TWILIO INC, 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 01, 2019
Jun. 29, 2018
Entity Registrant Name TWILIO INC    
Entity Central Index Key 0001447669    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 4.4
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Common Class A      
Entity Common Stock, Shares Outstanding   104,277,870  
Common Class B      
Entity Common Stock, Shares Outstanding   19,303,259  
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 487,215 $ 115,286
Short-term marketable securities 261,128 175,587
Accounts receivable, net 97,712 43,113
Prepaid expenses and other current assets 26,893 19,279
Total current assets 872,948 353,265
Restricted cash 18,119 5,502
Property and equipment, net 63,534 50,541
Intangible assets, net 27,558 20,064
Goodwill 38,165 17,851
Other long-term assets 8,386 2,559
Total assets 1,028,710 449,782
Current liabilities:    
Accounts payable 18,495 11,116
Accrued expenses and other current liabilities 99,758 53,614
Deferred revenue and customer deposits 19,557 13,797
Total current liabilities 137,810 78,527
Convertible senior notes, net 434,496  
Other long-term liabilities 18,169 11,409
Total liabilities 590,475 89,936
Commitments and contingencies (Note 11)
Stockholders' equity:    
Common stock, $0.001 par value per share: Authorized shares 1,100,000,000 as of December 31, 2018 and 2017; Issued and outstanding shares 100,080,228 and 93,969,796 as of December 31, 2018 and 2017 100 94
Additional paid-in capital 808,527 608,165
Accumulated other comprehensive income 1,282 2,025
Accumulated deficit (371,674) (250,438)
Total stockholders' equity 438,235 359,846
Total liabilities and stockholders' equity $ 1,028,710 $ 449,782
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Preferred Stock    
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, authorized (in shares) 100,000,000 100,000,000
Preferred stock, issued (in shares) 0 0
Common Stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized (in shares) 1,100,000,000 1,100,000,000
Common stock, issued (in shares) 100,080,228 93,969,796
Common stock, outstanding (in shares) 100,080,228 93,969,796
v3.10.0.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Operations      
Revenue $ 650,067 $ 399,020 $ 277,335
Cost of revenue 300,841 182,895 120,520
Gross profit 349,226 216,125 156,815
Operating expenses:      
Research and development 171,358 120,739 77,926
Sales and marketing 175,555 100,669 65,267
General and administrative 110,427 59,619 51,077
Charitable contribution 7,121 1,172 3,860
Total operating expenses 464,461 282,199 198,130
Loss from operations (115,235) (66,074) (41,315)
Other (expenses) income, net (5,923) 3,071 317
Loss before provision for income taxes (121,158) (63,003) (40,998)
Provision for income taxes (791) (705) (326)
Net loss attributable to common stockholders $ (121,949) $ (63,708) $ (41,324)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share) $ (1.26) $ (0.70) $ (0.78)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares) 97,130,339 91,224,607 53,116,675
v3.10.0.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Comprehensive Loss      
Net loss $ (121,949) $ (63,708) $ (41,324)
Other comprehensive (loss) income:      
Unrealized gain (loss) on marketable securities 258 (598)  
Foreign currency translation (1,001) 2,623  
Total other comprehensive (loss) income (743) 2,025  
Comprehensive loss attributable to common stockholders $ (122,692) $ (61,683) $ (41,324)
v3.10.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
IPO
Common Stock
Common Class A
IPO
Additional Paid-in Capital
IPO
Follow-on Public Offering
Common Stock
Common Class A
Follow-on Public Offering
Additional Paid-in Capital
Follow-on Public Offering
Preferred Stock
Convertible preferred stock
Common Stock
Common Class A
Common Stock
Common Class B
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Total
Beginning balance at Dec. 31, 2015             $ 239,911   $ 17 $ 22,103   $ (145,406) $ 116,625
Beginning balance (in shares) at Dec. 31, 2015             54,508,441   17,324,003        
Increase (Decrease) in Stockholders' Equity                          
Net loss                       (41,324) (41,324)
Issuance of stock $ 12 $ 160,414 $ 160,426 $ 2 $ 65,279 $ 65,281              
