiscal
year that includes that interim period. The Company’s
restricted cash as of March 31, 2017 and December 31,
2016 was $0.4 million and therefore, the adoption of this
guidance is not expected to have a material impact on the
Company’s consolidated statements of cash flows.
In February 2017, the
FASB issued guidance which simplifies the subsequent measurement of
goodwill by no longer requiring an entity to determine goodwill
impairment by calculating the implied fair value of goodwill by
assigning the fair value of a reporting unit to all of its assets
and liabilities as if that reporting unit had been acquired in a
business combination. Under this new guidance, an entity would
perform its goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount and would recognize an
impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss
recognized would not exceed the total amount of goodwill allocated
to that reporting unit. Additionally, an entity would consider
income tax effects from any tax deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. Under the new guidance, an entity continues to
have the option to perform the qualitative assessment for a
reporting unit to determine if the quantitative impairment test is
necessary. This guidance is effective for fiscal years beginning
after December 15, 2019 and interim periods within those
years. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1,
2017. The adoption of this guidance is not expected to have a
material impact on the Company’s consolidated financial
statements.
In March 2017, the FASB
issued guidance which shortens the amortization period for certain
purchased callable debt securities held at a premium. Under this
new guidance, an entity would shorten the amortization period of
the premium to the earliest call date. This guidance is effective
for annual periods beginning after December 15, 2018, and
interim periods within those annual periods. Early adoption is
permitted, including adoption in an interim period. The Company has
not determined the impact of this guidance on its consolidated
financial statements. | Note 2—Significant
accounting policies Principles of consolidation and
basis of presentation
The Company’s
consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”) and include the operating results of
its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. Reverse stock
split
On October 12, 2016,
the Company effected a 1-for-5 Use of
estimates
The preparation of
consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period.
On an ongoing basis,
management evaluates its estimates, primarily those related to
determining the best estimate of selling price (“BESP”)
for separate deliverables in the Company’s subscription
revenue arrangements, vendor-specific objective evidence
(“VSOE”) for separate deliverables in the
Company’s licensed revenue arrangements, allowance for
doubtful accounts, fair value of assets and liabilities assumed in
a business combination, recoverability of goodwill and long-lived
assets, useful lives associated with long-lived assets,
contingencies, fair value of contingent consideration, and the
valuation and assumptions underlying stock-based compensation and
common stock warrants. These estimates are based on historical data
and experience, as well as various other factors that management
believes to be reasonable under the circumstances. Actual results
could differ from those estimates. Segments
Management has determined
that the Company has one operating segment. The Company’s
chief executive officer, who is the Company’s chief operating
decision maker, reviews financial information on a consolidated and
aggregate basis, together with certain operating metrics
principally to make decisions about how to allocate resources and
to measure the Company’s performance. Cash and cash
equivalents
The Company considers all
highly liquid investments with an original or remaining maturity of
three months or less at the date of purchase to be cash
equivalents. Cash includes cash held in checking and savings
accounts. Cash equivalents are comprised of investments in money
market mutual funds. The carrying value of cash and cash
equivalents approximates fair value. Restricted
cash
Included in non-current Investments in Marketable
Securities
Our marketable securities
consist of commercial paper, corporate bonds, U.S. treasury bonds,
and asset-backed securities. The Company classifies its marketable
securities as available-for-sale
The Company classifies
its investments in marketable securities in current assets as the
investments are available for use, if needed, in current
operations.
Investments in marketable
securities presented within current assets on the consolidated
balance sheet as of December 31, 2016 consisted of the
following:
Amortized Gross Gross Fair
(in thousands)
Marketable securities
U.S. Treasury bonds $ 29,742 $ — $ (17 ) $ 29,725
Corporate Bonds 25,522 — (21 ) 25,501
Commercial paper 15,554 — — 15,554
Asset-backed securities 12,353 — (3 ) 12,350
$ 83,171 $ — $ (41 ) $ 83,130
Gross realized gains and
losses on marketable securities and net gains and losses
reclassified from accumulated other comprehensive income to
earnings were not material for the year ended December 31,
2016.
