Exa (EXA) 10-Q 2014 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35584

EXA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3139906
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

55 Network Drive

Burlington, MA 01803

(Address of Principal Executive Offices, Including Zip Code)

(781) 564-0200

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of December 1, 2014, 13,837,397 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

EXA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED October 31, 2014

TABLE OF CONTENTS

	Pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		3
Consolidated Balance Sheets (Unaudited) as of October 31, 2014 and January 31, 2014		3
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the three and nine months ended October 31, 2014 and 2013		4
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October 31, 2014 and 2013		5
Notes to Consolidated Financial Statements (Unaudited)		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4. CONTROLS AND PROCEDURES		26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		26
ITEM 1A. RISK FACTORS		27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		27
ITEM 6. EXHIBITS		28
SIGNATURES		29

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXA CORPORATION

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

	October 31,			January 31,
	2014			2014
ASSETS
Current assets:
Cash and cash equivalents	$	23,944		$	28,753
Accounts receivable		7,004			27,245
Prepaid expenses and other current assets		2,121			4,321
Total current assets		33,069			60,319
Property and equipment, net		7,644			7,356
Intangible assets, net		2,482			2,745
Deferred tax assets		41			13,306
Other assets		1,125			1,123
Total assets	$	44,361		$	84,849
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	802		$	1,684
Accrued expenses		6,715			10,285
Current portion of deferred revenue		11,735			30,594
Current maturities of capital lease obligations		2,433			2,426
Total current liabilities		21,685			44,989
Deferred revenue		10			273
Capital lease obligations		2,085			2,695
Deferred rent		560			831
Other long-term liabilities		505			528
Total liabilities		24,845			49,316
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.001 par value; 30,000,000 shares authorized; 13,869,899 and 13,388,712 shares issued, respectively; 13,837,397 and 13,356,210 shares outstanding, respectively		14			13
Additional paid-in capital		87,352			85,201
Accumulated deficit		(67,730	)		(49,721	)
Treasury stock (32,502 common shares, at cost)		0			0
Accumulated other comprehensive (loss) income		(120	)		40
Total stockholders’ equity		19,516			35,533
Total liabilities and stockholders’ equity	$	44,361		$	84,849

The accompanying notes are an integral part of the consolidated financial statements

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EXA CORPORATION

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended October 31,						Nine Months Ended October 31,
	2014			2013			2014			2013
Revenue:
License revenue	$	12,866		$	11,121		$	36,842		$	32,532
Project revenue		3,092			2,987			7,729			6,768
Total revenues		15,958			14,108			44,571			39,300
									��
Operating expenses:
Cost of revenues		4,562			4,023			13,790			11,527
Sales and marketing		2,442			2,243			7,518			6,539
Research and development		5,462			4,428			15,968			13,264
General and administrative		3,171			2,736			9,510			7,933
Total operating expenses		15,637			13,430			46,786			39,263
Income (loss) from operations		321			678			(2,215	)		37
Other income (expense), net:
Foreign exchange gain (loss)		194			31			325			(25	)
Interest expense		(88	)		(71	)		(265	)		(628	)
Interest income		3			4			9			13
Loss on extinguishment of debt		—			—			—			(755	)
Other income, net		4			2			7			7
Total other income (expense), net		113			(34	)		76			(1,388	)
Income (loss) before income taxes		434			644			(2,139	)		(1,351	)
(Provision) benefit for income taxes		(214	)		(128	)		(15,870	)		528
Net income (loss)	$	220		$	516		$	(18,009	)	$	(823	)
Net income (loss) per share:
Basic	$	0.02		$	0.04		$	(1.31	)	$	(0.06	)
Diluted	$	0.02		$	0.04		$	(1.31	)	$	(0.06	)
Weighted average shares outstanding used in computing net income (loss) per share:
Basic		13,822,400			13,341,235			13,701,380			13,318,839
Diluted		14,749,825			14,706,263			13,701,380			13,318,839
Comprehensive income (loss):
Net income (loss)	$	220		$	516		$	(18,009	)	$	(823	)
Foreign currency translation adjustments		(126	)		64			(160	)		76
Comprehensive income (loss)	$	94		$	580		$	(18,169	)	$	(747	)

The accompanying notes are an integral part of the consolidated financial statements

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EXA CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended October 31,
	2014			2013
Cash flows (used in) provided by operating activities:
Net loss	$	(18,009	)	$	(823	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,157			1,561
Stock-based compensation expense		1,403			846
Deferred rent expense		(267	)		(424	)
Non-cash interest		—			162
Loss on extinguishment of debt, non-cash portion		—			465
Deferred income taxes		15,209			(1,614	)
Net change in operating assets and liabilities:
Accounts receivable		20,432			20,398
Prepaid expenses and other current assets		258			(201	)
Other assets		(2	)		(55	)
Accounts payable		(874	)		(887	)
Accrued expenses		(3,415	)		(1,107	)
Other liabilities		(23	)		84
Deferred revenue		(18,942	)		(13,978	)
Net cash (used in) provided by operating activities		(2,073	)		4,427
Cash flows used in investing activities:
Purchases of property and equipment		(684	)		(674	)
Net cash used in investing activities		(684	)		(674	)
Cash flows used in financing activities:
Proceeds from stock option exercises		749			173
Payments of long-term debt		—			(7,365	)
Payments of capital lease obligations		(2,303	)		(1,532	)
Payment of debt issuance costs		—			(213	)
Net cash used in financing activities		(1,554	)		(8,937	)
Effect of exchange rate changes on cash		(498	)		(93	)
Net decrease in cash and cash equivalents		(4,809	)		(5,277	)
Cash and cash equivalents, beginning of period		28,753			30,716
Cash and cash equivalents, end of period	$	23,944		$	25,439
Supplemental cash flow disclosures:
Cash paid for interest	$	265		$	533
Cash paid for income taxes	$	1,282		$	289
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment through capital leases	$	1,700		$	563

The accompanying notes are an integral part of the consolidated financial statements

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EXA CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands except per share amounts)

1. Description of Business

Exa Corporation (the “Company” or “Exa”), a Delaware corporation, develops, sells and supports simulation software and services used primarily by vehicle manufacturers to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. The Company’s solutions enable engineers and designers to augment or replace conventional methods of evaluating designs that rely on expensive and inefficient physical prototypes and test facilities with accurate digital simulations that are more useful, cost effective and timely. The Company’s simulation solutions enable customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes, which result in cost savings and fundamental improvements in the development process. The Company is primarily focused on the ground transportation market, but is also exploring the application of its capabilities in the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

Exa has offices and sells directly in the United States and through subsidiaries in France, Germany, Italy, Japan, Korea, China, and the United Kingdom. The Company also conducts business in Sweden, India, Brazil, Russia, Canada, Finland, Spain and Australia.

