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1. Organization and Description of Business
Twilio Inc. (the "Company") was incorporated in the state of Delaware on March 13, 2008. The Company provides a Cloud Communications Platform that enables developers to build, scale and operate communications within software applications through the cloud primarily as a pay-as-you-go service. The Company's product offerings fit three basic categories: Programmable Voice, Programmable Messaging and Programmable Video. The Company also provides use case products, such as a two-factor authentication solution.
The Company's headquarters are located in San Francisco, California and the Company has subsidiaries in the United Kingdom, Estonia, Ireland, Colombia, Germany, Hong Kong, Singapore, Bermuda and Spain.
Initial Public Offering
In June 2016, the Company completed an initial public offering ("IPO") in which the Company sold 11,500,000 shares of its newly authorized Class A common stock, which included 1,500,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $15.00 per share. The Company received net proceeds of $155.5 million, after deducting underwriting discounts and offering expenses paid by the Company, from the sale of its shares in the IPO. Immediately prior to the completion of the IPO, all shares of common stock then outstanding were reclassified as shares of Class B common stock and all shares of convertible preferred stock then outstanding were converted into 54,508,441 shares of common stock on a one-to-one basis, and then reclassified as shares of Class B common stock. See Note 12 for further discussion of Class A and B common stock.
Follow-on Public Offering
In October 2016, the Company completed a follow-on public offering ("FPO") in which the Company sold 1,691,222 shares of its Class A common stock, which included 1,050,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $40.00 per share. In addition, another 6,358,778 shares of the Company's Class A common stock were sold by the selling stockholders of the Company, which included 906,364 shares sold pursuant to the exercise of employee stock options by certain selling stockholders. The Company received aggregate proceeds of $64.4 million, after deducting underwriting discounts and offering expenses paid and payable by the Company. The Company did not receive any of the net proceeds from the sales of shares by the selling stockholders.
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2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").
(b) Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make 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 period. These estimates are used for, but not limited to, revenue allowances and returns; valuation of the Company's stock-based awards; recoverability of long-lived and intangible assets; the capitalization and useful life of the Company's capitalized internal-use software; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
(d) Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company maintains cash, cash equivalents and restricted cash with financial institutions that management believes are financially sound and have minimal credit risk exposure.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any one of the large customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company's estimates. During the years ended December 31, 2016, one customer organization represented approximately 14% of the Company's total revenue. During the years ended December 31, 2015 and 2014, a different customer organization represented approximately 17% and 13%, respectively, of the Company's total revenue.
As of December 31, 2016, one customer organization represented approximately 16% of the Company's gross accounts receivable. As of December 31, 2015, two customer organizations represented approximately 11% each of the Company's gross accounts receivable.
(e) Revenue Recognition
The Company derives its revenue primarily from usage-based fees earned from customers accessing the Company's enterprise cloud computing services invoiced or paid monthly. The Company also earns subscription fees from certain term-based contracts. The Company provides services to its customers under pay-as-you-go contracts and term-based contracts ranging in duration from one month to 48 months. Customers that pay via credit card are either billed in advance or as they use service. Larger customers are billed in arrears via invoices for services used. Certain customers have contracts that provide for a minimum monthly commitment and some customers have contracts that provide for a commitment that may be of a quarterly, annual or other specific durations.
The Company recognizes revenue from these transactions when all of the following criteria are satisfied:
•there is persuasive evidence of an arrangement;
•the service has been or is being provided to the customer;
•the amount of the fees to be paid by the customer is fixed or determinable; and
•collectability of the fees is reasonably assured.
Term-based contracts revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that the service is made available to the customer, provided that all other revenue recognition criteria have been met. Usage-based fees are recognized as delivered.
The Company's arrangements do not contain general rights of return. However, credits may be issued to customers on a case-by-case basis. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met.
The reserve for sales credits was $0.5 million and $0.7 million as of December 31, 2016 and 2015, respectively, and is included in accounts receivable, net in the accompanying consolidated balance sheets. The reserve for sales credits is calculated based on historical trends and any specific risks identified in processing transactions. Changes in the reserve are recorded against revenue.
(f) Cost of Revenue
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes fees to support the Company's cloud infrastructure, personnel costs, such as salaries and stock-based compensation for the customer care and support services employees, and non-personnel costs, such as amortization of capitalized internal-use software development costs.
(g) Research and Development Expenses
Research and development expenses consist primarily of personnel costs, cloud infrastructure fees for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs and an allocation of general overhead expenses. The Company capitalizes the portion of its software development costs that meets the criteria for capitalization.
(h) Internal-Use Software Development Costs
Certain costs of platform and other software applications developed for internal use are capitalized. The Company capitalizes qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expenses costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred.
Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over three years. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in research and development expenses.
(i) Advertising Costs
Advertising costs are expensed as incurred and were $3.5 million, $2.9 million and $1.0 million in the years ended December 31, 2016, 2015 and 2014, respectively. Advertising costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.
(j) Stock-Based Compensation
All stock-based compensation to employees, including the purchase rights issued under the Company's 2016 Employee Stock Purchase Plan (the "ESPP"), is measured on the grant date based on the fair value of the awards on the date of grant. This cost is recognized as an expense following the ratable attribution method, over the requisite service period, for stock options, and the straight-line attribution method, over the offering period, for the purchase rights issued under the ESPP. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the ESPP. The fair value of the restricted stock units is determined using the fair value of the Company's Class A common stock on the date of grant. Prior to adoption of ASU 2016-09, the stock-based compensation was recorded net of estimated forfeitures.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share -Based Payment Accounting." This new guidance was intended to simplify several areas of accounting for stock-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company early adopted this guidance in the quarter ended December 31, 2016. The new guidance allows entities to account for forfeitures as they occur. The Company elected to account for forfeitures as they occur and adopted this provision on a modified retrospective basis. The $0.1 million of cumulative prior years' impact as well as the impact on the first three quarters of 2016 of $75,000 was recognized as an increase to stock-based compensation during the quarter ended December 31, 2016, as the impact on prior periods was insignificant. Adoption of all other changes in the new guidance did not have a significant impact on the Company's consolidated financial statements. See Note 15 for additional detail on the impact from the tax-related provisions of this ASU.
Prior to the IPO, the fair value of the Company's common stock was determined by the estimated fair value of the Company's common stock at the time of grant. After the IPO, the Company uses the market closing price of its Class A common stock as reported on the New York Stock Exchange for the fair value.
Compensation expense for stock options granted to nonemployees is calculated using the Black-Scholes option pricing model and is recognized in expense over the service period. Compensation expense for nonemployee stock options subject to vesting is revalued at each reporting date until the stock options are vested.
The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. These assumptions include:
•Fair value of the common stock. Prior to the Company's IPO, the board of directors considered numerous objective and subjective factors to determine the fair value of the Company's common stock at each meeting at which awards are approved. The factors included, but were not limited to: (i) contemporaneous valuations of the Company's common stock by an unrelated third party; (ii) the prices at which the Company sold shares of its convertible preferred stock to outside investors in arms-length transactions; (iii) the rights, preferences and privileges of the Company's convertible preferred stock relative to those of its common stock; (iv) the Company's results of operations, financial position and capital resources; (v) current business conditions and projections; (vi) the lack of marketability of the Company's common stock; (vii) the hiring of key personnel and the experience of management; (viii) the introduction of new products; (ix) the risk inherent in the development and expansion of the Company's products; (x) the Company's stage of development and material risks related to its business; (xi) the fact that the option grants involve illiquid securities in a private company; and (xii) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, in light of prevailing market conditions;
•Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term;
•Expected volatility. The expected volatility is derived from an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company, such as the size and operational and economic similarities to the Company's principal business operations;
•Risk -free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal the expected term of the stock-based awards; and
•Expected dividend. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
If any of the assumptions used in the Black-Scholes model changes, stock-based compensation for future options may differ materially compared to that associated with previous grants.
(k) Income Taxes
The Company accounts for income taxes in accordance with authoritative guidance which requires the use of the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carry-forwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.
(l) Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.
(m) Comprehensive Loss
During the years ended December 31, 2016, 2015 and 2014, the Company did not have any other comprehensive income or loss, and therefore, the net loss and comprehensive loss was the same for all periods presented.
(n) Net Loss Per Share Attributable to Common Stockholders
The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. All series of convertible preferred stock are considered to be participating securities as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pro rata pari passu basis in the event that a dividend is declared or paid on common stock. Shares of common stock issued upon early exercise of stock options that are subject to repurchase are also considered to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is declared or paid on common stock. Under the two-class method, in periods when the Company has net income, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period convertible preferred stock non-cumulative dividends, between common stock and the convertible preferred stock. In computing diluted net income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. For purposes of this calculation, convertible preferred stock, options to purchase common stock, unvested restricted stock units, common stock issued subject to future vesting, any shares of stock committed under the ESPP, any shares of stock held in escrow and any shares of stock reserved for future donations are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
Since the Company's IPO, Class A and Class B common stock are the only outstanding equity of the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a one-for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible.
(o) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of funds deposited into money market funds. All credit and debit card transactions that process as of the last day of each month and settle within the first few days of the subsequent month are also classified as cash and cash equivalents as of the end of the month in which they were processed.
(p) Restricted Cash
Restricted cash consists of cash deposited into a savings account with a financial institution as collateral for the Company's obligations under its facility leases of premises located in San Francisco, California. The facility lease for the Company's old office space expired in January 2017, as amended, and the facility lease for the Company's new office space expires in October 2024.
(q) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts and the reserve for sales credits. The allowance for doubtful accounts is estimated based on the Company's assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer's ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer's ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued. The allowance for doubtful accounts was $1.1 million and $0.5 million as of December 31, 2016 and 2015, respectively.
(r) Costs Related to the Public Offerings
Costs related to the public offerings, which consist of direct incremental legal, printing and accounting fees, are deferred until the offering is completed. Upon completion of the offering, these costs are offset against the offering proceeds within the consolidated statements of stockholders' equity. As of December 31, 2016, the Company recorded in its consolidated statement of stockholders' equity $5.7 million in total offering costs, of which $4.9 million and $0.8 million related to the IPO and the FPO, respectively.
As of December 31, 2015, the Company had $2.0 million of deferred offering costs that were recorded as prepaid expenses and other current assets in the accompanying consolidated balance sheet.
(s) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.
The useful lives of property and equipment are as follows:
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Capitalized software development costs |
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3 years |
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Office equipment |
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3 years |
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Furniture and fixtures |
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5 years |
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Software |
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3 years |
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Leasehold improvements |
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Shorter of 5 years or remaining lease term |
(t) Intangible Assets
Intangible assets recorded by the Company are costs directly associated with securing legal registration of patents and trademarks, acquiring domain names and the fair value of identifiable intangible assets acquired in business combinations.
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment at least annually.
The useful lives of the intangible assets are as follows:
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Developed technology |
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3 years |
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Customer relationship |
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5 years |
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Trade names |
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2 years |
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Patents |
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20 years |
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Trademarks |
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Indefinite |
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Domain names |
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Indefinite |
(u) Goodwill
Goodwill represents excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that it operates as one reporting unit and has selected November 30 as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business. If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if a two-step impairment test is necessary. Management may choose to proceed directly to the two-step evaluation, bypassing the initial qualitative assessment. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. The impairment loss would be calculated by comparing the implied fair value of the goodwill to its net book value. In calculating the implied fair value of goodwill, the fair value of the entity would be allocated to all of the other assets and liabilities based on their fair values. The excess of the fair value of the entity over the amount assigned to other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. No goodwill impairment charges have been recorded for any period presented.