The Company’s
marketable securities have a contractual maturity of less than 4
years. The amortized cost and fair values of marketable securities,
by remaining contractual maturity, were as follows:
December 31, 2016
Amortized Fair
(in thousands)
Due in 1 year or less $ 49,371 $ 49,363
Due after 1 year through 4
years 33,800 33,767
$ 83,171 $ 83,130
The Company held no
marketable securities during the years ended December 31, 2015
and 2014. Accounts receivable and
allowance for doubtful accounts
Accounts receivable are
recorded at the invoiced amount, do not require collateral and do
not bear interest. The Company estimates its allowance for doubtful
accounts by evaluating specific accounts where information
indicates the Company’s customers may have an inability to
meet financial obligations, such as bankruptcy and significantly
aged receivables outstanding. Concentration of credit risk
and significant customers
Financial instruments
that potentially subject the Company to a significant concentration
of credit risk consist of cash and cash equivalents, investments in
marketable securities and accounts receivable.
The Company maintains the
majority of its cash balances with one major commercial bank in
non-interest
The Company invests its
excess cash in money market mutual funds, commercial paper,
corporate bonds, U.S. treasury bonds, and asset-backed securities.
To date, the Company has not experienced any impairment losses on
its investments.
For the years ended
December 31, 2016, 2015 and 2014, no single customer comprised
10% or more of the Company’s total revenues. No single
customer had an accounts receivable balance of 10% or greater of
total accounts receivable at December 31, 2016 and
2015. Property and
equipment
Property and equipment is
stated at cost less accumulated depreciation. Expenditures for
repairs and maintenance are expensed as incurred, while renewals
and betterments are capitalized. Depreciation expense is charged to
operations on a straight-line basis over the estimated useful lives
of the assets.
The estimated useful
lives of the Company’s property and equipment are as
follows:
Useful
Lives
Machinery and equipment 3-5 years
Purchased software 3-5
Furniture and fixtures 5 years
Leasehold improvements Lesser of 7 years or lease term
Assets acquired under
capital leases are capitalized at the present value of the related
lease payments and are amortized over the shorter of the lease term
or useful life of the asset. Capitalized internal-use
The Company accounts for
the costs of computer software obtained or developed for internal
use in accordance with ASC 350, Intangibles—Goodwill and
Other internal-use
During the years ended
December 31, 2016, 2015 and 2014, the Company amortized
$1.8 million, $0.9 million and $0.3 million,
respectively, of internal-use internal-use Business
combinations
The results of businesses
acquired in a business combination are included in the
Company’s consolidated financial statements from the date of
the acquisition. Purchase accounting results in assets and
liabilities of an acquired business generally being recorded at
their estimated fair values on the acquisition date. Any excess
consideration over the fair value of assets acquired and
liabilities assumed is recognized as goodwill.
Transaction costs
associated with business combinations are expensed as incurred and
are included in general and administrative expenses in the
consolidated statements of operations.
The Company performs
valuations of assets acquired and liabilities assumed and allocates
the purchase price to its respective assets and liabilities.
Determining the fair value of assets acquired and liabilities
assumed requires management to use significant judgment and
estimates, including the selection of valuation methodologies,
estimates of future revenue, costs and cash flows, discount rates,
and selection of comparable companies. The Company engages the
assistance of valuation specialists in concluding on fair value
measurements in connection with determining fair values of assets
acquired and liabilities assumed in a business
combination.
Intangible
assets
Intangible assets
primarily consist of acquired developed technology, customer
relationships, trade names and non-compete
Useful Lives
Trade name 1-10 years
Developed technology 6-8
Non-compete 2-5
Customer relationships 8-10 Impairment of long-lived
assets
Management evaluates the
recoverability of the Company’s property and equipment,
finite-lived intangible assets and capitalized internal-software
costs when events or changes in circumstances indicate a potential
impairment exists. Events and changes in circumstances considered
by the Company in determining whether the carrying value of
long-lived assets may not be recoverable include, but are not
limited to, significant changes in performance relative to expected
operating results, significant changes in the use of the assets,
significant negative industry or economic trends, and changes in
the Company’s business strategy. Impairment testing is
performed at an asset level that represents the lowest level for
which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities (an “asset
group”). In determining if impairment exists, the Company
estimates the undiscounted cash flows to be generated from the use
and ultimate disposition of the asset group. If impairment is
indicated based on a comparison of the assets’ carrying
values and the undiscounted cash flows, the impairment loss is
measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets. The Company determined that
there were no events or changes in circumstances that potentially
indicated that the Company’s long-lived assets were impaired
during the years ended December 31, 2016, 2015 and
2014. Goodwill
Goodwill represents the
excess of the purchase price over the fair value of net assets
acquired in a business combination. The Company tests goodwill for
impairment in accordance with the provisions of Accounting
Standards Codification (“ASC”) 350,
Intangibles—Goodwill and Other
ASC 350 provides that an
entity has the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If, after
assessing the totality of events or circumstances, an entity
determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then additional
impairment testing is not required. However, if an entity concludes
otherwise, then it is required to perform the first of a
two-step
The first step involves
comparing the estimated fair value of a reporting unit with its
book value, including goodwill. If the estimated fair value exceeds
book value, goodwill is considered not to be impaired and no
additional steps are necessary. If, however, the fair value of the
reporting unit is less than book value, then, under the second
step, the carrying amount of the goodwill is compared with its
implied fair value. The estimate of implied fair value of goodwill
may require valuations of certain internally-generated and
unrecognized intangible assets. If the carrying amount of goodwill
exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to the excess.