2. Summary of Significant Accounting Policies

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative United States generally accepted accounting principles (“GAAP”) as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2014. These financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from management’s estimates if future events differ substantially from past experience, or other assumptions, which reasonable when made, do not turn out to be substantially accurate.

Internal Use Software

Costs incurred in the research and development of the Company’s software products are expensed as incurred. Costs incurred during the application development stage of internal-use software projects, such as those used to develop internal systems, are capitalized. Capitalized costs include external consulting fees and payroll and payroll-related costs for employees in the Company’s development and information technology groups who are directly associated with, and who devote time to, the Company’s internal-use software projects during the application development stage. Capitalization begins when the planning stage is complete and the Company commits resources to the software project. Amortization of the asset commences when the software is complete and placed in service. The Company amortizes completed internal-use software over its estimated useful life. Costs incurred during the planning, training and post-implementation stages of the software development life-cycle are expensed as incurred. Costs related to upgrades and enhancements of existing internal-use software that increase the functionality of the software are also capitalized.

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Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance was effective for the Company in the first quarter of fiscal year 2015. The Company adopted ASU 2013-11 on February 1, 2014. This adoption did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, as a result of which, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in fiscal year 2018.

In June 2014, the FASB issued ASU 2014-12, which is a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective for annual periods beginning after December 31, 2015, and interim periods therein, with early adoption permitted. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, management will be required to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The provisions of this ASU are effective for annual periods beginning after December 15, 2016, and for interim periods therein. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

3. Computation of Net Income (Loss) Per Share

Net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted amounts per share include the impact of the Company’s outstanding potential common shares, such as shares issuable upon exercise of in-the-money stock options or warrants, when dilutive. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income (loss) per common share.

The following summarizes the calculation of basic and diluted net income (loss) per share:

	Three Months Ended October 31,				Nine Months Ended October 31,
	2014		2013		2014			2013
Numerator:
Net income (loss)	$	220	$	516	$	(18,009	)	$	(823	)
Denominator:
Weighted average common shares, basic		13,822,400		13,341,235		13,701,380			13,318,839
Dilutive effect of:
Options to purchase common and preferred stock		898,619		1,351,169		—			—
Warrants to purchase common stock		9,285		12,118		—			—
Restricted stock units		19,521		1,741		—			—
Weighted average common shares, diluted		14,749,825		14,706,263		13,701,380			13,318,839
Basic net income (loss) per share	$	0.02	$	0.04	$	(1.31	)	$	(0.06	)
Diluted net income (loss) per share	$	0.02	$	0.04	$	(1.31	)	$	(0.06	)

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The table below represents outstanding options, restricted stock unit awards and warrants that were excluded from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect. All of the Company’s outstanding stock options, unvested restricted stock units and warrants were anti-dilutive for the nine months ended October 31, 2014 due to the net loss position of the Company.

	Three Months Ended October 31,				Nine Months Ended October 31,
	2014		2013		2014		2013
Options, restricted stock unit awards and warrants to purchase common and preferred stock		1,633,635		692,165		2,785,477		2,324,500

4. Property and Equipment, net

Property and equipment, net consists of the following:

	October 31, 2014			January 31, 2014
Computer software and equipment	$	20,742		$	18,635
Office equipment and furniture		444			444
Leasehold improvements		2,611			2,627
Total property and equipment		23,797			21,706
Less: accumulated depreciation and amortization		(16,153	)		(14,350	)
Property and equipment, net	$	7,644		$	7,356

For the three and nine months ended October 31, 2014, depreciation and amortization expense was $675 and $1,894, respectively. For the three and nine months ended October 31, 2013, depreciation and amortization expense was $434 and $1,298, respectively. Included in computer software and equipment and office equipment and furniture is equipment held pursuant to capital leases with costs of $18,415 and $16,802 and accumulated amortization of $12,313 and $10,997 as of October 31, 2014 and January 31, 2014, respectively.

During the nine months ended October 31, 2014, the Company capitalized $80 of hardware, software, external consulting fees and payroll and payroll-related costs for the development and implementation of internal-use software applications, which is included in computer software and equipment. Also included in computer software and equipment is accumulated amortization of $6 at October 31, 2014. The Company implemented the software during the second quarter of fiscal year 2015 to be used primarily for accounting and reporting applications.

5. Accrued Expenses

Accrued expenses consist of the following:

	October 31, 2014		January 31, 2014
Accrued payroll	$	1,660	$	1,603
Sales and withholding taxes		762		3,158
Accrued commissions and bonuses		1,369		2,456
Accrued income taxes payable		702		571
Deferred rent, current portion		603		602
Legal and professional		649		489
Other accrued expenses		970		1,406
Total accrued expenses	$	6,715	$	10,285

6. Deferred Rent

In connection with its corporate headquarters lease entered into in July 2008, the Company received a tenant improvement allowance of $1,958 from the landlord. This lease incentive was recorded as leasehold improvements and deferred rent and is being amortized as part of rent expense on a straight-line basis over the life of the lease. The Company’s subsidiary Euroxa S.a.r.l. entered into a new

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office lease in Paris, France in May 2012 with a landlord incentive totaling $148, equivalent to four months free rent, which is also being amortized as rent expense on a straight line basis over the life of the lease. In addition, the Company’s facility leases typically contain other than straight-line payment features. The difference between the straight-line rent expense of the lease and the cash payments is recorded as deferred rent. Deferred rent is as follows:

	October 31, 2014			January 31, 2014
Leasehold improvement incentive	$	374		$	572
Non-cash rent expense		789			861
Total deferred rent		1,163			1,433
Less: current portion included in accrued expenses		(603	)		(602	)
Deferred rent, net of current portion	$	560		$	831

7. Fair Value Measurements

Financial instruments consist primarily of cash and cash equivalents, accounts receivable and capital lease obligations. As of October 31, 2014 and January 31, 2014, the carrying amounts of these instruments approximate their fair values. The estimated fair values have been determined from information obtained from market sources and management estimates.

In determining the fair value of its financial assets and liabilities, the Company uses various valuation approaches. ASC 820,Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement and that are based on management’s best estimate of inputs market participants would use for pricing the asset or liability at the measurement date, including assumptions about risk.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of October 31, 2014:

	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	16,013	$	16,013	$	—	$	—

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of January 31, 2014:

	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	15,008	$	15,008	$	—	$	—

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

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8. Acquired Intangible Assets

Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives.

The following table reflects the carrying value of intangible assets as of October 31, 2014:

	October 31, 2014
	Cost		Accumulated Amortization			Net Book Value
Intellectual property	$	3,505	$	(1,023	)	$	2,482
Access to facilities contract		38		(38	)		—
Total	$	3,543	$	(1,061	)	$	2,482

The following table reflects the carrying value of intangible assets as of January 31, 2014:

	January 31, 2014
	Cost		Accumulated Amortization			Net Book Value
Intellectual property	$	3,505	$	(760	)	$	2,745
Access to facilities contract		38		(38	)		—
Total	$	3,543	$	(798	)	$	2,745

For the three and nine months ended October 31, 2014 and October 31, 2013, amortization expense of intangible assets was $88 and $263, respectively.