(v) Impairment of Long-Lived Assets
The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. There was no impairment during the years ended December 31, 2016, 2015 and 2014. The value of the internally-developed software written-off due to abandonment was $0.7 million, $0.1 million and none in the years ended December 31, 2016, 2015 and 2014, respectively.
(w) Deferred Revenue
Deferred revenue consists of cash deposits from customers to be applied against future usage and customer billings in advance of revenues being recognized from the Company's contracts. Deferred revenue is generally expected to be recognized during the succeeding 12-month period and is thus recorded as a current liability.
(x) Business Combinations
The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statement of operations.
(y) Segment Information
The Company's Chief Executive Officer is the chief operating decision maker, who reviews the Company's financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
(z) Fair Value of Financial Instruments
The Company records certain of its financial assets at fair value on a recurring basis. The Company's financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature. However, it consists of cash in a savings account, hence its carrying amount approximates its fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
•Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
•Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
(aa) Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. Management does not expect the adoption of this guidance to have any impact on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) Clarifying the Definition of a Business", which amends the guidance of FASB Accounting Standards Codification Topic 805, "Business Combinations", adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted under certain circumstances. The Company will evaluate the impact of this guidance on its financial statements and related disclosures next time there is a potential business combination.
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash", which requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers Other Than Inventory", which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments", which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. This guidance is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." The standard will affect all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. For leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. While the Company expects the adoption of this standard to result in an increase to its reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers". This new guidance will replace most existing U.S. GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred, by one year, the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, this guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted beginning January 1, 2017. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing", clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12 "Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients", which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard's contract criteria. Finally, ASU 2016-20 makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The effective date and transition requirements for ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently evaluating the impact that these ASUs will have on its consolidated financial statements and related disclosures and expects to complete this evaluation in the first quarter of 2017. The Company anticipates disclosing its selected transition method in conjunction with the filing of its quarterly report on Form 10-Q for the quarter ending March 31, 2017.
|
|||
3. Fair Value Measurements
The following table provides the assets measured at fair value on a recurring basis as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
As of December 31, 2016 |
|
|||||||||||
|
|
|
Total Carrying |
|
|||||||||||||
|
|
|
Level I |
|
Level 2 |
|
Level 3 |
|
Total |
|
|||||||
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
274,135 |
|
$ |
274,135 |
|
$ |
— |
|
$ |
— |
|
$ |
274,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
274,135 |
|
$ |
274,135 |
|
$ |
— |
|
$ |
— |
|
$ |
274,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 |
|
|||||||||||
|
|
|
Total Carrying |
|
|||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|||||||
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
80,886 |
|
$ |
80,886 |
|
$ |
— |
|
$ |
— |
|
$ |
80,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
80,886 |
|
$ |
80,886 |
|
$ |
— |
|
$ |
— |
|
$ |
80,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no realized or unrealized losses for the years ended December 31, 2016, 2015 and 2014. There were no other-than-temporary impairments for these instruments as of December 31, 2016 and 2015.
|
|||
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Capitalized software development costs |
|
$ |
28,661 |
|
$ |
16,030 |
|
|
Leasehold improvements |
|
|
14,063 |
|
|
568 |
|
|
Office equipment |
|
|
5,729 |
|
|
2,662 |
|
|
Furniture and fixtures |
|
|
1,576 |
|
|
393 |
|
|
Software |
|
|
968 |
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
50,997 |
|
|
20,408 |
|
|
Less: accumulated depreciation and amortization |
|
|
(13,445 |
) |
|
(6,350 |
) |
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
37,552 |
|
$ |
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $7.4 million, $3.7 million and $1.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company capitalized $13.5 million, $9.4 million and $3.9 million in software development costs in the years ended December 31, 2016, 2015 and 2014, respectively, of which $2.0 million, $1.0 million and $0.3 million, respectively, was stock-based compensation expense. Amortization of capitalized software development costs was $5.5 million, $2.8 million and $1.2 million in the years ended December 31, 2016, 2015 and 2014, respectively. The amortization expense was allocated as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Cost of revenue |
|
$ |
3,304 |
|
$ |
1,793 |
|
$ |
783 |
|
|
Research and development |
|
|
2,182 |
|
|
1,045 |
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,486 |
|
$ |
2,838 |
|
$ |
1,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
5. Business Combinations
Acquisition of Authy, Inc.
On February 23, 2015, the Company completed its acquisition of Authy, Inc. ("Authy"), a Delaware corporation with operations in Bogota, Colombia and San Francisco, California. Authy had developed a two-factor authentication online security solution. The Company's purchase price of $6.1 million for all of the outstanding shares of capital stock of Authy consisted of $3.0 million in cash and $3.1 million representing the fair value of 389,733 shares of the Company's Series T convertible preferred stock, of which 180,000 shares are held in escrow. This escrow was effective until the first anniversary of the closing date, and has continued beyond that date as a result of certain circumstances. As of December 31, 2016, the Company has not released any shares out of the escrow. Additionally, the Company issued 507,885 shares of its Series T convertible preferred stock, which converted into shares of Class B common stock immediately prior to the closing of the IPO, to a former shareholder of Authy that had a fair value of $4.0 million and were subject to a service condition over a period of three years, as amended. In August 2016 the unvested shares were reduced by 127,054 shares due to the non-fulfillment of certain conditions of the merger agreement. In December 2016, all remaining unvested shares vested.
The acquisition was accounted for as a business combination and, accordingly, the total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition date. The cost of shares subject to vesting and performance conditions was accounted for as a post-acquisition compensation expense and recorded as research and development expense in the accompanying consolidated statements of operations. The Company recorded $2.4 million and $0.6 million of stock-based compensation expense related to these shares in the years ended December 31, 2016 and 2015, respectively.
Authy's results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.
This transaction was intended to qualify as a tax-free reorganization under Section 368(a) of the IRS Code.
The fair value of the Series T convertible preferred stock was determined by the board of directors of the Company with input from a third-party valuation consultant.
The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet on the acquisition date (in thousands):
|
|
|
Total |
|
|
|
Net tangible assets(3) |
|
$ |
1,217 |
|
|
Goodwill(1)(3) |
|
|
3,113 |
|
|
Intangible assets(2) |
|
|
1,760 |
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
6,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company acquired a net deferred tax liability of $0.1 million in this business combination. |
|
|||
|
(1) |
Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed. The goodwill in this transaction is primarily attributable to the future cash flows to be realized from the acquired technology platform, existing customer base and the future development initiatives of the assembled workforce. None of the goodwill is deductible for tax purposes. |
|
(2) |
Identifiable finite-lived intangible assets were comprised of the following: |
|
|
|
Total |
|
Estimated |
|
||
|
Developed technology |
|
$ |
1,300 |
|
|
3 |
|
|
Customer relationships |
|
|
400 |
|
|
5 |
|
|
Trade name |
|
|
60 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
$ |
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
As part of net tangible assets, the Company acquired $66,000 in accounts receivable subject to dispute resolution with a customer. The matter was resolved later in 2015 and $52,000 was deemed uncollectible immediately prior to the date of acquisition. The Company's adjustment of its initial purchase price allocation resulted in an increase to goodwill and decrease to net tangible assets of $52,000. After the adjustment, the purchase price allocation related to this acquisition became final. Goodwill balance as of December 31, 2015 was as follows: |
|
|
|
Total |
|
|
|
Balance as of December 31, 2014 |
|
$ |
— |
|
|
Goodwill recorded in connection with Authy acquisition |
|
|
3,113 |
|
|
Subsequent adjustment to purchase price allocation |
|
|
52 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
3,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of the intangible assets acquired was determined by the Company, and the Company considered or relied in part upon a valuation report of a third-party expert. The Company used an income approach to measure the fair values of the developed technology and trade names based on the relief-from-royalty method. The Company used an income approach to measure the fair value of the customer relationships based on the multi-period excess earnings method, whereby the fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate.
The Company incurred costs related to this acquisition of $1.5 million, of which $1.2 million and $0.3 million were incurred during the years ended December 31, 2015 and 2014, respectively. All acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statements of operations.
Pro forma results of operations for this acquisition have not been presented as the financial impact to the Company's consolidated financial statements is immaterial.
Acquisition of Certain Assets behind the Kurento Open Source Project
In November 2016, the Company acquired certain assets from Tikal Technologies S.L., a Spanish corporation, behind the Kurento Open Source Project. The acquired assets consisted of (a) proprietary WebRTC media processing technologies, (b) certain licenses, patents and trademarks and (c) certain employee relationships behind the WebRTC technology. The purchase price consisted of $8.5 million in cash, of which $1.5 million was placed into an escrow to indemnify the Company against breaches of general representations, warranties, claims and tax compliance matters. The escrow is effective for 24 months and 10 days from the acquisition date and may be extended under certain circumstances.
The acquisition was accounted for as business combination and, accordingly, the total purchase price was allocated to the identifiable intangibles assets acquired based on their respective fair values on the acquisition date. The excess of the purchase price over the fair values of the identifiable assets acquired was recorded as goodwill. The Company considered or relied in part upon a valuation report of a third-party expert.
The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet on the acquisition date (in thousands):
|
|
|
Total |
|
|
|
Intangible assets(1) |
|
$ |
8,100 |
|
|
Goodwill(2) |
|
|
400 |
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The intangible assets consist of developed technology with the estimated useful life of 3 years on the date of acquisition.
(2)The goodwill in this transaction is primarily attributable to the future cash flows to be realized from the acquired technology and the future development initiatives of the acquired workforce. The goodwill is deductible for tax purposes.
The Company incurred cost related to this acquisition of $0.1 million that were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statement of operations.
|
|||
6. Goodwill and Intangible Assets
Goodwill
Goodwill balance as of December 31, 2016 and 2015 was as follows:
|
Balance as of December 31, 2014 |
|
$ |
— |
|
|
Goodwill recorded in connection with Authy acquisition |
|
|
3,165 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
|
3,165 |
|
|
Goodwill recorded in connection with Kurento acquisition |
|
|
400 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 |
|
$ |
3,565 |
|
Intangible assets
Intangible assets consisted of the following (in thousands):
|
|
|
As of December 31, 2016 |
|
|||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
$ |
9,400 |
|
$ |
(1,140 |
) |
$ |
8,260 |
|
|
Customer relationships |
|
|
400 |
|
|
(148 |
) |
|
252 |
|
|
Trade name |
|
|
60 |
|
|
(56 |
) |
|
4 |
|
|
Patent |
|
|
1,512 |
|
|
(55 |
) |
|
1,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets |
|
|
11,372 |
|
|
(1,399 |
) |
|
9,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Domain names |
|
|
32 |
|
|
— |
|
|
32 |
|
|
Trademarks |
|
|
263 |
|
|
— |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,667 |
|
$ |
(1,399 |
) |
$ |
10,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 |
|
|||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
Developed technology |
|
$ |
1,300 |
|
$ |
(370 |
) |
$ |
930 |
|
|
Customer relationships |
|
|
400 |
|
|
(68 |
) |
|
332 |
|
|
Trade name |
|
|
60 |
|
|
(26 |
) |
|
34 |
|
|
Patent |
|
|
1,021 |
|
|
(25 |
) |
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,781 |
|
$ |
(489 |
) |
$ |
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $0.9 million, $0.5 million and $17,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Total estimated future amortization expense was as follows (in thousands):
|
|
|
As of |
|
|
|
2017 |
|
$ |
3,263 |
|
|
2018 |
|
|
2,890 |
|
|
2019 |
|
|
2,488 |
|
|
2020 |
|
|
58 |
|
|
2021 |
|
|
46 |
|
|
Thereafter |
|
|
1,228 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
7. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
|
As of |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Accrued payroll and related |
|
$ |
7,497 |
|
$ |
972 |
|
|
Accrued bonus and commission |
|
|
2,251 |
|
|
1,832 |
|
|
Accrued cost of revenue |
|
|
8,741 |
|
|
6,496 |
|
|
Sales and other taxes payable |
|
|
28,795 |
|
|
17,634 |
|
|
Deferred rent |
|
|
1,250 |
|
|
206 |
|
|
Accrued other expense |
|
|
10,774 |
|
|
4,858 |
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
59,308 |
|
$ |
31,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities consisted of the following (in thousands):
|
|
|
As of |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Deferred rent |
|
$ |
9,387 |
|
$ |
364 |
|
|
Accrued other expense |
|
|
156 |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
$ |
9,543 |
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
8. Supplemental Balance Sheet Information
A roll-forward of the Company's reserves for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):
Allowance for doubtful accounts:
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Balance, beginning of period |
|
$ |
486 |
|
$ |
210 |
|
$ |
98 |
|
|
Additions |
|
|
1,145 |
|
|
705 |
|
|
261 |
|
|
Write-offs |
|
|
(555 |
) |
|
(429 |
) |
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
1,076 |
|
$ |
486 |
|
$ |
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales credit reserve:
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Balance, beginning of period |
|
$ |
714 |
|
$ |
312 |
|
$ |
30 |
|
|
Additions |
|
|
1,348 |
|
|
1,210 |
|
|
683 |
|
|
Deductions against reserve |
|
|
(1,518 |
) |
|
(808 |
) |
|
(401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
544 |
|
$ |
714 |
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
9. Revenue by Geographic Area
Revenue by geographic area is based on the IP address at the time of registration. The following table sets forth revenue by geographic area (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Revenue by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
233,922 |
|
$ |
143,145 |
|
$ |
78,251 |
|
|
International |
|
|
43,413 |
|
|
23,774 |
|
|
10,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
277,335 |
|
$ |
166,919 |
|
$ |
88,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
84 |
% |
|
86 |
% |
|
88 |
% |
|
International |
|
|
16 |
% |
|
14 |
% |
|
12 |
% |
Long-lived assets outside the United States were insignificant.