The Company has one
reporting unit and it tests for goodwill impairment annually during
the fourth quarter of the calendar year. At December 31, 2016,
the fair value of the Company significantly exceeded the carrying
value of its net assets and accordingly goodwill was not
impaired. Deferred
rent
Rent expense is recorded
on a straight-line basis over the term of the lease. The difference
between rent expense and the cash paid under the lease agreement is
recorded as deferred rent. Lease incentives, including tenant
improvement allowances, are also recorded as deferred rent and
amortized on a straight-line basis over the lease term. Debt issued with warrants to
purchase common stock
The Company issued
warrants to purchase common stock in connection with its former
credit facility. These warrants are a liability classified under
ASC 815-40, Contracts
in Entity’s Own Equity at-market
The initial carrying
value of the debt was reduced by the fair value of the warrants.
The resulting debt discount was amortized to interest expense over
the life of the debt on a straight-line basis, which approximates
the effective interest method. In November 2016, the Company repaid
all outstanding debt and expensed the then-remaining unamortized
debt discount to interest expense in the consolidated statements of
operations. Fair value of financial
instruments
ASC 820, Fair Value
Measurements
Valuation techniques used
to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs. ASC 820 describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value, which are the
following:
Level 1: Quoted prices in active markets for identical or similar assets
and liabilities.
Level 2: Quoted prices for identical or similar assets and liabilities
in markets that are not active or observable inputs other than
quoted prices in active markets for identical or similar assets or
liabilities.
Level 3: Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
As of December 31,
2016 and 2015, the carrying values of cash equivalents, accounts
receivable, accounts payable, and accrued expenses, approximate
fair values due to the short-term nature of such
instruments.
The following table
summarizes the Company’s financial assets and liabilities
measured at fair value on a recurring basis as of December 31,
2016 and 2015, by level, within the fair value hierarchy. Financial
assets and financial liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair
value measurement (in thousands):
December 31, 2016
Level 1 Level 2 Level 3 Total
Cash equivalents
Money market funds $ 18,936 $ — $ — $ 18,936
Marketable securities
U.S. Treasury bonds 29,725 — — 29,725
Corporate bonds — 25,501 — 25,501
Commercial paper — 15,554 — 15,554
Asset-backed securities — 12,350 — 12,350
Total assets $ 48,661 $ 53,405 $ — $ 102,066
Liabilities
Common stock warrant
liability $ — $ — $ 11,380 $ 11,380
Contingent consideration — — 5,238 5,238
Total liabilities $ — $ — $ 16,618 $ 16,618
December 31, 2015
Level 1 Level 2 Level 3 Total
Cash equivalents
Money market funds $ 15,990 $ — $ — $ 15,990
Total assets 15,990 $ — $ — $ 15,990
Liabilities
Common stock warrant
liability $ — $ — $ 5,500 $ 5,500
Contingent consideration — — 4,867 4,867
Total liabilities $ — $ — $ 10,367 $ 10,367
Contingent consideration
relating to our 2013 Acquisition (Refer to Note 9) is recorded as a
liability and is measured at fair value each period, based on
significant inputs not observable in the market, which represents a
Level 3 measurement within the fair value hierarchy. The
valuation of contingent consideration uses assumptions management
believes would be made by a market participant. Management assesses
these estimates on an ongoing basis as additional data impacting
the assumptions becomes available. Changes in the fair value of
contingent consideration related to updated assumptions and
estimates are recognized within general and administrative expenses
in the consolidated statements of operations. The Company
determined the fair value of the contingent consideration by
discounting estimated future taxable income. The significant inputs
used in the fair value measurement of contingent consideration are
the timing and amount of taxable income in any given period and
determining an appropriate discount rate, which considers the risk
associated with the forecasted taxable income. Significant changes
in the estimated future taxable income and the periods in which
they are generated would significantly impact the fair value of the
contingent consideration liability.