9. Commitments and Contingencies

Legal Contingencies

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. There is no litigation pending that could, individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows. In 2011, the Company was notified by the Massachusetts Institute of Technology, or MIT, that MIT believes that the Company is utilizing the intellectual property covered by a license agreement between the Company and MIT, and therefore is in arrears in the payment of royalties under the agreement. The Company has advised MIT that it does not believe that the Company utilized the underlying technology at any time since at least 1998, or that any royalties are owed under the agreement. MIT has not commenced suit against the Company with respect to its claims, and if any such suit is commenced by MIT, the Company intends to defend it vigorously. The Company believes that if MIT were to prevail in any such litigation, the royalties due under the terms of the license agreement, after giving effect to the approximately $200 in minimum royalties that the Company has already paid, would not exceed approximately $2,600 (excluding any interest or costs of litigation). The Company has not concluded that a loss in connection with the MIT claim is probable.

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification provisions is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited.

Based on historical experience and information known as of October 31, 2014 and January 31, 2014, the Company has not recorded any liabilities for the above guarantees and indemnities.

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10. Stock-Based Compensation

The fair value of common stock service-based options for employees and directors is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used:

	Nine Months Ended October 31,
	2014			2013
Estimated dividend yield		0	%		0	%
Expected stock price volatility		47.4	%		50.6	%
Weighted-average risk-free interest rate		2.2	%		2.2	%
Expected life of options (in years)		6.25			6.25

The weighted average grant date fair value per share for service-based stock options granted in the three and nine months ended October 31, 2014 was $5.04 and $5.48, respectively.

Total stock-based compensation expense related to service-based stock options and restricted stock units issued by the Company is as follows:

	Three Months Ended October 31,				Nine Months Ended October 31,
	2014		2013		2014		2013
Cost of revenues	$	52	$	35	$	134	$	99
Sales and marketing		88		67		249		169
Research and development		200		110		547		264
General and administrative		193		138		473		314
Total	$	533	$	350	$	1,403	$	846

The total unrecognized compensation cost related to outstanding service-based stock options is $4,424 at October 31, 2014. This amount is expected to be recognized over a weighted-average period of 2.94 years.

On June 10, 2014, the Company’s stockholders approved the amendment and restatement of the Company’s 2011 Stock Incentive Plan. As a result, the number of shares available to be issued under the plan increased from 769,230 to 1,769,230 shares of common stock. Following this approval, the Company granted performance-based options to purchase an aggregate of 292,500 shares of common stock. The majority of the performance-based options are eligible to vest if certain specified targets are met in fiscal years 2015, 2016 and 2017. Performance-based stock options are recognized as expense over the requisite service period when it becomes probable that performance measures triggering vesting will be met. As of October 31, 2014, the Company has concluded that it is not probable that any of the performance-based stock options will achieve the required metrics for vesting. As a result, the Company has not recognized any share-based compensation expense associated with these options.

11. Income Taxes

For the three and nine months ended October 31, 2014, the Company’s income tax provision was $214 and $15,870, respectively. The provision for the three months ended October 31, 2014 primarily consists of foreign income taxes and withholding taxes. The provision for the nine months ended October 31, 2014 includes a $14,506 non-cash charge to record a valuation allowance against the Company’s United States net deferred tax assets and a $700 non-cash write-off of state deferred tax assets (discussed further below). Through the three months ended April 30, 2014, the Company’s results reflected a three-year cumulative loss position in the United States; prior thereto, the Company’s historical results reflected a three-year cumulative profit. Reflecting management’s plans to continue investing in the business for future growth, management’s projections reflect the Company continuing in a three-year cumulative loss position through fiscal year 2015. This historical loss position at April 30, 2014 and projected cumulative loss position caused management to modify its assessment of its deferred tax assets, concluding that it no longer was more likely than not that these deferred tax assets would be realized and thus, a valuation allowance was necessary against the full amount of its United States net deferred tax assets.

Management will reassess the realization of the deferred tax assets each reporting period. To the extent that the financial results of the Company’s United States operations improve and the deferred tax asset becomes realizable, the Company will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that can be utilized annually in the future to offset its United States federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. During the first quarter of fiscal year 2015, management determined that the Company had experienced an ownership change for purposes of Section 382. This ownership change resulted in annual limitations to the amount of net operating loss carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately

11

$14,032 for fiscal year 2015, $16,758 for each of fiscal years 2016 through 2019, $8,046 for fiscal year 2020 and $6,366 for each fiscal year thereafter. The ownership change also resulted in the loss of the Company’s ability to utilize $700 of its $810 of state net operating loss carryforwards, credits and other state attributes, which resulted in a write-off of the $700 of state deferred tax assets during the first quarter of fiscal year 2015.

The Company does not expect that its unrecognized tax benefit will change significantly within the next twelve months. The Company and one or more of its subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2011. However, carryforward attributes that were generated prior to January 31, 2011 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

12. Geographic Information

Revenue is attributed to individual countries based upon location of the external customer. Revenue by geographic area is as follows:

	Three Months Ended October 31,				Nine Months Ended October 31,
	2014		2013		2014		2013
United States	$	4,332	$	3,099	$	10,616	$	8,588
Japan		2,339		2,492		6,857		6,320
Germany		3,026		2,615		8,555		7,273
France		2,361		2,475		6,597		6,915
Korea		1,319		1,211		3,974		3,498
United Kingdom		1,220		1,233		3,609		3,497
Sweden		501		489		1,846		1,716
Other		860		494		2,517		1,493
Total	$	15,958	$	14,108	$	44,571	$	39,300

Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid.

Net long-lived assets by principal geographic areas were as follows:

	October 31, 2014		January 31, 2014
United States	$	6,575	$	6,098
France		709		849
Germany		162		117
Japan		117		201
Other		81		91
Total property and equipment, net	$	7,644	$	7,356

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Result of Operations appearing in our Annual Report on Form 10-K, filed with the SEC on March 26, 2014. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to Exa Corporation.

Overview

We develop, sell and support simulation software and services used primarily by vehicle manufacturers to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. Our solutions enable engineers and designers to augment or replace conventional methods of evaluating design alternatives that rely on expensive and inefficient physical prototypes and test facilities, such as wind tunnels, with accurate digital simulations that are more useful and timely. Our simulation solutions enable our customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes. As a result, our customers realize significant cost savings and fundamental improvements in their vehicle development process.

Simulation-driven design has enabled product and process improvements in many industries, and as a result, the process in which products are conceptualized and developed is undergoing a radical transformation. Digital simulation not only provides feedback earlier and in a more useful form than traditional approaches, but in many areas simulation has reached a level of accuracy and robustness that is sufficient to enable a manufacturer to rely solely on its results for design decisions, without prototype testing.