Issuance of stock (in shares) 11,500,000     1,691,222                  
Costs related to public offerings                   (5,730)     (5,730)
Conversion of convertible preferred stock to common stock in connection with initial public offering             $ (239,911)   $ 54 239,857      
Conversion of convertible preferred stock to common stock in connection with initial public offering (in shares)             (54,508,441)   54,508,441        
Exercise of vested stock options                 $ 2 8,390     8,392
Exercise of vested stock options (in shares)                 2,168,287        
Vesting of early exercised stock options                   636     636
Vesting of restricted stock units (in shares)               19,178 68,345        
Value of equity awards withheld for tax liability                   (1,037)     (1,037)
Value of equity awards withheld for tax liability (in shares)               (1,578) (27,036)        
Exercises of unvested stock options (in shares)                 126,365        
Conversion of shares of Class B common stock into shares of Class A common stock               $ 37 $ (37)        
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)               36,787,588 (36,787,588)        
Repurchase of unvested stock options (in shares)                 (1,625)        
Stock-based compensation                   26,178     26,178
Escrow shares returned to the issuer (in shares)                 (127,054)        
Ending balance at Dec. 31, 2016               $ 51 $ 36 516,090   (186,730) 329,447
Ending balance (in shares) at Dec. 31, 2016               49,996,410 37,252,138        
Increase (Decrease) in Stockholders' Equity                          
Net loss                       (63,708) (63,708)
Exercise of vested stock options                 $ 6 25,591     25,597
Exercise of vested stock options (in shares)                 5,186,539        
Vesting of early exercised stock options                   378     378
Vesting of restricted stock units (in shares)               360,116 351,255        
Value of equity awards withheld for tax liability                   (678)     (678)
Value of equity awards withheld for tax liability (in shares)                 (22,538)        
Exercises of unvested stock options (in shares)                 22,510        
Conversion of shares of Class B common stock into shares of Class A common stock               $ 18 $ (18)        
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)               18,710,499 (18,710,499)        
Shares issued under ESPP               $ 1   11,917     11,918
Shares issued under ESPP (in shares)               794,142          
Donated common stock                   1,172     1,172
Donated common stock (in shares)               45,383          
Repurchase of unvested stock options                   (100)     (100)
Repurchase of unvested stock options (in shares)                 (16,159)        
Unrealized gain (loss) on marketable securities                     $ (598)   (598)
Foreign currency translation                     2,623   2,623
Stock-based compensation                   53,795     53,795
Ending balance at Dec. 31, 2017               $ 70 $ 24 608,165 2,025 (250,438) 359,846
Ending balance (in shares) at Dec. 31, 2017               69,906,550 24,063,246        
Increase (Decrease) in Stockholders' Equity                          
Net loss                       (121,949) (121,949)
Adjustment to opening retained earnings due to adoption of ASC 606 | ASU 2014-09 - Revenue from Contracts with Customers                       713 713
Exercise of vested stock options                 $ 4 29,732     29,736
Exercise of vested stock options (in shares)                 3,625,991        
Vesting of early exercised stock options                   36     36
Vesting of restricted stock units               $ 2         2
Vesting of restricted stock units (in shares)               1,970,565 172,211        
Value of equity awards withheld for tax liability                   (2,654)     (2,654)
Value of equity awards withheld for tax liability (in shares)               (25,932) (22,044)        
Exercises of unvested stock options (in shares)                 2,041        
Conversion of shares of Class B common stock into shares of Class A common stock               $ 8 $ (8)        