Warrants to purchase
common stock are liability classified and are measured at fair
value each period. The fair value is determined using a binomial
lattice valuation model. The fair value includes significant inputs
not observable in the market, which represents a Level 3
measurement within the fair value hierarchy. The valuation of
common stock warrants uses assumptions management believes would be
made by a market participant. Management assesses these estimates
on an ongoing basis as additional data impacting the assumptions
becomes available. Changes in the fair value of the common stock
warrant liability related to updated assumptions and estimates are
recognized within other income (expense), net in the consolidated
statements of operations. The significant inputs used in the fair
value measurement of the common stock warrants are the estimated
fair value of the Company’s common stock and, to a lesser
extent, the expected stock volatility, the probability of a change
in control and future stock issuances, which impact the term of the
warrants. Significant increases or decreases in the estimated fair
value of the Company’s common stock would significantly
impact the fair value of the warrant liability.
The following table
summarizes the changes in the common stock warrant liability and
contingent consideration liability (in thousands):
Contingent Common
Fair value as of December 31,
2013 $ 5,607 $ 1,380
Change in fair value (781 ) 3,700
Fair value as of December 31,
2014 4,826 5,080
Change in fair value 41 420
Fair value as of December 31,
2015 4,867 5,500
Change in fair value 371 5,880
Fair value as of December 31,
2016 $ 5,238 $ 11,380
Certain assets, including
goodwill and long-lived assets, are also subject to measurement at
fair value on a non-recurring non-recurring
Revenue
recognition
The Company derives its
revenue from the following sources:
Subscription and
support revenue — one-year
Professional
services time-and-material time-and-material
The Company recognizes
subscription and professional services revenues when
(i) persuasive evidence of an arrangement for the sale of the
Company’s solutions or consulting services exists,
(ii) the solutions have been made available or delivered, or
services have been performed, (iii) the sales price is fixed
or determinable, and (iv) collectability is reasonably
assured. The timing and amount the Company recognizes as revenue is
determined based on the facts and circumstances of each
customer’s arrangement. Evidence of an arrangement consists
of a signed customer agreement. The Company considers that delivery
of a solution has commenced once it provides the customer with
log-in
The majority of customer
arrangements include multiple deliverables, such as subscriptions
to the Company’s SaaS solutions and professional services.
The Company recognizes revenue in accordance with the guidance for
arrangements with multiple deliverables under Accounting Standards
Update (“ASU”) 2009-13, Revenue Recognition (Topic
605)—Multiple-Deliverable Revenue Arrangements—a
Consensus of the Emerging Issues Task Force 985-605, Software non-performance
For multiple-deliverable
revenue arrangements, the Company first assesses whether each
deliverable has value to the customer on a standalone basis. The
Company has determined that the SaaS products have standalone value
because, once access is given to the customer, the solutions are
fully functional and do not require any additional development,
modification or customization. Professional services have
standalone value because third-party partners and customers
themselves can perform these services without the Company’s
involvement. The performance of these professional services
generally does not require highly specialized or technologically
skilled individuals and the professional services are not essential
to the functionality of the solutions.
The Company allocates
revenue among the separate non-contingent 2009-13.
The Company is not able
to determine VSOE or TPE for its deliverables because the
deliverables are typically bundled and infrequently sold separately
within a consistent price range. Additionally, management has
determined that there are no third-party offerings reasonably
comparable to the Company’s solutions. Therefore, the selling
prices of subscriptions to the SaaS solutions and professional
services are based on BESP. The determination of BESP requires the
Company to make significant estimates and judgments. The Company
considers numerous factors, including the nature of the
deliverables themselves, geography, customer size and number of
users, and discounting practices. The determination of BESP is made
through consultation with senior management. The Company updates
its estimates of BESP on an ongoing basis as events and
circumstances may require. As the Company’s marketing
strategies evolve, the Company may modify its pricing practices in
the future, which could result in changes in relative selling
prices and BESP.