Global vehicle manufacturers face increasing pressure, from government mandates as well as from consumers, to improve the efficiency of their products and to reduce particulate and greenhouse gas emissions. This requires different powertrain choices (diesel, electric, hybrid), changes in the shape of the vehicle, and reductions in vehicle weight. Consumers also demand improved quality and durability, and equally important, innovative and emotionally expressive designs. In addition, manufacturers are offering a broader array of vehicles for different niche customer segments and geographies on a faster design refresh schedule than in the past. We believe these industry forces favor the adoption of simulation-driven design.

One of the most critical challenges for our customers in their vehicle development processes is measuring or predicting how a vehicle feature or a mechanical system will interact with air, water or other fluids. For example, developing vehicles with reduced aerodynamic drag is critical to achieving the improvements in fuel efficiency that are increasingly desired by customers and mandated by government regulations. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. PowerFLOW relies upon a proprietary technology that we refer to as Digital Physics, based on algorithms known as the lattice Boltzmann method. Our proprietary technology enables PowerFLOW to predict complex fluid flows with a level of reliability comparable to or better than physical testing. The combination of PowerFLOW’s accuracy and timeliness provides results that are superior to those of alternative computational fluid dynamics, or CFD, methods.

We currently focus primarily on the ground transportation market, including manufacturers in the passenger vehicle, highway truck, off-highway vehicle and train markets, as well as their suppliers. Over 125 manufacturers currently utilize our products and services, including 14 of the global top 15 passenger vehicle manufacturer groups such as BMW, Ford, Hyundai, Jaguar Land Rover, Nissan, Porsche, Renault, Toyota and Volkswagen; truck and off-highway vehicle manufacturers such as Hyundai, Kenworth, Kobelco, MAN, Peterbilt, Scania and Volvo Truck; and suppliers to these manufacturers, such as Cummins, Denso and Magna Steyr.

During fiscal 2015, we have continued to make significant strategic investments to bring additional ground transportation applications to market as well as products for the aerospace and oil and gas production markets. As we continue to grow, we will continue to explore other markets where we believe the capabilities of PowerFLOW can be broadly applied, such as the chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

We derive our revenue primarily from the sale of our simulation software, using an annual capacity-based licensing model. Customers usually purchase PowerFLOW simulation capacity under one-year licenses. Simulation capacity may be purchased as software-only, to be run on the customer’s own computer hardware, or provided in the form of software-as-a-service, via our hosted PowerFLOW OnDemand offering. To introduce new customers to our simulation solutions, we typically perform fixed-price projects that include simulation services accessed via our OnDemand facilities, along with engineering and consulting services. Customers typically license our products for one application, such as aerodynamics, and over time expand to other applications such as thermal management or aeroacoustics.

We sell our products and project services primarily through our direct sales force, including sales executives and applications engineering teams deployed near our customers in the United States, United Kingdom, France, Germany, Italy, Japan, Korea and

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China and through a distributor in India and a sales agent in Brazil. In our customer engagement model, our applications management teams engage with our customers in long-term relationships focused on identifying problems that we can help them solve, demonstrating the value of our solutions and ensuring that the customer achieves maximum benefit from them. In this process we interact continuously with our customers to improve our software and services and add new solutions, and at the same time deepen our knowledge of their industry.

We were founded in 1991 and had 288 employees worldwide at October 31, 2014. Our corporate headquarters, including our principal administrative, marketing, technical support, research and product development facilities, is located in Burlington, Massachusetts.

Results of Operations for the Three Months Ended October 31, 2014 and 2013

The following tables set forth, for the periods presented, data from our consolidated statements of operation, as well as that data as a percentage of revenues.

	Three Months Ended October 31,
(in thousands)	2014			2013
Revenue:
License revenue	$	12,866		$	11,121
Project revenue		3,092			2,987
Total revenues		15,958			14,108
Operating expenses: (1)
Cost of revenues		4,562			4,023
Sales and marketing		2,442			2,243
Research and development		5,462			4,428
General and administrative (2)		3,171			2,736
Total operating expenses		15,637			13,430
Income from operations		321			678
Other income (expense), net:
Foreign exchange gain		194			31
Interest expense		(88	)		(71	)
Interest income		3			4
Other income, net		4			2
Total other income (expense), net		113			(34	)
Income before income taxes		434			644
Provision for income taxes		(214	)		(128	)
Net income	$	220		$	516

(1) Amounts include stock-based compensation expense as follows:

	Three Months Ended October 31,
(in thousands)	2014		2013
Cost of revenues	$	52	$	35
Sales and marketing		88		67
Research and development		200		110
General and administrative		193		138
Total stock-based compensation expense	$	533	$	350

(2) Includes amortization expense related to intangible assets as follows:

	Three Months Ended October 31,
(in thousands)	2014		2013
General and administrative	$	88	$	88

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	Three Months Ended October 31,
(as a percent of total revenue)	2014			2013
Revenue:
License revenue		80.6	%		78.8	%
Project revenue		19.4	%		21.2	%
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of revenues		28.6	%		28.5	%
Sales and marketing		15.3	%		15.9	%
Research and development		34.2	%		31.4	%
General and administrative		19.9	%		19.4	%
Total operating expenses		98.0	%		95.2	%
Income from operations		2.0	%		4.8	%
Other income (expense), net:
Foreign exchange gain		1.2	%		0.2	%
Interest expense		(0.6	)%		(0.5	)%
Interest income		0.0	%		0.0	%
Other income, net		0.0	%		0.0	%
Total other income (expense), net		0.7	%		(0.2	)%
Income before income taxes		2.7	%		4.6	%
Provision for income taxes		(1.3	)%		(0.9	)%
Net income		1.4	%		3.7	%

Due to rounding, totals may not equal the sum of line items in the table above.

Comparison of Three Months Ended October 31, 2014 and 2013

Revenue

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
License revenue	$	12,866	$	11,121	$	1,745		15.7	%
Project revenue		3,092		2,987		105		3.5	%
Total revenues	$	15,958	$	14,108	$	1,850		13.1	%

License revenue increased 15.7%, from $11.1 million for the three months ended October 31, 2013 to $12.9 million for the three months ended October 31, 2014. The $1.7 million increase was driven almost entirely by increased utilization of simulation capacity by existing customers. Project revenue increased $0.1 million during the three months ended October 31, 2014 compared to the three months ended October 31, 2013 due to expanded sales and engineering efforts and greater activity with existing customers.

Foreign exchange fluctuations, particularly the weakening of the Euro and the Japanese yen, negatively impacted total revenue in the three months ended October 31, 2014 by $0.4 million as compared to the three months ended October 31, 2013. On a constant currency basis, our total revenues in the three months ended October 31, 2014 increased 16.3% compared with the three months ended October 31, 2013.