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)               8,530,980 (8,530,980)        
Shares issued under ESPP                   10,122     10,122
Shares issued under ESPP (in shares)               325,262          
Issuance of debt conversion option                   119,435     119,435
Debt conversion option issuance costs                   (2,819)     (2,819)
Capped call option issuance costs                   (58,465)     (58,465)
Donated common stock                   5,996     5,996
Donated common stock (in shares)               62,338          
Unrealized gain (loss) on marketable securities                     258   258
Foreign currency translation                     (1,001)   (1,001)
Stock-based compensation                   98,979     98,979
Ending balance at Dec. 31, 2018               $ 80 $ 20 $ 808,527 $ 1,282 $ (371,674) $ 438,235
Ending balance (in shares) at Dec. 31, 2018               80,769,763 19,310,465        
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $ (121,949) $ (63,708) $ (41,324)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization 26,095 18,764 8,315
Net amortization of investment premium or discount (1,496) 262  
Amortization of debt issuance costs 1,102    
Accretion of debt discount on convertible senior notes 12,951    
Amortization of deferred commissions 1,349    
Stock-based compensation 93,273 49,619 24,225
Value of donated common stock 5,996 1,172  
Provision for doubtful accounts 3,650 580 1,145
Write-off of internally developed software and intangible assets 1,874 561 711
(Gain) loss on lease termination and asset disposals (45) (295) 94
Changes in operating assets and liabilities:      
Accounts receivable (58,234) (15,280) (8,254)
Prepaid expenses and other current assets (8,739) 2,214 (13,755)
Other long-term assets (5,305) (1,984) (129)
Accounts payable 6,980 5,433 1,714
Accrued expenses and other current liabilities 45,120 (3,312) 24,182
Deferred revenue and customer deposits 5,958 3,560 4,076
Other long-term liabilities (597) (841) 9,097
Net cash provided by (used in) operating activities 7,983 (3,255) 10,097
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of marketable securities (279,687) (293,186)  
Maturities of marketable securities 195,497 115,877  
Capitalized software development costs (19,546) (17,280) (11,527)
Purchases of property and equipment (4,668) (9,248) (14,174)
Purchases of intangible assets (441) (290) (785)
Acquisitions, net of cash acquired (30,574) (22,621) (8,500)
Net cash used in investing activities (139,419) (226,748) (34,986)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from Initial Public Offering, net of underwriting discounts     160,426
Proceeds from Follow-On Public Offering, net of underwriting discounts     65,281
Payments of costs related to public offerings   (430) (4,606)
Proceeds from issuance of convertible senior notes 550,000    
Payments of debt issuance costs (12,941)    
Purchase of capped call (58,465)    
Proceeds from exercises of stock options 29,757 25,727 9,102
Proceeds from shares issued in ESPP 10,122 11,918  
Value of equity awards withheld for tax liabilities (2,654) (678) (1,037)
Repurchases of common stock   (100) (2)
Net cash provided by financing activities 515,819 36,437 229,164
Effect of exchange rate changes on cash and cash equivalents 163 74  
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 384,546 (193,492) 204,275
CASH, CASH EQUIVALENTS AND RESTRICTED CASH-Beginning of year 120,788 314,280 110,005
CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of year 505,334 120,788 314,280
Cash paid for income taxes 564 605 225
NON-CASH INVESTING AND FINANCING ACTIVITIES:      
Purchases of property and equipment and intangible assets, accrued but not paid 1,418 235 4,201
Purchases of property, equipment through capital lease 2,478    
Stock-based compensation capitalized in software development costs 5,706 4,176 1,953
Business combination measurement period adjustments 571 $ 149  
Acquisition holdback $ 2,290    
Costs related to public offerings, accrued but not paid     $ 430
v3.10.0.1
Organization and Description of Business
12 Months Ended
Dec. 31, 2018
Organization and Description of Business  
Organization and Description of Business