|
|||
10. Credit Facility
The Company entered into a $5.0 million revolving line of credit on January 15, 2013, which expired in January 2015 and was not renewed. The Company did not borrow against this line of credit.
Effective January 2015, the Company entered into a $15.0 million revolving credit agreement. Under this agreement, amounts available to be borrowed are based on the Company's prior month's monthly recurring revenue. Advances on the line of credit bear interest payable monthly at Wall Street Journal prime rate plus 1%. Borrowings are secured by substantially all of the Company's assets, with limited exceptions. If there are borrowings under the credit line, there are certain restrictive covenants with which the Company must comply. The credit facility expires in March 2017. As of December 31, 2016 and 2015, the total amount available to the Company to be borrowed was $15.0 million and the Company had no outstanding balance on this credit facility.
|
|||
11. Commitments and Contingencies
(a) Lease Commitments
The Company entered into various non-cancelable operating lease agreements for its facilities that expire over the next seven years. Certain operating leases contain provisions under which monthly rent escalates over time. When lease agreements contain escalating rent clauses or free rent periods, the Company recognizes rent expense on a straight-line basis over the term of the lease.
In January 2016, the Company entered into a lease agreement ("Lease"), as subsequently amended, for approximately 90,000 square feet of new office space at 375 Beale Street in San Francisco, California, that houses its principal executive office. This office space replaced the Company's existing principal office at 645 Harrison Street in San Francisco, California, for which the lease was terminated in January 2017.
The term of the Lease is approximately 96 months following the commencement in October 2016, and the lease payments range from $0.4 million per month in the first 60 months to $0.5 million per month thereafter. Additionally, the Lease included a tenant improvement allowance, which provided for the landlord to pay for tenant improvements on behalf of the Company for up to $8.3 million. Of this amount, $2.6 million was collected in the fourth quarter of 2016. The corresponding asset and liability were recorded on the lease inception date in the current assets and current and long-term liabilities in the accompanying consolidated balance sheet. Based on the terms of this landlord incentive and involvement of the Company in the construction process, the leasehold improvements purchased under the landlord incentive were determined to be property of the Company. The Company secured its lease obligation with a $7.4 million letter of credit, which it designated as restricted cash on its balance sheet as of December 31, 2016. The Company began recording the lease expense on a straight-line basis in the second quarter of 2016.
Rent expense was $7.3 million, $4.1 million and $2.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Additionally, the Company has contractual commitments with its cloud infrastructure provider, network service providers and other vendors that are non-cancellable and expire within one to five years.
Future minimum lease payments under non-cancelable operating leases were as follows (in thousands):
|
Year Ending December 31:(1) |
|
As of |
|
|
|
2017 |
|
$ |
7,534 |
|
|
2018 |
|
|
6,979 |
|
|
2019 |
|
|
7,165 |
|
|
2020 |
|
|
7,037 |
|
|
2021 |
|
|
7,033 |
|
|
Thereafter |
|
|
16,052 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
51,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The future minimum lease payments related to the 375 Beale Street lease do not include the tenant improvement allowance available under the lease.
Future minimum payments under other existing noncancellable purchase obligations were as follows (in thousands). Unrecognized tax benefits are not included in these amounts because any amounts expected to be settled in cash are not material:
|
Year Ending December 31: |
|
As of |
|
|
|
2017 |
|
$ |
19,034 |
|
|
2018 |
|
|
19,373 |
|
|
2019 |
|
|
23,498 |
|
|
2020 |
|
|
68 |
|
|
2021 |
|
|
23 |
|
|
|
|
|
|
|
|
Total payments |
|
$ |
61,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Legal Matters
On April 30, 2015, Telesign Corporation, or Telesign, filed a lawsuit against the Company in the United States District Court, Central District of California ("Telesign I"). Telesign alleges that the Company is infringing three U.S. patents that it holds: U.S. Patent No. 8,462,920 ("'920"), U.S. Patent No. 8,687,038 ("'038") and U.S. Patent No. 7,945,034 ("'034"). The patent infringement allegations in the lawsuit relate to the Company's Programmable Authentication products, its two-factor authentication use case and an API tool to find information about a phone number. The Company has petitioned the U.S. Patent and Trademark Office for inter partes review of the patents at issue. On March 9, 2016, the District Court stayed the court case pending the resolution of those proceedings. On June 28, 2016, the Patent and Trademark Office instituted the inter partes review of the '034 patent, briefing on which has now begun, including Telesign's contingent motion to amend the '034 patent. On July 8, 2016, the Patent and Trademark Office denied the Company's petition for inter partes review of the '920 and '038 patents. The Company subsequently petitioned for rehearing on this decision, and the request for rehearing was fully briefed by both parties on October 11, 2016. On July 20, 2016, Telesign applied to the court to lift the stay on Telesign I. The Company opposed the request, and on September 15, 2016, the court denied the request to lift the stay on Telesign I. On November 15, 2016, the Patent and Trademark Office denied the Company's request for rehearing on the denied petitions for inter partes review. On December 20, 2016, the Company filed a reply to Telesign's opposition to the '034 inter partes review and simultaneously filed an opposition to Telesign's motion to amend the '034 patent. On January 23, 2017 Telesign filed its reply to the Company's opposition to the motion to amend. The hearing on the '034 inter partes review is scheduled for March 2017.
On March 28, 2016, Telesign filed a second lawsuit against the Company in the United States District Court, Central District of California ("Telesign II"), alleging infringement of U.S. Patent No. 9,300,792 ("'792") held by Telesign. The '792 patent is in the same patent family as the '920 and '038 patents asserted in Telesign I, and the infringement allegations in Telesign II relate to the Company's Programmable Authentication products and its two-factor authentication use case. On May 23, 2016, the Company moved to dismiss the complaint in Telesign II. On August 3, 2016, the United States District Court, Central District of California, issued an order granting Twilio's motion to dismiss Telesign's complaint with leave to amend. Telesign filed an amended complaint on September 2, 2016 and the Company moved to dismiss the amended complaint on September 16, 2016. On November 7, 2016, the Company's motion to dismiss was denied, and the Company filed its answer to the first amended complaint on November 21, 2016. With respect to each of the patents asserted in Telesign I and Telesign II, the complaints seek, among other things, to enjoin the Company from allegedly infringing the patents, along with damages for lost profits.
On December 1, 2016, the Company filed a patent infringement lawsuit against Telesign in the United States District Court, Northern District of California, alleging indirect infringement of Unites States Patent No. 8,306,021, United States Patent No. 8,837,465, United States Patent No. 8,755,376, United States Patent No. 8,736,051, United States Patent No. 8,737,962, United States Patent No. 9,270,833, and United States Patent No. 9,226,217. Telesign filed a motion to dismiss the complaint on January 25, 2017.
On February 18, 2016, a putative class action complaint was filed in the Alameda County Superior Court in California, entitled Angela Flowers v. Twilio Inc. The complaint alleges that the Company's products permit the interception, recording and disclosure of communications at a customer's request and are in violation of the California Invasion of Privacy Act. The complaint seeks injunctive relief as well as monetary damages. On May 27, 2016, the Company filed a demurrer to the complaint. On August 2, 2016, the court issued an order denying the demurrer in part and granted it in part, with leave to amend by August 18, 2016 to address any claims under California's Unfair Competition Law. The plaintiff opted not to amend the complaint. Discovery has already begun, and will continue until August 2017, when the plaintiff must file their motion for class certification.
The Company intends to vigorously defend these lawsuits and believes it has meritorious defenses to each. It is too early in these matters to reasonably predict the probability of the outcomes or to estimate ranges of possible losses.
In addition to the litigation matters discussed above, from time to time, the Company is a party to legal action and subject to claims that arise in the ordinary course of business. The claims are investigated as they arise and loss estimates are accrued, when probable and reasonably estimable. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that these legal proceedings will not have a material adverse effect on its financial position or results of operations.
(c) Indemnification Agreements
The Company has signed indemnification agreements with all of its board members and executive officers. The agreements indemnify the board members and the executive officers from claims and expenses on actions brought against the individuals separately or jointly with the Company for certain indemnifiable events. Indemnifiable events generally mean any event or occurrence related to the fact that the board member or the executive officer was or is acting in his or her capacity as a board member or an executive officer for the Company or was or is acting or representing the interests of the Company.
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties and other liabilities relating to or arising from the Company's various products, or its acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company's obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments. The terms of such obligations may vary. As of December 31, 2016 and 2015, no amounts had been accrued.
(d) Other Taxes
The Company conducts operations in many tax jurisdictions throughout the United States. In many of these jurisdictions, non-income-based taxes, such as sales and use and telecommunications taxes are assessed on the Company's operations. Historically, the Company has not billed or collected these taxes and, in accordance with U.S. GAAP, has recorded a provision for its tax exposure in these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, the Company recorded a liability of $28.8 million and $17.6 million as of December 31, 2016 and 2015, respectively. These estimates include several key assumptions including, but not limited to, the taxability of the Company's services, the jurisdictions in which its management believes it has nexus, and the sourcing of revenues to those jurisdictions. In the event these jurisdictions challenge management's assumptions and analysis, the actual exposure could differ materially from the current estimates.
|
|||
12. Stockholders' Equity
(a) Convertible Preferred Stock
As of December 31, 2015, the Company had outstanding Series A, B, C, D, E and T convertible preferred stock (individually referred to as "Series A, B, C, D, E or T" or collectively "Preferred Stock") as follows (in thousands, except share data).