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Cost of revenues

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Cost of revenues	$	4,562	$	4,023	$	539		13.4	%

Cost of revenues for the three months ended October 31, 2014 was $4.6 million, an increase of $0.5 million, or 13.4%, compared with $4.0 million during the three months ended October 31, 2013. As a percentage of revenues, cost of revenues increased to 28.6% for the three months ended October 31, 2014 compared to 28.5% for the three months ended October 31, 2013. Increased payroll and employee related costs, including travel, accounted for approximately $0.4 million of the increase, primarily as a result of the net addition of 11 new employees and merit-based compensation increases for existing personnel. In addition, royalty costs increased by $0.1 million due to increased invoicing by us and amendments to certain royalty agreements.

Sales and marketing

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Sales and marketing	$	2,442	$	2,243	$	199		8.9	%

Sales and marketing expenses for the three months ended October 31, 2014 were $2.4 million, an increase of $0.2 million, or 8.9%, compared to $2.2 million for the three months ended October 31, 2013. As a percentage of revenues, sales and marketing expenses decreased to 15.3% for the three months ended October 31, 2014 compared to 15.9% for the three months ended October 31, 2013. Increased non-commission payroll and employee related costs accounted for approximately $0.1 million of the increase, primarily as a result of the net addition of 4 new sales people, manager and executive level promotions and merit-based compensation increases for existing personnel. Commission expense increased by approximately $0.1 million, primarily due to an increase in invoicing levels during the three months ended October 31, 2014 as compared to the prior fiscal year period.

Research and development

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Research and development	$	5,462	$	4,428	$	1,034		23.4	%

Research and development expenses for the three months ended October 31, 2014 were $5.5 million, an increase of $1.0 million, or 23.4%, compared to $4.4 million for the three months ended October 31, 2013. As a percentage of revenues, research and development expense increased to 34.2% for the three months ended October 31, 2014 compared to 31.4% for the three months ended October 31, 2013. Increased payroll and employee related costs accounted for approximately $0.7 million of the increase, primarily as a result of the net addition of 15 new scientists and software engineers and merit-based compensation increases for existing personnel. In addition, approximately $0.2 million of the increase is attributable to capacity expansions at our New Jersey data center resulting in increased facility and hosting costs. Lastly, approximately $0.1 million of the increase is attributable to increased software consulting costs related to product development.

General and administrative

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
General and administrative	$	3,171	$	2,736	$	435		15.9	%

General and administrative expenses for the three months ended October 31, 2014 were $3.2 million, an increase of $0.4 million, or 15.9%, compared to $2.7 million for the three months ended October 31, 2013. As a percentage of revenues, general and administrative expenses increased to 19.9% for the three months ended October 31, 2014, compared to 19.4% for the three months

16

ended October 31, 2013. Increased payroll and employee related costs accounted for approximately $0.1 million of the increase, primarily as a result of the net addition of 4 new support personnel and increased stock-based compensation expense associated with employee equity awards that were granted since October 31, 2013. Approximately $0.2 million of the increase is primarily attributable to professional service fees, including costs associated with tax and recruiting services. The balance of the increase is primarily attributable to approximately $0.1 million in increased depreciation expense associated with replacement computer equipment and workstations, along with an increase in other office and administrative costs.

Other income (expense), net

	Three Months Ended October 31,
(in thousands, except percentages)	2014		2013			Increase		% Change
Other income (expense), net	$	113	$	(34	)	$	147		(432.4	)%

For the three months ended October 31, 2014, other income, net was $0.1 million, as compared to other expense, net of less than $0.1 million for the three months ended October 31, 2013. Other income, net for the three-months ended October 31, 2014 primarily consisted of $0.2 million of foreign exchange gains, partially offset by $0.1 million of interest expense. Other expense, net for the three months ended October 31, 2013 primarily consisted of $0.1 million in interest expense, partially offset by foreign exchange gains.

Provision for income taxes

	Three Months Ended October 31,
(in thousands, except percentages)	2014			2013			Change			% Change
Provision for income taxes	$	(214	)	$	(128	)	$	(86	)		67.2	%

The income tax provision changed from $0.1 million in the three months ended October 31, 2013 to $0.2 million in the three months ended October 31, 2014. The provision for the three months ended October 31, 2014 primarily consists of foreign income taxes and withholding taxes. For the three months ended October 31, 2013, the effective income tax rate differed from the federal statutory rate mainly due to nondeductible compensation offset by the tax benefit of federal and state research and development credits. The effective tax rate for the three months ended October 31, 2013 was also impacted discretely by foreign exchange gains and losses.

We do not expect that our unrecognized tax benefit will change significantly within the next twelve months. We and one or more of our subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, we are no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2011. However, carryforward attributes that were generated prior to January 31, 2011 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

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Results of Operations for the Nine Months Ended October 31, 2014 and 2013

The following tables set forth, for the periods presented, data from our consolidated statements of operation, as well as that data as a percentage of revenues.

	Nine Months Ended October 31,
(in thousands)	2014			2013
Revenue:
License revenue	$	36,842		$	32,532
Project revenue		7,729			6,768
Total revenues		44,571			39,300
Operating expenses: (1)
Cost of revenues		13,790			11,527
Sales and marketing		7,518			6,539
Research and development		15,968			13,264
General and administrative (2)		9,510			7,933
Total operating expenses		46,786			39,263
(Loss) income from operations		(2,215	)		37
Other income (expense), net:
Foreign exchange gain (loss)		325			(25	)
Interest expense		(265	)		(628	)
Interest income		9			13
Loss on extinguishment of debt		—			(755	)
Other income, net		7			7
Total other income (expense), net		76			(1,388	)
Loss before income taxes		(2,139	)		(1,351	)
(Provision) benefit for income taxes		(15,870	)		528
Net loss	$	(18,009	)	$	(823	)

(1) Amounts include stock-based compensation expense as follows:

	Nine Months Ended October 31,
(in thousands)	2014		2013
Cost of revenues	$	134	$	99
Sales and marketing		249		169
Research and development		547		264
General and administrative		473		314
Total stock-based compensation expense	$	1,403	$	846

(2) Includes amortization expense related to intangible assets as follows:

	Nine Months Ended October 31,
(in thousands)	2014		2013
General and administrative	$	263	$	263

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	Nine Months Ended October 31,
(as a percent of total revenue)	2014			2013
Revenue:
License revenue		82.7	%		82.8	%
Project revenue		17.3	%		17.2	%
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of revenues		30.9	%		29.3	%
Sales and marketing		16.9	%		16.6	%
Research and development		35.8	%		33.8	%
General and administrative		21.3	%		20.2	%
Total operating expenses		105.0	%		99.9	%
(Loss) income from operations		(5.0	)%		0.1	%
Other income (expense), net:
Foreign exchange gain (loss)		0.7	%		(0.1	)%
Interest expense		(0.6	)%		(1.6	)%
Interest income		0.0	%		0.0	%
Loss on extinguishment of debt		0.0	%		(1.9	)%
Other income, net		0.0	%		0.0	%
Total other income (expense), net		0.2	%		(3.5	)%
Loss before income taxes		(4.8	)%		(3.4	)%
(Provision) benefit for income taxes		(35.6	)%		1.3	%
Net loss		(40.4	)%		(2.1	)%

Due to rounding, totals may not equal the sum of line items in the table above.