1. Organization and Description of Business

Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leader in the Cloud Communications Platform category and enables developers to build, scale and operate real-time communications within their software applications via simple-to-use Application Programming Interfaces (“API”). The power, flexibility, and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.

The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in the United States, the United Kingdom, Estonia, Ireland, Colombia, Germany, Hong Kong, Singapore, Bermuda, Spain, Sweden, Australia, Czech Republic, Japan and the Netherlands.

v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

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, recoverability of long‑lived and intangible assets; capitalization and useful life of the Company’s capitalized internal‑use software development costs; 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, marketable securities, restricted cash and accounts receivable. The Company maintains cash, cash equivalents, restricted cash and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.

The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant 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, 2018 and 2017, there was no customer organization that accounted for more than 10% of the Company’s total revenue. During the year ended December 31, 2016, one customer organization represented approximately 14% of the Company’s total revenue.

As of December 31, 2018 and 2017, there was no customer organization that represented more than 10% of the Company’s gross accounts receivable.

(e)Revenue Recognition

Adoption of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”, which replaced the existing revenue recognition guidance, ASC 605, and outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP. Among other things, ASC 606 requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenue, which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services.

The Company adopted ASC 606 using the modified retrospective method with a cumulative catch-up adjustment to the opening retained earnings as of January 1, 2018. Results for reporting periods beginning after December 31, 2017 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting policies prior to adoption. In adopting the standard, the Company elected to apply the new guidance only to those contracts which were not completed as of the date of the adoption.

The impact of adopting the new standard on the Company’s consolidated financial statements was insignificant. The Company recorded a net cumulative catch-up adjustment to the beginning retained earnings as of January 1, 2018, of $0.7 million.

The primary impact relates to the deferral of incremental commission costs of obtaining new contracts. Under ASC 605, the Company deferred only direct and incremental commission costs to obtain a contract and amortized those costs on a straight-line basis over the term of the related subscription contract. Under the new standard, the Company defers all incremental commission costs to obtain the contract and amortizes these costs on a straight-line basis over the expected term of benefit of the underlying asset, which was determined to be five years.

The impact on the Company’s revenue recognition policies was insignificant. Prior to the adoption of ASC 606, the Company recognized the majority of its revenue according to the usage by its customers in the period in which that usage occurred. ASC 606 continues to support the recognition of revenue over time, and on a usage basis, for the majority of the Company’s contracts due to continuous transfer of control to the customer.

There was not a significant tax impact to the Company’s consolidated statements of operations and consolidated balance sheet relating to the adoption of the new standard as there is a full valuation allowance due to the Company’s history of continued losses.

Revenue Recognition Policy

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.

The Company determines revenue recognition through the following steps:

·

Identification of the contract, or contracts, with a customer;

·

Identification of the performance obligations in the contract;

·

Determination of the transaction price;

·

Allocation of the transaction price to the performance obligations in the contract; and

·

Recognition of revenue when, or as, the Company satisfies a performance obligation.

Nature of Products and Services

The Company’s revenue is primarily derived from usage-based fees earned from customers accessing the Company’s enterprise cloud computing services. Platform access is considered a monthly series comprising of one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. In the years ended December 31, 2018, 2017 and 2016, the revenue from usage-based fees represented 84%,  83% and 83% of total revenue, respectively.

Subscription-based fees are derived from certain term-based contracts, such as with the sales of short codes and customer support. Term-based contracts revenue is recognized on a ratable basis over the contractual term of the arrangement beginning on the date that the service is made available to the customer. In the years ended December 31, 2018 and 2017, the revenue from term-based fees represented 16% and 17% of total revenue, respectively.

The Company applied the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its usage-based contracts and contracts with original duration of one year or less. The majority of the Company’s contracts have a duration of one year or less.

No significant judgments are required in determining whether products and services are considered distinct performance obligations and should be accounted for separately versus together, or to determine the stand-alone selling price (“SSP”).

The Company’s arrangements do not contain general rights of return. However, credits may be issued 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 is included in accounts receivable and is calculated based on historical trends and any specific risks identified in processing transactions. Changes in the reserve are recorded against revenue.