Immediately prior to the completion of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into 54,508,441 shares of common stock on a one-to-one basis, and then reclassified as shares of Class B common stock.
|
|
|
As of December 31, 2015 |
|
||||||||||
|
|
|
Shares |
|
Shares Issued and |
|
Aggregate |
|
Proceeds, Net |
|
||||
|
Series A |
|
|
13,173,240 |
|
|
13,076,491 |
|
$ |
4,590 |
|
$ |
4,592 |
|
|
Series B |
|
|
11,416,062 |
|
|
11,146,895 |
|
|
11,717 |
|
|
11,658 |
|
|
Series C |
|
|
8,452,864 |
|
|
8,452,864 |
|
|
25,250 |
|
|
25,196 |
|
|
Series D |
|
|
9,440,324 |
|
|
9,440,324 |
|
|
70,000 |
|
|
69,930 |
|
|
Series E |
|
|
11,494,249 |
|
|
11,494,249 |
|
|
130,000 |
|
|
125,448 |
|
|
Series T |
|
|
5,000,000 |
|
|
897,618 |
(1) |
|
9 |
|
|
— |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
58,976,739 |
|
|
54,508,441 |
|
$ |
241,566 |
|
$ |
236,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The outstanding shares include 687,885 shares held in escrow as of December 31, 2015 related to the Authy acquisition. Of these shares, 507,885 shares were subject to graded vesting over a period of three years, as amended, and had a fair value of $4.0 million. A total of 127,054 shares were subject to certain performance conditions and were returned to the issuer in the third quarter 2016 due to the non-fulfillment of certain conditions of the merger agreement. All remaining unvested shares vested in the fourth quarter of 2016.
(2)389,733 shares were issued as part of the purchase price for Authy acquisition and had a fair value of $3.1 million on the acquisition closing date.
The holders of the Company's Preferred Stock had the following rights, preferences and privileges:
Conversion
At any time following the date of issuance, each share of Preferred Stock is convertible, at the option of its holder, into the number of shares of common stock which results from dividing the applicable original issue price per share for each series by the applicable conversion price per share for such series, on the date of conversion. As of December 31, 2015, the initial conversion prices per share of all series of preferred stock were equal to the original issue prices of each series and therefore the conversion ratio was 1:1.
Each share of preferred stock shall be automatically converted into shares of common stock immediately upon the earlier of (i) the consummation of a firmly underwritten public offering pursuant to the Securities Act of 1933, as amended, the public offering price of which is not less than $50.0 million in aggregate; or (ii) the date specified by the written consent of holders of a majority of the outstanding shares of preferred stock, voting together as a class of shares on an as-converted basis. In addition, the conversion of each of the Series B, Series C, Series D and Series E preferred stock in connection with a Liquidation Event defined below requires the written consent of a majority of such series, if the proceeds payable to each of these series is less than the respective original issuance price.
A Liquidation Event includes (i) a sale, lease or other disposition of all or substantially all of the Company's assets, (ii) a merger or consolidation of the Company into another entity (except where the merger results in the holders of the Company's stock prior to merger continuing to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity), (iii) the transfer of the Company's securities to a person, or a group of affiliated persons, if, after such a transfer, such person or group of persons holds 50% or more of the outstanding voting stock of the Company, (iv) the grant of an exclusive, irrecoverable license to all or substantially all of the Company's intellectual property or (v) a liquidation, dissolution or winding up of the Company.
In the event the Company issues any additional stock, as defined in the Company's Certificate of Incorporation, after the preferred stock original issue date, without consideration or for a consideration per share less than the conversion price applicable to a series of preferred stock in effect immediately prior to such issuance, the conversion price for such series in effect immediately prior to each such issuance shall be adjusted according to a formula set forth in the Company's Certificate of Incorporation.
Voting
The holders of Preferred Stock and the holders of common stock vote together and not as separate classes, except in cases specifically provided for in the Certificate of Incorporation or as provided by law.
The holders of each share of Preferred Stock has the right to one vote for each share of common stock into which such Preferred Stock could be converted, and, with respect to such vote, holders of Preferred Stock have full voting rights and powers equal to the voting rights and powers of the holders of common stock, with the exception of voting for the election of directors referred to below.
As long as a majority of the shares of Series A preferred stock originally issued remain outstanding, the holders of such shares, voting as a separate class, shall be entitled to elect one director. As long as a majority of the shares of Series B preferred stock originally issued remain outstanding, the holders of such shares, voting as a separate class, shall be entitled to elect one director. As long as at least 2,000,000 shares of Series D preferred stock are outstanding, the holders of such shares, voting as a separate class, shall be entitled to elect one director. The holders of common stock, voting as a separate class, shall be entitled to elect two directors. The holders of shares of Preferred Stock and common stock, voting together as a single class on an as-converted basis, shall be entitled to elect the remaining directors of the Company.
Dividends
The holders of convertible preferred stock are entitled to receive, when and if declared by the board of directors, out of any assets legally available therefor, any dividends as may be declared from time to time by the board of directors. No dividend may be declared or paid on the common stock unless any and all such dividends are distributed among all holders of common stock and preferred stock on a pro rata pari passu basis in proportion to the number of shares of common stock that would be held by each such holder if all shares of preferred stock were converted to common stock at the effective conversion rate. The right to receive dividends on shares of preferred stock is non-cumulative. No dividends had been declared or paid by the Company as of December 31, 2015 and through the Company's IPO.
Liquidation Preference
In the event of any Liquidation Event of the Company, the holders of Series A, Series B, Series C, Series D and Series E preferred stock ("senior preferred stock") shall be entitled to receive, in preference to any distribution of the proceeds to the holders of Series T preferred stock or common stock, an amount per share equal to the sum of the applicable original issue price for each series of preferred stock (as adjusted for stock splits and combinations as described in the Certificate of Incorporation), plus declared but unpaid dividends on such share. Upon completion of this distribution, the holders of Series T preferred stock shall be entitled to receive in preference to any distribution of the proceeds to the holders of common stock an amount per share equal to the sum of the applicable original issue price for Series T preferred stock, plus declared but unpaid dividends on such share. If the proceeds thus distributed among the holders of the preferred stock are insufficient to permit payment to such holders of the full preferential amounts, then the entire proceeds available for distribution shall be distributed ratably first among the holders of the senior preferred stock in proportion to the full preferential amount that each holder is otherwise entitled to. The original issue price per share of Series A, Series B, Series C, Series D, Series E and Series T convertible preferred stock is equal to $0.35, $1.05, $2.99, $7.42, $11.31 and $0.01, respectively.
Upon completion of the distribution referred to above, all the remaining proceeds available for distribution shall be distributed to the holders of the Company's common stock pro rata based on the number of common stock held by each.
The Company classified the Preferred Stock within shareholders' equity since the shares are not redeemable, and the holders of the Preferred Stock cannot effect a deemed liquidation of the Company outside of the Company control.
(b) Preferred Stock
As of December 31, 2016, the Company had authorized 100,000,000 shares of undesignated preferred stock, par value $0.001, of which no shares were issued and outstanding.
(c) Common Stock
As of December 31, 2015, there were 17,324,003 shares of common stock issued and outstanding.
Immediately prior to the completion of the IPO, all shares of common stock then outstanding were reclassified to Class B common stock. Shares offered and sold in the IPO were the newly authorized shares of Class A common stock.
As of December 31, 2016, the Company had authorized 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each par value $0.001 per share, of which 49,996,410 shares of Class A common stock and 37,252,138 shares of Class B common stock were issued and outstanding. Holders of Class A and Class B common stock are entitled to one vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights. As of December 31, 2016, the outstanding Class B common stock included 180,000 shares related to the Authy acquisition that were held in escrow.
The Company had reserved shares of common stock for issuance as follows:
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Convertible preferred stock outstanding |
|
|
— |
|
|
54,508,441(1) |
|
|
Stock options issued and outstanding |
|
|
14,649,276 |
|
|
16,883,837 |
|
|
Nonvested restricted stock units issued and outstanding |
|
|
2,034,217 |
|
|
71,000 |
|
|
Common stock reserved for Twilio.org |
|
|
680,397 |
|
|
888,022 |
|
|
Stock-based awards available for grant under 2008 Plan |
|
|
— |
|
|
14,920 |
|
|
Stock-based awards available for grant under 2016 Plan |
|
|
10,143,743 |
|
|
— |
|
|
Common stock reserved for issuance under 2016 ESPP |
|
|
597,038 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,104,671 |
|
|
72,366,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes 687,885 shares of Series T convertible preferred stock related to the Authy acquisition held in escrow as of December 31, 2015.
(d) Stock Repurchases
Following the closing of the Series E convertible preferred stock financing, on August 21, 2015, the Company repurchased an aggregate of 365,916 shares of Series A preferred stock and Series B preferred stock from certain preferred stockholders, and repurchased an aggregate of 1,869,156 shares of common stock from certain current and former employees for $22.8 million in cash, which transaction is referred to as the 2015 Repurchase. The 2015 Repurchase was conducted at a price in excess of the fair value of the Company's common stock at the date of repurchase. No special rights or privileges were conveyed to the employees and former employees. However, not all employees were invited to participate in the 2015 Repurchase. The Company recorded a compensation expense in the amount of $2.0 million for the year ended December 31, 2015, which was the excess of the common stock repurchase price above the fair value of the common stock on the date of repurchase. Of this expense, $0.8 million, $0.1 million and $1.1 million were classified as research and development, sales and marketing and general and administrative expenses, respectively, in the accompanying consolidated statement of operations. The excess of the preferred stock repurchase price above the carrying value of the preferred stock was recorded as a deemed dividend in the year ended December 31, 2015. The Company retired the shares repurchased in the 2015 Repurchase as of August 21, 2015.
(e) Twilio.org
On September 2, 2015, the Company's board of directors approved the establishment of Twilio.org with 888,022 shares of the Company's common stock, which represented 1% of the Company's outstanding capital stock on as-converted basis, reserved to fund Twilio.org's activities. Through Twilio.org, which is a part of the Company and not a separate legal entity, the Company donates and discounts its products to nonprofits, who use the Company’s products to engage their audience, expand their reach and focus on making a meaningful change in the world. On May 13, 2016, the Company's board of directors authorized a reduction of 107,625 shares reserved to offset equity grants to Twilio.org employees. On October 20, 2016, the Company completed its follow-on public offering. Of the net proceeds the Company received in the offering, $3.9 million was reserved to fund and support the operations of Twilio.org and the number of shares of Class A common stock reserved for Twilio.org was reduced by 100,000. In December 2016, Twilio.org donated the full $3.9 million proceeds into an independent Donor Advised Fund to further the philanthropic goals of the Company. This amount was recorded as a charitable contribution in the accompanying consolidated statement of operations. As of December 31, 2016, the total remaining shares reserved for Twilio.org was 680,397.
|
|||
13. Stock-Based Compensation
2008 Stock Option Plan
The Company maintained a stock plan, the 2008 Stock Option Plan, as amended and restated (the "2008 Plan"), which allowed the Company to grant incentive ("ISO"), non-statutory ("NSO") stock options and restricted stock units ("RSU") to its employees, directors and consultants to participate in the Company's future performance through stock-based awards at the discretion of the board of directors. Under the 2008 Plan, options to purchase the Company's common stock could not be granted at a price less than fair value in the case of ISOs and NSOs. Fair value was determined by the board of directors, in good faith, with input from valuation consultants. On June 22, 2016, the plan was terminated in connection with the Company's IPO. Accordingly, no shares are available for future issuance under the 2008 Plan. The 2008 Plan continues to govern outstanding equity awards granted thereunder. The Company's right of first refusal for outstanding equity awards granted under the 2008 Plan terminated upon completion of the IPO. Options granted include provisions for early exercisability.