Comparison of Nine Months Ended October 31, 2014 and 2013

Revenue

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
License revenue	$	36,842	$	32,532	$	4,310		13.2	%
Project revenue		7,729		6,768		961		14.2	%
Total revenues	$	44,571	$	39,300	$	5,271		13.4	%

License revenue increased 13.2%, from $32.5 million for the nine months ended October 31, 2013 to $36.8 million for the nine months ended October 31, 2014. The $4.3 million increase was driven almost entirely by increased utilization of simulation capacity by existing customers. Project revenue increased $1.0 million during the nine months ended October 31, 2014 compared to the nine months ended October 31, 2013 due to expanded sales and engineering efforts and greater activity with existing customers.

Foreign exchange fluctuations, particularly the weakening of the Japanese yen, negatively impacted total revenue in the nine months ended October 31, 2014 by $0.2 million as compared to the nine months ended October 31, 2013. On a constant currency basis, our total revenues in the nine months ended October 31, 2014 increased 13.9% compared with the nine months ended October 31, 2013.

Cost of revenues

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Cost of revenues	$	13,790	$	11,527	$	2,263		19.6	%

Cost of revenues for the nine months ended October 31, 2014 was $13.8 million, an increase of $2.3 million, or 19.6%, compared with $11.5 million during the nine months ended October 31, 2013. As a percentage of revenues, cost of revenues increased to 30.9% for the nine months ended October 31, 2014 compared to 29.3% for the nine months ended October 31, 2013. Increased payroll and

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employee related costs, including travel, accounted for approximately $1.5 million of the increase, primarily as a result of the net addition of 11 new application engineers and merit-based compensation increases for existing personnel. In addition, royalty costs increased by $0.5 million due to increased invoicing by us and amendments to certain royalty agreements. The balance of the increase is primarily attributable to capacity expansions at our New Jersey data center resulting in increased facility and hosting costs of approximately $0.2 million.

Sales and marketing

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Sales and marketing	$	7,518	$	6,539	$	979		15.0	%

Sales and marketing expenses for the nine months ended October 31, 2014 were $7.5 million, an increase of $1.0 million, or 15.0%, compared to $6.5 million for the nine months ended October 31, 2013. As a percentage of revenues, sales and marketing expenses increased to 16.9% for the nine months ended October 31, 2014 compared to 16.6% for the nine months ended October 31, 2013. Increased non-commission payroll and employee related costs accounted for approximately $0.6 million of the increase, primarily as a result of the net addition of 4 new sales people, manager and executive level promotions and merit-based compensation increases for existing personnel. Commission expense increased by approximately $0.4 million, primarily due to an increase in invoicing levels during the nine months ended October 31, 2014 as compared to the prior fiscal year period.

Research and development

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
Research and development	$	15,968	$	13,264	$	2,704		20.4	%

Research and development expenses for the nine months ended October 31, 2014 were $16.0 million, an increase of $2.7 million, or 20.4%, compared to $13.3 million for the nine months ended October 31, 2013. As a percentage of revenues, research and development expense increased to 35.8% for the nine months ended October 31, 2014 compared to 33.8% for the nine months ended October 31, 2013. Increased payroll and employee related costs accounted for approximately $1.8 million of the increase, primarily as a result of the net addition of 15 new scientists and software engineers and merit-based compensation increases for existing personnel. In addition, capacity expansions at our New Jersey data center resulted in increased facility and hosting costs of approximately $0.6 million. The balance of the increase is primarily attributable to increased software consulting costs related to product development.

General and administrative

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013		Increase		% Change
General and administrative	$	9,510	$	7,933	$	1,577		19.9	%

General and administrative expenses for the nine months ended October 31, 2014 were $9.5 million, an increase of $1.6 million, or 19.9%, compared to $7.9 million for the nine months ended October 31, 2013. As a percentage of revenues, general and administrative expenses increased to 21.3% for the nine months ended October 31, 2014, compared to 20.2% for the nine months ended October 31, 2013. Increased payroll and employee related costs accounted for approximately $0.8 million of the increase, primarily as a result of the net addition of 4 new support personnel and compensation increases for existing personnel, including increased stock-based compensation associated with employee equity awards that were granted since October 31, 2013. Approximately $0.4 million of the increase is primarily attributable to professional service fees, including costs associated with the financial statement audit, a foreign statutory audit, patent legal fees, and tax and recruiting services. The balance of the increase is primarily attributable to increases in depreciation expense, internet service charges and service and maintenance contracts.

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Other income (expense), net

	Nine Months Ended October 31,
(in thousands, except percentages)	2014		2013			Increase		% Change
Other income (expense), net	$	76	$	(1,388	)	$	1,464		105.5	%

For the nine months ended October 31, 2014, other income, net was less than $0.1 million, as compared to other expense, net of $1.4 million for the nine months ended October 31, 2013. Other income, net for the nine months ended October 31, 2014 primarily consists of $0.3 million in foreign exchange gains, partially offset by $0.3 million in interest expense. Other expense, net for the nine months ended October 31, 2013 primarily consisted of a $0.8 million loss from the extinguishment of debt related to the repayment of all outstanding obligations under our loan and security agreement in May 2013 and interest expense of $0.6 million.

(Provision) benefit for income taxes

	Nine Months Ended October 31,
(in thousands, except percentages)	2014			2013		Change			% Change
(Provision) benefit for income taxes	$	(15,870	)	$	528	$	(16,398	)		(3,105.7	)%

For the nine months ended October 31, 2014, our income tax provision was $15.9 million which includes a $14.5 million non-cash charge to record a valuation allowance against our United States net deferred tax assets and a $0.7 million non-cash write-off of state deferred taxes (discussed further below). Through the three months ended April 30, 2014, our results reflected a three-year cumulative loss position in the United States; prior thereto, our historical results reflected a three-year cumulative profit. Reflecting management’s plans to continue investing in the business for future growth, management’s projections reflect our continuing in a three-year cumulative loss position through fiscal year 2015. This historical loss position at April 30, 2014 and projected cumulative loss position caused management to modify its assessment of its deferred tax assets, concluding that it no longer was more likely than not that these deferred tax assets would be realized and thus, a valuation allowance was necessary against the full amount of its United States net deferred tax assets. Note that most of our revenues are generated from ground transportation customers outside the United States but a significantly disproportionate amount of our operating expenses, including investments in future products, are incurred in the United States, causing the results of operations in the United States to reflect losses during this period of investment.