Deferred Revenue and Customer Deposits

Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancellable contracts. Customer refundable prepayments are recorded as customer deposits. As of December 31, 2018, the Company recorded $10.3 million and $9.3 million as its deferred revenue and customer deposits, respectively. In the year ended December 31, 2018, the Company recognized $10.5 million of revenue, that was included in the deferred revenue and customer deposits balance as of January 1, 2018.

Deferred Sales Commissions

The Company records an asset for the incremental costs of obtaining a contract with a customer, for example, sales commissions that are earned upon execution of contracts. The Company uses the portfolio of data method to determine the estimated period of benefit of capitalized commissions which is determined to be five years. Amortization expense related to these capitalized costs related to initial contracts, upsells and renewals, is recognized on a straight line basis over the estimated period of benefit of the capitalized commissions. Total net capitalized costs as of December 31, 2018 were $9.4 million and are included in prepaid expenses and other current and long-term assets in the accompanying consolidated balance sheet. Amortization of these assets was $1.4 million in the year ended December 31, 2018, and is included in sales and marketing expense in the accompanying consolidated statement of operations.

(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 and amortization of acquired intangibles.

(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 also 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 operating expenses.

(i)Advertising Costs

Advertising costs are expensed as incurred and were $10.6 million, $4.9 million and $3.5 million in the years ended December 31, 2018, 2017 and 2016, 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 straight-line attribution method over the requisite service period. 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 and recognized as an expense following straight-line attribution method over the requisite service period. Prior to adoption of ASU 2016-09, the stock-based compensation was recorded net of estimated forfeitures.

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns the measurement and classification for share-based payments to non-employees with the accounting guidance for share-based payments to employees. Among other requirements, the measurement of non-employee awards will now be fixed at the grant date, rather than remeasured at every reporting date. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early application permitted. The Company early-adopted this guidance in the quarter ended December 31, 2018 which did not have a material impact to its financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting”, ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 allows companies to make certain changes to awards, such as vesting conditions, without accounting for them as modifications. It does not change the accounting for modifications. ASU 2017-09 should be applied prospectively to awards modified on or after the adoption date. The Company adopted ASU 2017-09 in the first quarter of 2018. The adoption of this guidance did not have an impact on the Company’s financial position, results of operations or cash flows.

In March 2016, FASB issued 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.

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. 

The Black-Scholes option pricing model requires the use of 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;

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.

·

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 to 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 generally 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.

For those entities where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity. Monetary assets and liabilities denominated in a foreign currency are translated into US dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

(m)Comprehensive Income (Loss)

Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders' equity but are excluded from the calculation of net income (loss).

For the year ended December 31, 2016, the Company's operations did not give rise to any material items includable in comprehensive income (loss), which were not already in net income (loss). Accordingly, for that period, the Company's comprehensive income (loss) is the same as its net income (loss).

(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 in 2016, 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 and reverse repurchase agreements. 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 and the facility leases for the Company’s current offices expire at various dates between October 2024 and June 2028.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230)—Restricted Cash”. This standard provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017. The Company adopted ASU 2016-18 in the first quarter of 2018 and applied the guidance retrospectively to the prior period’s consolidated statement of cash flows with the following impact (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

Year Ended

 

 

December 31, 2017

 

December 31, 2016

 

    

As Originally

    

 

    

As Originally

    

 

 

 

Reported

 

As Adjusted

 

Reported

 

As Adjusted

Cash provided by (used in) operating activities

 

$

(3,260)

 

$

(3,255)

 

$

10,091

 

$

10,097

Cash used in investing activities

 

$

(223,630)

 

$

(226,748)

 

$

(42,425)

 

 

(34,986)

Cash, cash equivalents and restricted cash — beginning of period

 

 

305,665

 

 

314,280

 

 

108,835

 

 

110,005

Cash, cash equivalents and restricted cash — end of period

 

$

115,286

 

$

120,788

 

$

305,665

 

$

314,280

 

Other than the revised statement of cash flows presentation of restricted cash, the adoption of ASU 2016-18 did not have an impact on the Company’s financial position and results of operations.