The Company uses business
process outsourcers (“BPOs”) and resellers to
complement its direct sales and marketing efforts. The BPOs and
resellers place orders with the Company after receiving an order
from an end customer. The BPOs and resellers receive business terms
of sale similar to those received by the Company’s direct
customers, and payment to the Company is not contingent on the
receipt of payment from the end customer. The BPOs and resellers
negotiate pricing with the end customer and are responsible for
implementation services, if any, and for certain support levels
directly with the end customer. The Company recognizes revenue over
the term of the arrangement for the contractual amount charged to
the BPO or reseller once access to the Company’s solution has
been provided to the end customer provided that the other revenue
recognition criteria noted above have been met.
Subscription and support
revenues also include revenues associated with sales of software
licenses and related support. Prior to the development of the
Company’s SaaS solutions, the Company sold software licenses
and post contract support related to its legacy software in
accordance with ASC 985-605.
On August 31, 2016,
the Company acquired Runbook, a Netherlands-based provider of
licensed financial close automation software and integration for
SAP customers. The Company plans to migrate Runbook’s
licensed products to a cloud-based platform, but the Company
continues to sell Runbook’s on-premise
Revenues recognized from
sales of software licenses, support and implementation services
related to software arrangements comprised approximately 1%, 1% and
3% of total revenues for the years ended December 31, 2016,
2015 and 2014, respectively.
Taxes collected from
customers are accounted for on a net basis and are excluded from
revenue. Cost of
revenues
Cost of revenues
primarily consists of costs related to hosting the Company’s
cloud-based application suite, salaries and benefits of operations
and support personnel, including stock-based compensation, and
amortization of capitalized internal-use Sales and
marketing
Sales and marketing
expenses consist primarily of compensation and employee benefits,
including stock-based compensation, of sales and marketing
personnel and related sales support teams, sales and partner
commissions, marketing events, advertising costs, travel, trade
shows, other marketing materials, and allocated overhead. Sales and
marketing expenses also include amortization of customer
relationship intangible assets. Advertising costs are expensed as
incurred and totaled $4.2 million, $3.0 million and
$1.5 million for the years ended December 31, 2016, 2015
and 2014, respectively. Deferred sales
commissions
Deferred sales
commissions are the incremental costs that are directly associated
with non-cancelable non-cancelable non-cancelable non-cancelable Research and
development
Research and development
expenses are comprised primarily of salaries, benefits and
stock-based compensation associated with the Company’s
engineering, product and quality assurance personnel. Research and
development expenses also include third-party contractors and
supplies and allocated overhead. Other than software development
costs that qualify for capitalization, as discussed above, research
and development costs are expensed as incurred.
General and
administrative
General and
administrative expenses consist primarily of personnel costs
associated with the Company’s executive, finance, legal,
human resources, compliance, and other administrative personnel, as
well as accounting and legal professional services fees, other
corporate-related expenses and allocated overhead. General and
administrative expenses also include amortization of covenant not
to compete and tradename intangible assets, the change in value of
the contingent consideration and acquisition-related costs of
business combinations. Stock-based
compensation
The Company accounts for
stock-based compensation awards granted to employees and directors
based on the awards’ estimated grant date fair value. The
Company estimates the fair value of its stock options using the
Black-Scholes option-pricing model. For awards that vest solely
based on continued service (“service-only vesting
conditions”), the resulting fair value, net of estimated
forfeitures, is recognized on a straight-line basis over the period
during which an employee is required to provide service in exchange
for the award, usually the vesting period, which is generally four
years. The Company recognizes the fair value of stock options which
contain performance conditions based upon the probability of the
performance conditions being met, net of estimated forfeitures,
using the graded vesting method. Estimated forfeitures are based
upon the Company’s historical experience and the Company
revises its estimates, if necessary, in subsequent periods if
actual forfeitures differ from initial estimates.
Determining the grant
date fair value of options using the Black-Scholes option-pricing
model requires management to make assumptions and judgments. These
estimates involve inherent uncertainties and, if different
assumptions had been used, stock-based compensation expense could
have been materially different from the amounts
recorded.
The assumptions and
estimates are as follows:
Value per share of
the Company’s common stock.
Expected
volatility.
Expected
term. mid-point
Risk-free interest
rate.
Estimated dividend
yield.