Management will reassess the realization of the deferred tax assets each reporting period. To the extent that the financial results of our United States operations improve and the deferred tax asset becomes realizable, we will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss carryforwards that can be utilized annually in the future to offset its United States federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. During the first quarter of fiscal year 2015, management determined that we had experienced an ownership change for purposes of Section 382. This ownership change resulted in annual limitations to the amount of net operating loss carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $14.0 million for fiscal year 2015, $16.8 million for each of fiscal years 2016 through 2019, $8.0 million for fiscal year 2020 and $6.4 million for each fiscal year thereafter. The ownership change also resulted in the loss of our ability to utilize $0.7 million of its $0.8 million of state net operating loss carryforwards, credits and other state attributes, which resulted in a write-off of the $0.7 million of state deferred tax assets during the first quarter of fiscal year 2015.

We do not expect that our unrecognized tax benefit will change significantly within the next twelve months. We and one or more of our subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, we are no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2011. However, carryforward attributes that were generated prior to January 31, 2011 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

Non-GAAP Measures

From time to time we provide certain non-GAAP financial measures to investors as additional information in order to supplement our consolidated financial statements, which are presented in accordance with accounting principles generally accepted in the United States, or GAAP. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, or superior to, the financial information presented in accordance with GAAP and should not be considered a measure of our liquidity. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled or used by other companies and therefore should not be used to compare our performance to that of other companies.

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Revenue on a constant currency basis. Our international operations generate and incur expenses that are denominated in foreign currencies, and changes in currency exchange rates can materially affect our consolidated results of operations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. To provide investors with information concerning underlying trends in our business, we disclose revenue on a constant currency basis, which we define as GAAP revenue, adjusted to reverse the impact of changes in the exchange rates of the principal currencies in which our international operations generated revenue and incurred expenses. We calculate revenue on a constant currency basis by converting revenue that was generated in the currencies specified above during the three and nine months ended October 31, 2014 to United States Dollars at assumed exchange rates equal to the exchange rates in effect for such currencies during the corresponding period of the previous fiscal year, rather than the exchange rates actually in effect during the current fiscal year.

Adjusted EBITDA. We define Adjusted EBITDA as EBITDA, excluding non-cash, stock-based compensation expense. We define EBITDA as net loss, excluding depreciation and amortization, interest expense, loss on extinguishment of debt, other income (expense), foreign exchange gain (loss) and benefit (provision) for income taxes. The GAAP measure most comparable to Adjusted EBITDA is net income (loss).

Non-GAAP operating income (loss). We define non-GAAP operating income (loss) as GAAP operating income (loss) excluding non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP operating income (loss) is operating income (loss).

Non-GAAP net income (loss). We define non-GAAP net income (loss) as GAAP net income (loss) excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net income (loss) is net income (loss).

Non-GAAP net income (loss) per diluted share. We define non-GAAP net income (loss) per diluted share as GAAP net income (loss) per diluted share excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net income (loss) per diluted share is net income (loss) per diluted share.

Our management uses these non-GAAP financial measures to evaluate our operating performance and for internal planning and forecasting purposes. We believe that these measures help identify underlying trends in our business, are useful for comparing current results with prior period results, and are helpful to investors and financial analysts in assessing our operating performance. For example, our management considers Adjusted EBITDA to be an important indicator of our operational strength and the performance of our business and a good measure of our historical operating trends. However, each of these non-GAAP financial measures may have limitations as an analytical tool. In considering our Adjusted EBITDA, non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share, investors should take into account the following reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures:

Adjusted EBITDA:

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2014			2013			2014			2013
Net income (loss)	$	220		$	516		$	(18,009	)	$	(823	)
Add back:
Depreciation and amortization		763			522			2,157			1,561
Interest expense, net		85			67			256			615
Loss on extinguishment of debt		—			—			—			755
Other income, net		(4	)		(2	)		(7	)		(7	)
Foreign exchange (gain) loss		(194	)		(31	)		(325	)		25
Provision (benefit) for income taxes		214			128			15,870			(528	)
EBITDA		1,084			1,200			(58	)		1,598
Stock-based compensation expense		533			350			1,403			846
Adjusted EBITDA	$	1,617		$	1,550		$	1,345		$	2,444

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Non-GAAP operating income (loss):

	Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2014		2013		2014			2013
Operating income (loss)	$	321	$	678	$	(2,215	)	$	37
Add back:
Stock-based compensation expense		533		350		1,403			846
Amortization of acquired intangible assets		88		88		263			263
Non-GAAP operating income (loss)	$	942	$	1,116	$	(549	)	$	1,146

Non-GAAP net income (loss):

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2014			2013			2014			2013
Net income (loss)	$	220		$	516		$	(18,009	)	$	(823	)
Add back:
Stock-based compensation expense		533			350			1,403			846
Amortization of acquired intangible assets		88			88			263			263
Income tax effect (1)		(220	)		(155	)		(583	)		(388	)
Non-GAAP net income (loss)	$	621		$	799		$	(16,926	)	$	(102	)

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Non-GAAP net income (loss), per diluted share:

	Three Months Ended October 31,						Nine Months Ended October 31,
	2014			2013			2014			2013
Net income (loss) per diluted share (2)	$	0.02		$	0.04		$	(1.31	)	$	(0.06	)
Add back:
Stock-based compensation expense		0.04			0.02			0.10			0.06
Amortization of acquired intangible assets		0.01			0.01			0.02			0.02
Income tax effect (1)		(0.02	)		(0.01	)		(0.04	)		(0.03	)
Non-GAAP net income (loss), per diluted share (2)(3):	$	0.04		$	0.05		$	(1.24	)	$	(0.01	)

(1) The tax effect of non-cash stock-based compensation expense and non-cash amortization of acquired intangibles is estimated using a blended rate equivalent to our annual estimated United States federal tax rate and our state tax rate, exclusive of any net federal benefit or charge. This rate is based on our estimated annual GAAP income tax rate forecast. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

(2) Share amounts utilized on a fully diluted basis were approximately 14.7 million and 13.7 million for the three and nine months ended October 31, 2014, respectively, and 14.7 million and 13.3 million, respectively, for the three and nine months ended October 31, 2013.

(3) Due to rounding, totals may not equal the sum of line items in the table above.

Liquidity

Overview

Our primary sources of liquidity during the nine months ended October 31, 2014 were cash and cash equivalents on hand. Our primary uses of cash during the nine months ended October 31, 2014 were cash used in operating activities, capital expenditures and capital lease obligations. As of October 31, 2014, we had $23.9 million in cash and cash equivalents.

On December 10, 2013, we filed a shelf registration statement on Form S-3, which included a base prospectus relating to, among other things, the registration of $75 million of our common stock that may be offered and sold by us from time to time pursuant to Rule 415 promulgated under the Act, in amounts, at prices and on terms to be determined at the time of the offering.

Net Cash Flows from Operating Activities

Variations in the amount of our net cash provided or used by operating activities are primarily the result of changes in the amount of our working capital accounts, mainly accounts receivable and deferred revenue, the timing of cash payments from our customers and of our cash expenditures, principally employee salaries, accounts payable and payments of value added taxes and consumption taxes on the receivables of our foreign subsidiaries.