The restricted cash balances as of December 31, 2018 and December 31, 2017 were $18.1 million and $5.5 million, respectively.

(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 $4.9 million and $1.0 million as of December 31, 2018 and 2017, 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. In the year ended December 31, 2016, the Company recorded in its consolidated statement of stockholders’ equity $5.7 million in total offering costs.

(s)Property and Equipment

Property and equipment, both owned and under capital lease, 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

Assets under capital lease

 

5 years or remaining lease term

Leasehold improvements

 

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 - 4 years

Customer relationships

 

2 - 8 years

Supplier relationships

 

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, 2018, 2017 and 2016. The Company wrote off $1.7 million, $0.6 million and $0.7 million of internally developed software in the years ended December 31, 2018, 2017 and 2016, respectively, due to abandonment.

(w)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.

(x)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.

(y)Fair Value of Financial Instruments

The Company applies fair value accounting for all financial instruments 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 and consists of cash in a savings account, hence its carrying amount approximates its fair value. Marketable securities consist of U.S. treasury securities, high credit quality corporate debt securities and reverse repurchase agreements. All marketable securities are considered to be available-for-sale and recorded at their estimated fair values. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of the convertible senior notes due 2023 (the “Notes”) is determined based on the closing price for the Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.

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.

(z)Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments under ASU 2018-13 remove, add and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB ASC areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

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 prospectively for interim and annual reporting periods beginning after December 15, 2019. The Company will adopt this guidance upon its effective date. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 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. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. These ASUs are 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.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which was further clarified by ASU 2018-10, “Codification Improvements to Topic 842, Leases”, and ASU 2018-11, “Leases - Targeted Improvements”, both issued in July 2018. ASU 2016-02 affects 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. ASU 2018-10 clarifies or corrects unintended application of guidance related to ASU 2016-02. The amendment affects narrow aspects of ASU 2016-02 related to the implicit rate in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-11 adds a transition option for all entities and a practical expedient only for lessors. The transition option allows entities to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. Under the transition option, entities can opt to continue to apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative periods presented in the year they adopt the new leases standard. Entities that elect this transition option will still be required to adopt the new leases standard using the modified retrospective transition method required by the standard, but they will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The practical expedient provides lessors with an option to not separate the non-lease components from the associated lease components when certain criteria are met and requires them to account for the combined component in accordance with the revenue recognition standard in ASC 606 if the associated non-lease components are the predominant components. The new standards are 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 these standards to result in a material  increase to the 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.

 

v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Measurements  
Fair Value Measurements

3. Fair Value Measurements

The following tables provide the assets measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized 

 

 

 

 

Unrealized

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or 

 

Gross

 

Losses

 

Losses More

 

Fair Value Hierarchy as of 

 

 

 

 

 

Carrying

 

Unrealized

 

Less Than

 

Than

 

December 31, 2018

 

Aggregate 

 

    

Value

    

Gains

    

12 Months

    

12 Months

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Financial Assets:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

420,234

 

$

 —

 

$

 —

 

$

 —

 

$

420,234

 

$

 —

 

$

 —

 

$

420,234

Reverse repurchase agreements

 

 

35,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

35,000

 

 

 —

 

 

35,000

Commercial paper

 

 

9,983

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,983

 

 

 —

 

 

9,983

Total included in cash and cash equivalents

 

 

465,217

 

 

 —

 

 

 —

 

 

 —

 

 

420,234

 

 

44,983

 

 

 —

 

 

465,217

Marketable securities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

 

59,785

 

 

 —

 

 

(7)

 

 

(9)

 

 

59,769

 

 

 —

 

 

 —

 

 

59,769

Corporate debt securities and commercial paper

 

 

201,683

 

 

23

 

 

(123)

 

 

(224)

 

 

 —

 

 

201,359

 

 

 —

 