2016 Stock Option and Incentive Plan
The Company's 2016 Stock Option and Incentive Plan (the "2016 Plan") became effective on June 21, 2016. The 2016 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to employees, directors and consultants of the Company. A total of 11,500,000 shares of the Company's Class A common stock were initially reserved for issuance under the 2016 Plan. These available shares will automatically increase each January 1, beginning on January 1, 2017, by 5% of the number of shares of the Company's Class A and Class B common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company's compensation committee.
Under the 2016 Plan, the stock options are granted at a price per share not less than 100% of the fair market value per share of the underlying common stock on the date of grant. Under both plans, stock options generally expire 10 years from the date of grant and vest over periods determined by the board of directors. The vesting period for options and restricted stock units is generally a four-year term from the date of grant, at a rate of 25% after one year, then monthly or quarterly, respectively, on a straight-line basis thereafter.
2016 Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan ("2016 ESPP") became effective on June 21, 2016. A total of 2,400,000 shares of the Company's Class A common stock were initially reserved for issuance under the 2016 ESPP. These available shares will automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of the common stock, 1% of the number of shares of the Company's Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company's compensation committee.
The 2016 ESPP allows eligible employees to purchase shares of the Company's Class A common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. Except for the initial offering period, the 2016 ESPP provides for separate six-month offering periods beginning in May and November of each fiscal year, starting in May 2017.
On each purchase date, eligible employees will purchase the Company's stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company's Class A common stock on the offering date or (ii) the fair market value of the Company's common stock on the purchase date.
For the year ended December 31, 2016, no shares of common stock were purchased under the 2016 ESPP and 597,038 shares are expected to be purchased at the end of the initial offering period. As of December 31, 2016, total unrecognized compensation cost related to 2016 ESPP was $1.3 million, which will be amortized over a weighted-average period of 0.4 years.
Stock options and restricted stock units activity under the 2008 Plan and 2016 Plan was as follows:
Stock Options
|
|
|
Number of |
|
Weighted- |
|
Weighted- |
|
Aggregate |
|
||||
|
Outstanding options as of December 31, 2015 |
|
|
16,883,837 |
|
$ |
5.31 |
|
|
8.30 |
|
$ |
80,758 |
|
|
Granted |
|
|
1,894,850 |
|
|
10.73 |
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,294,652 |
) |
|
3.97 |
|
|
|
|
|
|
|
|
Forfeited and cancelled |
|
|
(1,834,759 |
) |
|
5.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options as of December 31, 2016 |
|
|
14,649,276 |
|
$ |
6.14 |
|
|
7.52 |
|
$ |
332,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2016 |
|
|
7,075,211 |
|
$ |
4.30 |
|
|
6.48 |
|
$ |
173,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value represents the difference between the Company's estimated fair value of its common stock and the exercise price of outstanding "in-the-money" options. The aggregate intrinsic value of stock options exercised was $54.4 million, $10.1 million and $1.5 million, during the years ended December 31, 2016, 2015 and 2014, respectively.
The total estimated grant date fair value of options vested was $15.3 million, $8.2 million and $3.9 million during the years ended December 31, 2016, 2015 and 2014, respectively. The weighted-average grant-date fair value of options granted was $5.52, $4.30 and $2.88 during the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, total unrecognized compensation cost related to nonvested stock options was $29.2 million, which will be amortized on a ratable basis over a weighted-average period of 2.4 years.
Restricted Stock Units
|
|
|
Number of |
|
Weighted- |
|
Aggregate |
|
|||
|
Nonvested RSUs as of December 31, 2015 |
|
|
71,000 |
|
$ |
9.39 |
|
$ |
716 |
|
|
Granted |
|
|
2,162,890 |
|
|
32.10 |
|
|
|
|
|
Vested |
|
|
(87,523 |
) |
|
19.09 |
|
|
|
|
|
Forfeited and cancelled |
|
|
(112,150 |
) |
|
17.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested RSUs as of December 31, 2016 |
|
|
2,034,217 |
|
$ |
32.66 |
|
$ |
58,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the completion of the Company's IPO, the Company granted RSUs ("Pre-IPO RSUs") under its 2008 Plan to its employees that vested upon the satisfaction of both a time-based service condition and a liquidity condition. The time-based service condition for the majority of these awards will be satisfied over a period of four years. The liquidity condition was satisfied upon occurrence of the Company's IPO in June 2016. RSUs granted on or after the completion of the Company's IPO ("Post-IPO RSUs") are granted under the 2016 Plan and are subject to a time-based vesting condition only. The compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period. The majority of Post-IPO RSUs are earned over a service period of two to four years.
As of December 31, 2016, total unrecognized compensation cost related to nonvested RSUs was $60.5 million, which will be amortized over a weighted-average period of 3.3 years.
Equity Awards Granted to Nonemployees
In September 2016, the Company granted 30,255 restricted stock units to a nonemployee. The award is vested upon the satisfaction of a service condition over two years starting in August 2015 and the stock-based compensation expense recorded for this award during the year ended December 31, 2016, was $0.6 million. In December 2015, the Company granted 30,000 stock options to another nonemployee. These options vest upon the satisfaction of a service condition over a four year period. The stock-based compensation expense recorded for this award in the year ended December 31, 2016, was $0.3 million..
As of December 31, 2016, total unrecognized compensation cost related to nonvested nonemployee awards was $0.8 million, which will be amortized over a weighted average period of 1.7 years.
There were no nonemployee grants in the year ended December 31, 2014.
Early Exercise of Nonvested Options
Under the 2008 Plan, employees have an option to exercise their stock options prior to vesting. The Company has the right to repurchase, at the original issuance price, any unvested (but issued) common shares upon termination of service of an employee, either voluntarily or involuntarily. The consideration received for an early exercise of a stock option is considered to be a deposit of the exercise price and the related amount is recorded as a liability. The liability is reclassified into stockholders' equity as the stock options vest. As of December 31, 2016 and 2015, the Company recorded a liability of $0.3 million and $0.2 million for 49,580 and 52,407 unvested shares, respectively, that were early exercised by employees and were subject to repurchase at the respective period end. These amounts are reflected in current and non-current liabilities on the Company's consolidated balance sheets.
Valuation Assumptions
The fair value of employee stock options was estimated on the date of grant using the following assumptions in the Black-Scholes option pricing model:
|
|
|
Year Ended December 31, |
||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
Employee Stock Options |
|
|
|
|
|
|
|
Fair value of common stock |
|
$10.09 - $15.00 |
|
$7.07 - $10.09 |
|
$3.99 - $6.69 |
|
Expected term (in years) |
|
6.08 |
|
6.08 |
|
5.27 - 6.57 |
|
Expected volatility |
|
51.4% - 53.0% |
|
47.8% - 54.9% |
|
54.4% |
|
Risk-free interest rate |
|
1.3% - 1.5% |
|
1.4% - 2.0% |
|
1.7% - 2.0% |
|
Dividend rate |
|
0% |
|
0% |
|
0% |
|
Employee Stock Purchase Plan |
|
|
|
|
|
|
|
Expected term (in years) |
|
0.90 |
|
— |
|
— |
|
Expected volatility |
|
52% |
|
— |
|
— |
|
Risk-free interest rate |
|
0.6% |
|
— |
|
— |
|
Dividend rate |
|
0% |
|
— |
|
— |
Stock-Based Compensation Expense
The Company recorded the total stock-based compensation expense as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Cost of revenue |
|
$ |
291 |
|
$ |
65 |
|
$ |
39 |
|
|
Research and development |
|
|
12,946 |
|
|
4,046 |
|
|
1,577 |
|
|
Sales and marketing |
|
|
4,972 |
|
|
2,389 |
|
|
1,335 |
|
|
General and administrative |
|
|
6,016 |
|
|
2,377 |
|
|
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,225 |
|
$ |
8,877 |
|
$ |
3,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
15. Income Taxes
The following table presents domestic and foreign components of loss before income taxes for the periods presented (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
United States |
|
$ |
(14,002 |
) |
$ |
(23,962 |
) |
$ |
(26,837 |
) |
|
International |
|
|
(26,996 |
) |
|
(11,420 |
) |
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
$ |
(40,998 |
) |
$ |
(35,382 |
) |
$ |
(26,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes consists of the following (in thousands):
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
State |
|
|
83 |
|
|
45 |
|
|
— |
|
|
Foreign |
|
|
214 |
|
|
213 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
297 |
|
|
258 |
|
|
13 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2 |
|
|
(109 |
) |
|
— |
|
|
State |
|
|
— |
|
|
— |
|
|
— |
|
|
Foreign |
|
|
27 |
|
|
(27 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
29 |
|
|
(136 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
326 |
|
$ |
122 |
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the acquisition of Authy in February 2015, the Company recorded a tax benefit of $0.1 million in the year ended December 31, 2015. This tax benefit is a result of a partial release of the Company's existing valuation allowance immediately prior to the acquisition since the acquired deferred tax liabilities from Authy will provide a source of income for the Company to realize a portion of its deferred tax assets, for which a valuation allowance is no longer needed.
The following table presents a reconciliation of the statutory federal tax rate and the Company's effective tax rate for the years ended December 31, 2016, 2015 and 2014:
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Tax benefit at federal statutory rate |
|
|
34 |
% |
|
34 |
% |
|
34 |
% |
|
State tax, net of federal benefit |
|
|
11 |
|
|
(3 |
) |
|
7 |
|
|
Stock-based compensation |
|
|
23 |
|
|
(8 |
) |
|
(4 |
) |
|
Credits |
|
|
2 |
|
|
4 |
|
|
2 |
|
|
Foreign rate differential |
|
|
(23 |
) |
|
(11 |
) |
|
— |
|
|
Reserve for uncertain tax positions |
|
|
(12 |
) |
|
— |
|
|
— |
|
|
Change in valuation allowance |
|
|
(34 |
) |
|
(14 |
) |
|
(39 |
) |
|
Other |
|
|
(2 |
) |
|
(2 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(1 |
)% |
|
— |
% |
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company's deferred tax assets and liabilities (in thousands):
|
|
|
As of December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
31,090 |
|
$ |
27,401 |
|
$ |
24,402 |
|
|
Accrued and prepaid expenses |
|
|
16,698 |
|
|
7,603 |
|
|
5,573 |
|
|
Stock-based compensation |
|
|
5,368 |
|
|
1,433 |
|
|
423 |
|
|
Research and development credits |
|
|
7,807 |
|
|
6,022 |
|
|
3,918 |
|
|
Charitable contributions |
|
|
1,458 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
62,421 |
|
|
42,459 |
|
|
34,316 |
|
|
Valuation allowance |
|
|
(49,601 |
) |
|
(35,613 |
) |
|
(30,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
12,820 |
|
|
6,846 |
|
|
3,757 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Capitalized software |
|
|
(7,086 |
) |
|
(4,084 |
) |
|
(2,019 |
) |
|
Prepaid expenses |
|
|
(452 |
) |
|
(2,035 |
) |
|
(1,607 |
) |
|
Acquired intangibles |
|
|
(152 |
) |
|
(460 |
) |
|
— |
|
|
Property and equipment |
|
|
(4,931 |
) |
|
(240 |
) |
|
(131 |
) |
|
Other |
|
|
(201 |
) |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
|
(2 |
) |
$ |
27 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter 2016, the Company early adopted ASU 2016-09 "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share -Based Payment Accounting." The primary tax impact of the adoption was the recognition of excess tax benefits in the provision for income taxes rather than additional paid-in capital. The new guidance eliminates the requirement to delay the recognition of excess tax benefits until it reduces current taxes payable. As a result, the Company reclassified $62,000 in excess tax benefits, offset by valuation allowance, from additional paid-in-capital to income tax expense. Additionally, the recognition of previously unrecognized excess tax benefits was adopted on a modified retrospective basis. The unrecognized excess tax benefits of $2.0 million as of January 1, 2016 had no impact on the Company's accumulated deficit balance as the Company carried a full valuation allowance on the related deferred tax assets. The new guidance also requires companies to record, subsequent to the adoption, excess tax benefits and tax deficiencies in the period they arise. There was no impact on the Company's tax provision due to the full valuation allowance. In addition, cash flows related to excess tax benefits will no longer be classified as a financing activity apart from other income tax cash flows. The Company adopted this change in presentation of excess tax benefits as an operating activity on the statements of cash flows on a prospective basis.