Cash payments from our customers fluctuate due to timing of new and renewal license sales, which typically coincide with our customers’ budget cycles. The fourth quarter of each fiscal year generally has the highest license sales, with payment of the license fee becoming due at the commencement of the license term. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year. Generally, customers are invoiced in advance for their annual subscription fee and the invoices are recorded in accounts receivable and deferred revenue, with deferred revenues being recognized ratably over the term of the subscription agreement. Increases in deferred revenue are attributable to growth in new business, offset by the related license revenues that are recognized ratably over time.

For the nine months ended October 31, 2014, net cash used in operating activities totaled $2.1 million, as compared to net cash provided by operating activities totaling $4.4 million over the nine months ended October 31, 2013. The overall decrease in cash provided by operating activities for the nine months ended October 31, 2014 as compared to the prior year period is primarily due to

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decreased profitability and fluctuations in working capital. Accrued expenses decreased by $3.4 million during the current year period compared to $1.1 million in the prior year period, primarily due to the timing of value-added-tax, commission and compensation payments. In addition, deferred revenue decreased $18.9 million during the current year period compared to $14.0 million in the prior year period, due primarily to the timing of invoicing for customer license orders.

Net Cash Flows from Investing Activities

Net cash used in investing activities for the nine months ended October 31, 2014 and 2013 was $0.7 million. Investing activities consist of expenditures for purchases of property and equipment to support the growth in our business operations.

Net Cash Flows from Financing Activities

Net cash used in financing activities for the nine months ended October 31, 2014 was $1.6 million, which consists primarily of payments on our capital lease obligations of $2.3 million, partially offset by proceeds from stock option exercises of $0.8 million. Net cash used in financing activities for the nine months ended October 31, 2013 was $8.9 million, which consisted primarily of long-term debt payments of $7.4 million, including the final repayment in May 2013 and payments on our capital lease obligations of $1.5 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of either October 31, 2014 or January 31, 2014.

Capital Resources

Our future capital requirements may vary materially from those now planned and will depend on many factors, including the costs to develop and implement new solutions and applications, the sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications we develop, the expansion of our operations in the United States and internationally and the response of competitors to our solutions and applications. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business. Our practice has been to reinvest the undistributed earnings of our foreign subsidiaries in their local jurisdictions, and we currently do not intend to repatriate such earnings. As of October 31, 2014 and January 31, 2014, $4.7 million and $8.0 million, respectively, of our cash is held in bank accounts outside the United States and may not be completely available to fund our domestic operations and obligations without paying taxes upon repatriation.

We expect to be able to meet the funding needs of our United States operations and do not intend on repatriating undistributed earnings that have been indefinitely reinvested in our international subsidiaries.

We believe our cash on hand and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future, including at least the next twelve months.

Seasonality

We have experienced and expect to continue to experience seasonal variations in the timing of customers’ purchases of our software products. Many customers make purchase decisions based on their budget cycles, which typically coincide with the calendar year, except in Japan, where our customer budget cycles typically begin on April 1. Because our software products are sold pursuant to annual subscription agreements and we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in invoices may not be immediately reflected in our operating results. However, these seasonal trends materially affect the timing of our cash flows, as we generally receive the annual license fee at the time the license term commences. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

As we conduct business in multiple international currencies throughout the world, our international operations generate and incur expenses that are denominated in foreign currencies. These amounts could be materially affected by currency fluctuations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international operations maintain cash balances denominated in foreign currencies. To reduce the risk associated with translation of foreign cash balances into our reporting currency, we typically avoid maintaining excess cash balances in foreign currencies. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated translation gains and losses.

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The Euro was approximately 3.6% weaker against the United States dollar, on average, for the three months ended October 31, 2014 and approximately 1.9% stronger, on average, for the nine months ended October 31, 2014, respectively, when compared with the three and nine months ended October 31, 2013. The resulting net overall impact to revenue was a decrease of approximately $0.2 million and an increase of approximately $0.3 million during the three and nine months ended October 31, 2014, respectively. The resulting net overall impact to operating expenses was a decrease of approximately $0.1 million and an increase of approximately $0.2 million during the three and nine months ended October 31, 2014, respectively.

The exchange rate impact of other currencies for the three months ended October 31, 2014, primarily driven by a weaker Japanese yen, was a decrease to revenue of approximately $0.2 million and a decrease to operating expense of less than $0.1 million. The exchange rate impact of other currencies for the nine months ended October 31, 2014, primarily driven by a weaker Japanese yen, was a decrease to revenue of approximately $0.4 million and a decrease to operating expense of less than $0.1 million.

For the three months ended October 31, 2014, a 10% change in the exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won would have resulted in a $0.9 million change in revenue. For the nine months ended October 31, 2014, a 10% change in the exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won would have resulted in a $2.6 million change in revenue.

Interest Rate Sensitivity

Since the payoff of all outstanding obligations under our loan and security agreement in May 2013, our interest expense consists solely of fixed-rate interest under our outstanding capital lease obligations. As a result, we do not believe that we are exposed to material interest rate risk at this time. Interest income is sensitive to changes in the general level of United States and international interest rates. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash and cash equivalents are relatively insensitive to interest rate changes. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

We do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rule 13a-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of October 31, 2014 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 31, 2014.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended October 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending material legal proceedings. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

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ITEM 1A. RISK FACTORS

You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2014, filed with the SEC on March 26, 2014 and other documents we file with the SEC. The risks and uncertainties described are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as overall U.S. and non-U.S. economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns, natural disasters or other disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business operations and liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(b) Use of Proceeds

On July 3, 2012, we completed the initial public offering of our common stock pursuant to our Registration Statement on Form S-1 (File No. 333-176019), which was declared effective by the Securities and Exchange Commission on June 27, 2012. The underwriters for the offering were Stifel Nicolaus & Company, Incorporated, Robert W. Baird & Co. Incorporated, Canaccord Genuity Inc. and Needham & Company, LLC. We used approximately $1.5 million of the net proceeds from this offering for working capital purposes during the three months ended October 31, 2014.

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ITEM 6. EXHIBITS

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, event date June 27, 2012, filed on July 3, 2012).
3.2	Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, event date June 27, 2012, filed on July 3, 2012).
3.3	Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2013)
31.1*	Rule 13a-14(a)/15d-14(a) Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
31.2*	Rule 13a-14(a)/15d-14(a) Certification, executed by Richard F. Gilbody, Chief Financial Officer of Exa Corporation.
32.1**	Section 1350 Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
32.2**	Section 1350 Certification, executed by Richard F. Gilbody, Chief Financial Officer of Exa Corporation.
101*	Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL)

* Filed herewith.

** Furnished herewith.

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EXA CORPORATION

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXA CORPORATION (Registrant)
By:	/s/ Richard F. Gilbody
	Richard F. Gilbody
	Chief Financial Officer
	Date: December 4, 2014

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