The following information
represents the weighted average of the assumptions used in
Black-Scholes option-pricing model:
Year ended December 31,
2016 2015 2014
Expected term (years) 6.3 6.3 6.2
Expected volatility 47.5 % 49.6 % 54.0 %
Risk free interest rate 1.4 % 1.7 % 1.9 %
Expected dividends — — — Income taxes
The Company accounts for
income taxes in accordance with ASC 740, Income Taxes
The Company recognizes
the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
consolidated financial statements from such positions are then
measured based on the largest benefit that has a greater than 50%
likelihood of being realized. The Company recognizes interest and
penalties accrued with respect to uncertain tax positions, if any,
in the provision for income taxes in the consolidated statements of
operations. Net loss per
share
Basic and diluted loss
per share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding. As the
Company has net losses for the periods presented, all potentially
dilutive common stock, which are comprised of stock options and
warrants, are antidilutive.
As of December 31,
2016 and 2015, the following potentially dilutive shares have been
excluded from the calculation of diluted net loss per share
attributable to common stockholders because they are
anti-dilutive:
December 31,
2016 2015
Options to purchase common
stock 6,556,986 5,904,376
Common stock warrants 499,999 499,999
Total shares excluded from net loss
per share 7,056,985 6,404,375
Foreign
currency
The Company’s
foreign subsidiaries’ functional currency is the
U.S. Dollar. The foreign exchange impacts of remeasuring the
foreign subsidiaries’ local currency to the U.S. Dollar
functional currency is recorded in general and administrative
expenses, net in the Company’s consolidated statements of
operations. Monetary assets and liabilities of foreign operations
are remeasured at balance sheet date exchange rates, non-monetary Recently issued accounting
standards
Under the Jumpstart Our
Business Startups Act, or the JOBS Act, the Company meets the
definition of an emerging growth company. The Company has
irrevocably elected to opt out of the extended transition period
for complying with new or revised accounting standards pursuant to
Section 107(b) of the JOBS Act.
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
guidance related to revenue from contracts with customers. Under
this guidance, revenue is recognized when promised goods or
services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods
or services. The updated standard will replace all existing revenue
recognition guidance under GAAP when it becomes effective and
permits the use of either the retrospective or cumulative effect
transition method. In July 2015, the FASB voted to defer the
effective date to January 1, 2018, with early adoption
beginning January 1, 2017. In March, April, May, and December
2016, the FASB issued amendments to the new guidance relating to
reporting revenue on a gross versus net basis, identifying
performance obligations and licensing arrangements and other narrow
scope improvements. The Company will adopt the new revenue guidance
in the first quarter of 2018 though has not yet determined whether
to adopt using a full retrospective or modified retrospective
approach. The Company is currently assessing the impact of the new
revenue guidance on its arrangements. The Company currently
believes that the new guidance will impact the amount and timing of
incremental costs of obtaining a contract, such as sales
commissions. The Company generally does not pay sales commissions
upon contract renewal and therefore, under the new revenue
guidance, the sales commissions will be recognized over an
estimated customer life rather than over the non-cancelable
In February 2016, the
FASB issued new guidance which significantly changes the accounting
for leases. The new guidance requires a lessee recognize in the
balance sheet a liability to make lease payments (the lease
liability) and a right-of-use right-of-use
In March 2016, the FASB
issued new guidance to simplify various aspects relating to
accounting for stock-based compensation and related tax impacts,
the classification of excess tax benefits on the statement of cash
flows, statutory tax withholding requirements and other stock-based
compensation classification matters. The guidance is effective for
annual reporting periods beginning after December 15, 2016 and
interim periods within those annual periods. Early adoption was
permitted in any interim or annual period. All of the amendments in
the new guidance must be adopted in the same period. The Company is
required to adopt this guidance during the first quarter ending
March 31, 2017. The Company expects to adopt a policy to
account for forfeitures when they occur rather than estimate a
forfeiture rate. The impact of this change in policy will be
recorded as an adjustment to the January 1, 2017 accumulated
deficit and additional paid-in
In June 2016, the FASB
issued guidance which requires that financial assets measured at
amortized costs be presented at the net amount expected to be
collected. This guidance amends the accounting for credit losses
for available-for-sale
In August 2016, the FASB
issued cash flow guidance which addresses eight specific cash flow
issues with the objective of reducing the existing diversity in
practice, including presentation of cash flows relating to
contingent consideration payments, debt prepayment and debt
extinguishment costs, among other matters. This guidance is
effective for fiscal years beginning after December 15, 2017
and interim periods within those fiscal years. Early adoption is
permitted, including adoption in an interim period. If adopted in
an interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes the interim period. The
adoption of this guidance should be applied using a retrospective
transition method to ea |