As of December 31, 2016, the Company had approximately $104.0 million in federal net operating loss carryforwards and $6.4 million in federal tax credits. If not utilized, the federal net operating loss and tax credit carryforwards will expire at various dates beginning in 2029.
As of December 31, 2016, the Company had approximately $88.7 million in state net operating loss carryforwards and $5.4 million in state tax credits. If not utilized, the state net operating loss carryforwards will expire at various dates beginning in 2027. The California state tax credits can be carried forward indefinitely.
A limitation may apply to the use of the net operating loss and credit carryforwards, under provisions of the Internal Revenue Code of 1986, as amended, and similar state tax provisions that are applicable if the Company experiences an "ownership change." An ownership change may occur, for example, as a result of issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation, resulting in a potential reduction in the gross deferred tax assets before considering the valuation allowance.
The Company's accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company's deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the net deferred tax assets will be realized, accordingly, a full valuation allowance has been established. The valuation allowance increased by approximately $14.0 million and $5.1 million during the years ended December 31, 2016 and 2015, respectively.
The Company attributes net revenue, costs and expenses to domestic and foreign components based on the terms of its agreements with its subsidiaries. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. As of December 31, 2016, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $1.1 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Unrecognized tax benefit, beginning of year |
|
$ |
1,679 |
|
$ |
1,024 |
|
$ |
592 |
|
|
Gross increases for tax positions of prior years |
|
|
1,996 |
|
|
— |
|
|
— |
|
|
Gross increases for tax positions of current years |
|
|
8,600 |
|
|
655 |
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit, end of year |
|
$ |
12,275 |
|
$ |
1,679 |
|
$ |
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Company had approximately $12.3 million of unrecognized tax benefits. If the $12.3 million is recognized, $0.1 million would affect the effective tax rate. The remaining amount would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance.
The Company had not incurred any material tax interest or penalties with respect to income taxes in the years ended December 31, 2016, 2015 and 2014.
The Company does not anticipate any significant changes within 12 months of December 31, 2016, in its uncertain tax positions that would be material to the consolidated financial statements taken as a whole because nearly all of the unrecognized tax benefit has been offset by a deferred tax asset, which has been reduced by a valuation allowance.
The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. As of December 31, 2016, the tax years 2008 through the current period remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. The Company is not currently subject to U.S. federal, state and local, or non-U.S. income tax examinations by any tax authorities.
|
|||
16. Employee Benefit Plan
The Company sponsors a 401(k) defined contribution plan covering all employees. There were no employer contributions to the plan in the years ended December 31, 2015 and 2014. The employer contribution to the plan in the year ended December 31, 2016 was $1.1 million.
|
|||
17. Transactions With Investors
In 2015, two of the Company's vendors participated in the Company's Series E convertible preferred stock financing and owned approximately 2.0% and 1.0%, respectively, of the Company's capital stock, on as-if converted basis, as of December 31, 2016 and 2.5% and 1.2%, respectively, of the Company's outstanding capital stock as of December 31, 2015. During the years ended December 31, 2016, 2015 and 2014, the amounts of software services the Company purchased from the first vendor were $14.5 million, $11.1 million and $8.0 million, respectively. The amounts due to this vendor that were accrued as of December 31, 2016 and 2015 were insignificant. In October 2016, the Company entered into a three-year agreement with this vendor to purchase services for an aggregate purchase commitment amount of $57.7 million over the course of the three-year contractual period. The amount of services the Company purchased from the second vendor was $0.5 million for each of the years ended December 31, 2016, 2015 and 2014. The amounts due to this vendor that were accrued as of December 31, 2016 and 2015 were insignificant.
|
|||
(a) Basis of Presentation
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").
(b) Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make 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 period. These estimates are used for, but not limited to, revenue allowances and returns; valuation of the Company's stock-based awards; recoverability of long-lived and intangible assets; the capitalization and useful life of the Company's capitalized internal-use software; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
(d) Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company maintains cash, cash equivalents and restricted cash with financial institutions that management believes are financially sound and have minimal credit risk exposure.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any one of the large customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company's estimates. During the years ended December 31, 2016, one customer organization represented approximately 14% of the Company's total revenue. During the years ended December 31, 2015 and 2014, a different customer organization represented approximately 17% and 13%, respectively, of the Company's total revenue.
As of December 31, 2016, one customer organization represented approximately 16% of the Company's gross accounts receivable. As of December 31, 2015, two customer organizations represented approximately 11% each of the Company's gross accounts receivable.
(e) Revenue Recognition
The Company derives its revenue primarily from usage-based fees earned from customers accessing the Company's enterprise cloud computing services invoiced or paid monthly. The Company also earns subscription fees from certain term-based contracts. The Company provides services to its customers under pay-as-you-go contracts and term-based contracts ranging in duration from one month to 48 months. Customers that pay via credit card are either billed in advance or as they use service. Larger customers are billed in arrears via invoices for services used. Certain customers have contracts that provide for a minimum monthly commitment and some customers have contracts that provide for a commitment that may be of a quarterly, annual or other specific durations.
The Company recognizes revenue from these transactions when all of the following criteria are satisfied:
•there is persuasive evidence of an arrangement;
•the service has been or is being provided to the customer;
•the amount of the fees to be paid by the customer is fixed or determinable; and
•collectability of the fees is reasonably assured.
Term-based contracts revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that the service is made available to the customer, provided that all other revenue recognition criteria have been met. Usage-based fees are recognized as delivered.
The Company's arrangements do not contain general rights of return. However, credits may be issued to customers on a case-by-case basis. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met.
The reserve for sales credits was $0.5 million and $0.7 million as of December 31, 2016 and 2015, respectively, and is included in accounts receivable, net in the accompanying consolidated balance sheets. The reserve for sales credits is calculated based on historical trends and any specific risks identified in processing transactions. Changes in the reserve are recorded against revenue.
(f) Cost of Revenue
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes fees to support the Company's cloud infrastructure, personnel costs, such as salaries and stock-based compensation for the customer care and support services employees, and non-personnel costs, such as amortization of capitalized internal-use software development costs.
(g) Research and Development Expenses
Research and development expenses consist primarily of personnel costs, cloud infrastructure fees for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs and an allocation of general overhead expenses. The Company capitalizes the portion of its software development costs that meets the criteria for capitalization.
(h) Internal-Use Software Development Costs
Certain costs of platform and other software applications developed for internal use are capitalized. The Company capitalizes qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expenses costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred.
Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over three years. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in research and development expenses.
(i) Advertising Costs
Advertising costs are expensed as incurred and were $3.5 million, $2.9 million and $1.0 million in the years ended December 31, 2016, 2015 and 2014, respectively. Advertising costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.
(j) Stock-Based Compensation
All stock-based compensation to employees, including the purchase rights issued under the Company's 2016 Employee Stock Purchase Plan (the "ESPP"), is measured on the grant date based on the fair value of the awards on the date of grant. This cost is recognized as an expense following the ratable attribution method, over the requisite service period, for stock options, and the straight-line attribution method, over the offering period, for the purchase rights issued under the ESPP. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the ESPP. The fair value of the restricted stock units is determined using the fair value of the Company's Class A common stock on the date of grant. Prior to adoption of ASU 2016-09, the stock-based compensation was recorded net of estimated forfeitures.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share -Based Payment Accounting." This new guidance was intended to simplify several areas of accounting for stock-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company early adopted this guidance in the quarter ended December 31, 2016. The new guidance allows entities to account for forfeitures as they occur. The Company elected to account for forfeitures as they occur and adopted this provision on a modified retrospective basis. The $0.1 million of cumulative prior years' impact as well as the impact on the first three quarters of 2016 of $75,000 was recognized as an increase to stock-based compensation during the quarter ended December 31, 2016, as the impact on prior periods was insignificant. Adoption of all other changes in the new guidance did not have a significant impact on the Company's consolidated financial statements. See Note 15 for additional detail on the impact from the tax-related provisions of this ASU.
Prior to the IPO, the fair value of the Company's common stock was determined by the estimated fair value of the Company's common stock at the time of grant. After the IPO, the Company uses the market closing price of its Class A common stock as reported on the New York Stock Exchange for the fair value.
Compensation expense for stock options granted to nonemployees is calculated using the Black-Scholes option pricing model and is recognized in expense over the service period. Compensation expense for nonemployee stock options subject to vesting is revalued at each reporting date until the stock options are vested.
The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. These assumptions include:
•Fair value of the common stock. Prior to the Company's IPO, the board of directors considered numerous objective and subjective factors to determine the fair value of the Company's common stock at each meeting at which awards are approved. The factors included, but were not limited to: (i) contemporaneous valuations of the Company's common stock by an unrelated third party; (ii) the prices at which the Company sold shares of its convertible preferred stock to outside investors in arms-length transactions; (iii) the rights, preferences and privileges of the Company's convertible preferred stock relative to those of its common stock; (iv) the Company's results of operations, financial position and capital resources; (v) current business conditions and projections; (vi) the lack of marketability of the Company's common stock; (vii) the hiring of key personnel and the experience of management; (viii) the introduction of new products; (ix) the risk inherent in the development and expansion of the Company's products; (x) the Company's stage of development and material risks related to its business; (xi) the fact that the option grants involve illiquid securities in a private company; and (xii) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, in light of prevailing market conditions;
•Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term;
•Expected volatility. The expected volatility is derived from an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company, such as the size and operational and economic similarities to the Company's principal business operations;
•Risk -free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal the expected term of the stock-based awards; and
•Expected dividend. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
If any of the assumptions used in the Black-Scholes model changes, stock-based compensation for future options may differ materially compared to that associated with previous grants.
(k) Income Taxes
The Company accounts for income taxes in accordance with authoritative guidance which requires the use of the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carry-forwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.
(l) Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.
(m) Comprehensive Loss
During the years ended December 31, 2016, 2015 and 2014, the Company did not have any other comprehensive income or loss, and therefore, the net loss and comprehensive loss was the same for all periods presented.
(n) Net Loss Per Share Attributable to Common Stockholders
The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. All series of convertible preferred stock are considered to be participating securities as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pro rata pari passu basis in the event that a dividend is declared or paid on common stock. Shares of common stock issued upon early exercise of stock options that are subject to repurchase are also considered to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is declared or paid on common stock. Under the two-class method, in periods when the Company has net income, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period convertible preferred stock non-cumulative dividends, between common stock and the convertible preferred stock. In computing diluted net income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. For purposes of this calculation, convertible preferred stock, options to purchase common stock, unvested restricted stock units, common stock issued subject to future vesting, any shares of stock committed under the ESPP, any shares of stock held in escrow and any shares of stock reserved for future donations are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
Since the Company's IPO, Class A and Class B common stock are the only outstanding equity of the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a one-for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible.
(o) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of funds deposited into money market funds. All credit and debit card transactions that process as of the last day of each month and settle within the first few days of the subsequent month are also classified as cash and cash equivalents as of the end of the month in which they were processed.
(p) Restricted Cash
Restricted cash consists of cash deposited into a savings account with a financial institution as collateral for the Company's obligations under its facility leases of premises located in San Francisco, California. The facility lease for the Company's old office space expired in January 2017, as amended, and the facility lease for the Company's new office space expires in October 2024.
(q) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts and the reserve for sales credits. The allowance for doubtful accounts is estimated based on the Company's assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer's ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer's ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued. The allowance for doubtful accounts was $1.1 million and $0.5 million as of December 31, 2016 and 2015, respectively.
(r) Costs Related to the Public Offerings
Costs related to the public offerings, which consist of direct incremental legal, printing and accounting fees, are deferred until the offering is completed. Upon completion of the offering, these costs are offset against the offering proceeds within the consolidated statements of stockholders' equity. As of December 31, 2016, the Company recorded in its consolidated statement of stockholders' equity $5.7 million in total offering costs, of which $4.9 million and $0.8 million related to the IPO and the FPO, respectively.
As of December 31, 2015, the Company had $2.0 million of deferred offering costs that were recorded as prepaid expenses and other current assets in the accompanying consolidated balance sheet.
(s) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.
The useful lives of property and equipment are as follows:
|
Capitalized software development costs |
|
3 years |
|
Office equipment |
|
3 years |
|
Furniture and fixtures |
|
5 years |
|
Software |
|
3 years |
|
Leasehold improvements |
|
Shorter of 5 years or remaining lease term |
(t) Intangible Assets
Intangible assets recorded by the Company are costs directly associated with securing legal registration of patents and trademarks, acquiring domain names and the fair value of identifiable intangible assets acquired in business combinations.
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment at least annually.
The useful lives of the intangible assets are as follows:
|
Developed technology |
|
3 years |
|
Customer relationship |
|
5 years |
|
Trade names |
|
2 years |
|
Patents |
|
20 years |
|
Trademarks |
|
Indefinite |
|
Domain names |
|
Indefinite |
(u) Goodwill
Goodwill represents excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that it operates as one reporting unit and has selected November 30 as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business. If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if a two-step impairment test is necessary. Management may choose to proceed directly to the two-step evaluation, bypassing the initial qualitative assessment. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. The impairment loss would be calculated by comparing the implied fair value of the goodwill to its net book value. In calculating the implied fair value of goodwill, the fair value of the entity would be allocated to all of the other assets and liabilities based on their fair values. The excess of the fair value of the entity over the amount assigned to other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. No goodwill impairment charges have been recorded for any period presented.
(v) Impairment of Long-Lived Assets
The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. There was no impairment during the years ended December 31, 2016, 2015 and 2014. The value of the internally-developed software written-off due to abandonment was $0.7 million, $0.1 million and none in the years ended December 31, 2016, 2015 and 2014, respectively.
(w) Deferred Revenue
Deferred revenue consists of cash deposits from customers to be applied against future usage and customer billings in advance of revenues being recognized from the Company's contracts. Deferred revenue is generally expected to be recognized during the succeeding 12-month period and is thus recorded as a current liability.
(x) Business Combinations
The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statement of operations.
(y) Segment Information
The Company's Chief Executive Officer is the chief operating decision maker, who reviews the Company's financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
(z) Fair Value of Financial Instruments
The Company records certain of its financial assets at fair value on a recurring basis. The Company's financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature. However, it consists of cash in a savings account, hence its carrying amount approximates its fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
•Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
•Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
(aa) Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. Management does not expect the adoption of this guidance to have any impact on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) Clarifying the Definition of a Business", which amends the guidance of FASB Accounting Standards Codification Topic 805, "Business Combinations", adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted under certain circumstances. The Company will evaluate the impact of this guidance on its financial statements and related disclosures next time there is a potential business combination.
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash", which requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers Other Than Inventory", which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments", which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. This guidance is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." The standard will affect all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. For leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. While the Company expects the adoption of this standard to result in an increase to its reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers". This new guidance will replace most existing U.S. GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred, by one year, the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, this guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted beginning January 1, 2017. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing", clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12 "Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients", which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard's contract criteria. Finally, ASU 2016-20 makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The effective date and transition requirements for ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently evaluating the impact that these ASUs will have on its consolidated financial statements and related disclosures and expects to complete this evaluation in the first quarter of 2017. The Company anticipates disclosing its selected transition method in conjunction with the filing of its quarterly report on Form 10-Q for the quarter ending March 31, 2017.
|
|||
|
Capitalized software development costs |
|
3 years |
|
Office equipment |
|
3 years |
|
Furniture and fixtures |
|
5 years |
|
Software |
|
3 years |
|
Leasehold improvements |
|
Shorter of 5 years or remaining lease term |
|
Developed technology |
|
3 years |
|
Customer relationship |
|
5 years |
|
Trade names |
|
2 years |
|
Patents |
|
20 years |
|
Trademarks |
|
Indefinite |
|
Domain names |
|
Indefinite |
|
|||
The following table provides the assets measured at fair value on a recurring basis as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
As of December 31, 2016 |
|
|||||||||||
|
|
|
Total Carrying |
|
|||||||||||||
|
|
|
Level I |
|
Level 2 |
|
Level 3 |
|
Total |
|
|||||||
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
274,135 |
|
$ |
274,135 |
|
$ |
— |
|
$ |
— |
|
$ |
274,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
274,135 |
|
$ |
274,135 |
|
$ |
— |
|
$ |
— |
|
$ |
274,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
As of December 31, 2015 |
|
|||||||||||
|
|
|
Total Carrying |
|
|||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|||||||
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
80,886 |
|
$ |
80,886 |
|
$ |
— |
|
$ |
— |
|
$ |
80,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
80,886 |
|
$ |
80,886 |
|
$ |
— |
|
$ |
— |
|
$ |
80,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Property and equipment consisted of the following (in thousands):
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Capitalized software development costs |
|
$ |
28,661 |
|
$ |
16,030 |
|
|
Leasehold improvements |
|
|
14,063 |
|
|
568 |
|
|
Office equipment |
|
|
5,729 |
|
|
2,662 |
|
|
Furniture and fixtures |
|
|
1,576 |
|
|
393 |
|
|
Software |
|
|
968 |
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
50,997 |
|
|
20,408 |
|
|
Less: accumulated depreciation and amortization |
|
|
(13,445 |
) |
|
(6,350 |
) |
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
37,552 |
|
$ |
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense was allocated as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Cost of revenue |
|
$ |
3,304 |
|
$ |
1,793 |
|
$ |
783 |
|
|
Research and development |
|
|
2,182 |
|
|
1,045 |
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,486 |
|
$ |
2,838 |
|
$ |
1,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet on the acquisition date (in thousands):
|
|
|
Total |
|
|
|
Net tangible assets(3) |
|
$ |
1,217 |
|
|
Goodwill(1)(3) |
|
|
3,113 |
|
|
Intangible assets(2) |
|
|
1,760 |
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
6,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company acquired a net deferred tax liability of $0.1 million in this business combination. |
|
|||
|
(1) |
Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed. The goodwill in this transaction is primarily attributable to the future cash flows to be realized from the acquired technology platform, existing customer base and the future development initiatives of the assembled workforce. None of the goodwill is deductible for tax purposes. |
|
(2) |
Identifiable finite-lived intangible assets were comprised of the following: |
|
|
|
Total |
|
Estimated |
|
||
|
Developed technology |
|
$ |
1,300 |
|
|
3 |
|
|
Customer relationships |
|
|
400 |
|
|
5 |
|
|
Trade name |
|
|
60 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
$ |
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
As part of net tangible assets, the Company acquired $66,000 in accounts receivable subject to dispute resolution with a customer. The matter was resolved later in 2015 and $52,000 was deemed uncollectible immediately prior to the date of acquisition. The Company's adjustment of its initial purchase price allocation resulted in an increase to goodwill and decrease to net tangible assets of $52,000. After the adjustment, the purchase price allocation related to this acquisition became final. Goodwill balance as of December 31, 2015 was as follows: |
|
|
|
Total |
|
|
|
Balance as of December 31, 2014 |
|
$ |
— |
|
|
Goodwill recorded in connection with Authy acquisition |
|
|
3,113 |
|
|
Subsequent adjustment to purchase price allocation |
|
|
52 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
3,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Estimated |
|
||
|
Developed technology |
|
$ |
1,300 |
|
|
3 |
|
|
Customer relationships |
|
|
400 |
|
|
5 |
|
|
Trade name |
|
|
60 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
$ |
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Balance as of December 31, 2014 |
|
$ |
— |
|
|
Goodwill recorded in connection with Authy acquisition |
|
|
3,113 |
|
|
Subsequent adjustment to purchase price allocation |
|
|
52 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
3,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet on the acquisition date (in thousands):
|
|
|
Total |
|
|
|
Intangible assets(1) |
|
$ |
8,100 |
|
|
Goodwill(2) |
|
|
400 |
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The intangible assets consist of developed technology with the estimated useful life of 3 years on the date of acquisition.
(2)The goodwill in this transaction is primarily attributable to the future cash flows to be realized from the acquired technology and the future development initiatives of the acquired workforce. The goodwill is deductible for tax purposes.
|
|||
|
Balance as of December 31, 2014 |
|
$ |
— |
|
|
Goodwill recorded in connection with Authy acquisition |
|
|
3,165 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
|
3,165 |
|
|
Goodwill recorded in connection with Kurento acquisition |
|
|
400 |
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 |
|
$ |
3,565 |
|
Intangible assets consisted of the following (in thousands):
|
|
|
As of December 31, 2016 |
|
|||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
$ |
9,400 |
|
$ |
(1,140 |
) |
$ |
8,260 |
|
|
Customer relationships |
|
|
400 |
|
|
(148 |
) |
|
252 |
|
|
Trade name |
|
|
60 |
|
|
(56 |
) |
|
4 |
|
|
Patent |
|
|
1,512 |
|
|
(55 |
) |
|
1,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets |
|
|
11,372 |
|
|
(1,399 |
) |
|
9,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Domain names |
|
|
32 |
|
|
— |
|
|
32 |
|
|
Trademarks |
|
|
263 |
|
|
— |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,667 |
|
$ |
(1,399 |
) |
$ |
10,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 |
|
|||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
Developed technology |
|
$ |
1,300 |
|
$ |
(370 |
) |
$ |
930 |
|
|
Customer relationships |
|
|
400 |
|
|
(68 |
) |
|
332 |
|
|
Trade name |
|
|
60 |
|
|
(26 |
) |
|
34 |
|
|
Patent |
|
|
1,021 |
|
|
(25 |
) |
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,781 |
|
$ |
(489 |
) |
$ |
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated future amortization expense was as follows (in thousands):
|
|
|
As of |
|
|
|
2017 |
|
$ |
3,263 |
|
|
2018 |
|
|
2,890 |
|
|
2019 |
|
|
2,488 |
|
|
2020 |
|
|
58 |
|
|
2021 |
|
|
46 |
|
|
Thereafter |
|
|
1,228 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
|
As of |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Accrued payroll and related |
|
$ |
7,497 |
|
$ |
972 |
|
|
Accrued bonus and commission |
|
|
2,251 |
|
|
1,832 |
|
|
Accrued cost of revenue |
|
|
8,741 |
|
|
6,496 |
|
|
Sales and other taxes payable |
|
|
28,795 |
|
|
17,634 |
|
|
Deferred rent |
|
|
1,250 |
|
|
206 |
|
|
Accrued other expense |
|
|
10,774 |
|
|
4,858 |
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
59,308 |
|
$ |
31,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities consisted of the following (in thousands):
|
|
|
As of |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Deferred rent |
|
$ |
9,387 |
|
$ |
364 |
|
|
Accrued other expense |
|
|
156 |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
$ |
9,543 |
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
A roll-forward of the Company's reserves for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):
Allowance for doubtful accounts:
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Balance, beginning of period |
|
$ |
486 |
|
$ |
210 |
|
$ |
98 |
|
|
Additions |
|
|
1,145 |
|
|
705 |
|
|
261 |
|
|
Write-offs |
|
|
(555 |
) |
|
(429 |
) |
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
1,076 |
|
$ |
486 |
|
$ |
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A roll-forward of the Company's reserves for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):
Sales credit reserve:
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Balance, beginning of period |
|
$ |
714 |
|
$ |
312 |
|
$ |
30 |
|
|
Additions |
|
|
1,348 |
|
|
1,210 |
|
|
683 |
|
|
Deductions against reserve |
|
|
(1,518 |
) |
|
(808 |
) |
|
(401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
544 |
|
$ |
714 |
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue by geographic area is based on the IP address at the time of registration. The following table sets forth revenue by geographic area (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Revenue by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
233,922 |
|
$ |
143,145 |
|
$ |
78,251 |
|
|
International |
|
|
43,413 |
|
|
23,774 |
|
|
10,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
277,335 |
|
$ |
166,919 |
|
$ |
88,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
84 |
% |
|
86 |
% |
|
88 |
% |
|
International |
|
|
16 |
% |
|
14 |
% |
|
12 |
% |
|
|||
Future minimum lease payments under non-cancelable operating leases were as follows (in thousands):
|
Year Ending December 31:(1) |
|
As of |
|
|
|
2017 |
|
$ |
7,534 |
|
|
2018 |
|
|
6,979 |
|
|
2019 |
|
|
7,165 |
|
|
2020 |
|
|
7,037 |
|
|
2021 |
|
|
7,033 |
|
|
Thereafter |
|
|
16,052 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
51,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The future minimum lease payments related to the 375 Beale Street lease do not include the tenant improvement allowance available under the lease.
Future minimum payments under other existing noncancellable purchase obligations were as follows (in thousands)
|
Year Ending December 31: |
|
As of |
|
|
|
2017 |
|
$ |
19,034 |
|
|
2018 |
|
|
19,373 |
|
|
2019 |
|
|
23,498 |
|
|
2020 |
|
|
68 |
|
|
2021 |
|
|
23 |
|
|
|
|
|
|
|
|
Total payments |
|
$ |
61,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2015, the Company had outstanding Series A, B, C, D, E and T convertible preferred stock (individually referred to as "Series A, B, C, D, E or T" or collectively "Preferred Stock") as follows (in thousands, except share data).
|
|
|
As of December 31, 2015 |
|
||||||||||
|
|
|
Shares |
|
Shares Issued and |
|
Aggregate |
|
Proceeds, Net |
|
||||
|
Series A |
|
|
13,173,240 |
|
|
13,076,491 |
|
$ |
4,590 |
|
$ |
4,592 |
|
|
Series B |
|
|
11,416,062 |
|
|
11,146,895 |
|
|
11,717 |
|
|
11,658 |
|
|
Series C |
|
|
8,452,864 |
|
|
8,452,864 |
|
|
25,250 |
|
|
25,196 |
|
|
Series D |
|
|
9,440,324 |
|
|
9,440,324 |
|
|
70,000 |
|
|
69,930 |
|
|
Series E |
|
|
11,494,249 |
|
|
11,494,249 |
|
|
130,000 |
|
|
125,448 |
|
|
Series T |
|
|
5,000,000 |
|
|
897,618 |
(1) |
|
9 |
|
|
— |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
58,976,739 |
|
|
54,508,441 |
|
$ |
241,566 |
|
$ |
236,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The outstanding shares include 687,885 shares held in escrow as of December 31, 2015 related to the Authy acquisition. Of these shares, 507,885 shares were subject to graded vesting over a period of three years, as amended, and had a fair value of $4.0 million. A total of 127,054 shares were subject to certain performance conditions and were returned to the issuer in the third quarter 2016 due to the non-fulfillment of certain conditions of the merger agreement. All remaining unvested shares vested in the fourth quarter of 2016.
(2)389,733 shares were issued as part of the purchase price for Authy acquisition and had a fair value of $3.1 million on the acquisition closing date.
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
Convertible preferred stock outstanding |
|
|
— |
|
|
54,508,441(1) |
|
|
Stock options issued and outstanding |
|
|
14,649,276 |
|
|
16,883,837 |
|
|
Nonvested restricted stock units issued and outstanding |
|
|
2,034,217 |
|
|
71,000 |
|
|
Common stock reserved for Twilio.org |
|
|
680,397 |
|
|
888,022 |
|
|
Stock-based awards available for grant under 2008 Plan |
|
|
— |
|
|
14,920 |
|
|
Stock-based awards available for grant under 2016 Plan |
|
|
10,143,743 |
|
|
— |
|
|
Common stock reserved for issuance under 2016 ESPP |
|
|
597,038 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,104,671 |
|
|
72,366,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes 687,885 shares of Series T convertible preferred stock related to the Authy acquisition held in escrow as of December 31, 2015.
|
|||
|
|
|
Number of |
|
Weighted- |
|
Weighted- |
|
Aggregate |
|
||||
|
Outstanding options as of December 31, 2015 |
|
|
16,883,837 |
|
$ |
5.31 |
|
|
8.30 |
|
$ |
80,758 |
|
|
Granted |
|
|
1,894,850 |
|
|
10.73 |
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,294,652 |
) |
|
3.97 |
|
|
|
|
|
|
|
|
Forfeited and cancelled |
|
|
(1,834,759 |
) |
|
5.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options as of December 31, 2016 |
|
|
14,649,276 |
|
$ |
6.14 |
|
|
7.52 |
|
$ |
332,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2016 |
|
|
7,075,211 |
|
$ |
4.30 |
|
|
6.48 |
|
$ |
173,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted- |
|
Aggregate |
|
|||
|
Nonvested RSUs as of December 31, 2015 |
|
|
71,000 |
|
$ |
9.39 |
|
$ |
716 |
|
|
Granted |
|
|
2,162,890 |
|
|
32.10 |
|
|
|
|
|
Vested |
|
|
(87,523 |
) |
|
19.09 |
|
|
|
|
|
Forfeited and cancelled |
|
|
(112,150 |
) |
|
17.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested RSUs as of December 31, 2016 |
|
|
2,034,217 |
|
$ |
32.66 |
|
$ |
58,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
Employee Stock Options |
|
|
|
|
|
|
|
Fair value of common stock |
|
$10.09 - $15.00 |
|
$7.07 - $10.09 |
|
$3.99 - $6.69 |
|
Expected term (in years) |
|
6.08 |
|
6.08 |
|
5.27 - 6.57 |
|
Expected volatility |
|
51.4% - 53.0% |
|
47.8% - 54.9% |
|
54.4% |
|
Risk-free interest rate |
|
1.3% - 1.5% |
|
1.4% - 2.0% |
|
1.7% - 2.0% |
|
Dividend rate |
|
0% |
|
0% |
|
0% |
|
Employee Stock Purchase Plan |
|
|
|
|
|
|
|
Expected term (in years) |
|
0.90 |
|
— |
|
— |
|
Expected volatility |
|
52% |
|
— |
|
— |
|
Risk-free interest rate |
|
0.6% |
|
— |
|
— |
|
Dividend rate |
|
0% |
|
— |
|
— |
The Company recorded the total stock-based compensation expense as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Cost of revenue |
|
$ |
291 |
|
$ |
65 |
|
$ |
39 |
|
|
Research and development |
|
|
12,946 |
|
|
4,046 |
|
|
1,577 |
|
|
Sales and marketing |
|
|
4,972 |
|
|
2,389 |
|
|
1,335 |
|
|
General and administrative |
|
|
6,016 |
|
|
2,377 |
|
|
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,225 |
|
$ |
8,877 |
|
$ |
3,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The following table presents domestic and foreign components of loss before income taxes for the periods presented (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
United States |
|
$ |
(14,002 |
) |
$ |
(23,962 |
) |
$ |
(26,837 |
) |
|
International |
|
|
(26,996 |
) |
|
(11,420 |
) |
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
$ |
(40,998 |
) |
$ |
(35,382 |
) |
$ |
(26,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes consists of the following (in thousands):
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
State |
|
|
83 |
|
|
45 |
|
|
— |
|
|
Foreign |
|
|
214 |
|
|
213 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
297 |
|
|
258 |
|
|
13 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2 |
|
|
(109 |
) |
|
— |
|
|
State |
|
|
— |
|
|
— |
|
|
— |
|
|
Foreign |
|
|
27 |
|
|
(27 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
29 |
|
|
(136 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
326 |
|
$ |
122 |
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Tax benefit at federal statutory rate |
|
|
34 |
% |
|
34 |
% |
|
34 |
% |
|
State tax, net of federal benefit |
|
|
11 |
|
|
(3 |
) |
|
7 |
|
|
Stock-based compensation |
|
|
23 |
|
|
(8 |
) |
|
(4 |
) |
|
Credits |
|
|
2 |
|
|
4 |
|
|
2 |
|
|
Foreign rate differential |
|
|
(23 |
) |
|
(11 |
) |
|
— |
|
|
Reserve for uncertain tax positions |
|
|
(12 |
) |
|
— |
|
|
— |
|
|
Change in valuation allowance |
|
|
(34 |
) |
|
(14 |
) |
|
(39 |
) |
|
Other |
|
|
(2 |
) |
|
(2 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(1 |
)% |
|
— |
% |
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the significant components of the Company's deferred tax assets and liabilities (in thousands):
|
|
|
As of December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
31,090 |
|
$ |
27,401 |
|
$ |
24,402 |
|
|
Accrued and prepaid expenses |
|
|
16,698 |
|
|
7,603 |
|
|
5,573 |
|
|
Stock-based compensation |
|
|
5,368 |
|
|
1,433 |
|
|
423 |
|
|
Research and development credits |
|
|
7,807 |
|
|
6,022 |
|
|
3,918 |
|
|
Charitable contributions |
|
|
1,458 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
62,421 |
|
|
42,459 |
|
|
34,316 |
|
|
Valuation allowance |
|
|
(49,601 |
) |
|
(35,613 |
) |
|
(30,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
12,820 |
|
|
6,846 |
|
|
3,757 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Capitalized software |
|
|
(7,086 |
) |
|
(4,084 |
) |
|
(2,019 |
) |
|
Prepaid expenses |
|
|
(452 |
) |
|
(2,035 |
) |
|
(1,607 |
) |
|
Acquired intangibles |
|
|
(152 |
) |
|
(460 |
) |
|
— |
|
|
Property and equipment |
|
|
(4,931 |
) |
|
(240 |
) |
|
(131 |
) |
|
Other |
|
|
(201 |
) |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
|
(2 |
) |
$ |
27 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
Year Ended |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
Unrecognized tax benefit, beginning of year |
|
$ |
1,679 |
|
$ |
1,024 |
|
$ |
592 |
|
|
Gross increases for tax positions of prior years |
|
|
1,996 |
|
|
— |
|
|
— |
|
|
Gross increases for tax positions of current years |
|
|
8,600 |
|
|
655 |
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit, end of year |
|
$ |
12,275 |
|
$ |
1,679 |
|
$ |
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||
|
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||||||
|
|||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||
|
||||||||||||||||||||
|
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|
|
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|
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|
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|
||||||||||||||||||||||
|
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|
||||||||||||||||||||||
|
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|
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|
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|
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|
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|
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|
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|||||||||||||||||||
|
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|
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|
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|
|
|
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|
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|
|
|
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|
|
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|
|
|
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|
|
|
|
|
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|
|
|||||||||||||||||||
|
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||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||||
|
|
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|
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