 

201,359

Total marketable securities

 

 

261,468

 

 

23

 

 

(130)

 

 

(233)

 

 

59,769

 

 

201,359

 

 

 —

 

 

261,128

Total financial assets

 

$

726,685

 

$

23

 

$

(130)

 

$

(233)

 

$

480,003

 

$

246,342

 

$

 —

 

$

726,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized 

 

 

 

 

Unrealized

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or 

 

Gross

 

Losses

 

Losses More

 

Fair Value Hierarchy as of 

 

 

 

 

 

Carrying

 

Unrealized

 

Less Than

 

Than

 

December 31, 2017

 

Aggregate 

 

    

Value

    

Gains

    

12 Months

    

12 Months

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Financial Assets:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

95,432

 

$

 —

 

$

 —

 

$

 —

 

$

95,432

 

$

 —

 

$

 —

 

$

95,432

Total included in cash and cash equivalents

 

 

95,432

 

 

 —

 

 

 —

 

 

 —

 

 

95,432

 

 

 —

 

 

 —

 

 

95,432

Marketable securities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

 

59,962

 

 

 —

 

 

(216)

 

 

 —

 

 

59,746

 

 

 —

 

 

 —

 

 

59,746

Corporate debt securities and commercial paper

 

 

116,223

 

 

 —

 

 

(382)

 

 

 —

 

 

 —

 

 

115,841

 

 

 —

 

 

115,841

Total marketable securities

 

 

176,185

 

 

 —

 

 

(598)

 

 

 —

 

 

59,746

 

 

115,841

 

 

 —

 

 

175,587

Total financial assets

 

$

271,617

 

$

 —

 

$

(598)

 

$

 —

 

$

155,178

 

$

115,841

 

$

 —

 

$

271,019

 

As of December 31, 2018, the fair value of the 0.25% convertible senior notes due 2023 (the “Notes”), as further described in Note 8 below, was approximately $743.4 million.

As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term. As of December 31, 2018, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of December 31, 2018, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the years ended December 31, 2018 and 2017. Interest earned on marketable securities was $3.0 million and $2.6 million in the years ended December 31, 2018 and 2017, respectively. The interest is recorded as other income (expense), net, in the accompanying consolidated statements of operations.

The following table summarizes the contractual maturities of marketable securities as of December 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

As of December 31, 2017

 

 

Amortized

 

Aggregate Fair

 

Amortized

 

Aggregate Fair

 

    

Cost

    

Value

    

Cost

    

Value

Financial Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Less than one year

 

$

261,468

 

$

261,128

 

$

108,584

 

$

108,360

One to two years

 

 

 —

 

 

 —

 

 

67,601

 

 

67,227

Total

 

$

261,468

 

$

261,128

 

$

176,185

 

$

175,587

 

The Company enters into reverse securities repurchase agreements, primarily for short-term investments with maturities of 90 days or less. As of December 31, 2018, the Company was party to reverse repurchase agreements totaling $35.0 million, which were reported in cash and equivalents in the accompanying consolidated balance sheet. Under these reverse securities repurchase agreements, the Company typically lends available cash at a specified rate of interest and holds U.S. government securities as collateral during the term of the agreement. Collateral value is in excess of the amounts loaned under these agreements.

v3.10.0.1
Property and Equipment
12 Months Ended
Dec. 31, 2018
Property and Equipment  
Property and Equipment

4. Property and Equipment

Property and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

As of December 31, 

 

    

2018

    

2017

Capitalized internal-use software development costs

 

$

72,647

 

$

49,177

Leasehold improvements

 

 

15,293

 

 

14,246

Office equipment

 

 

13,563

 

 

9,652

Furniture and fixtures

 

 

2,440

 

 

1,976

Assets under capital lease (1)

 

 

2,478

 

 

 —

Software

 

 

1,849

 

 

1,675

Total property and equipment

 

 

108,270

 

 

76,726

Less: accumulated depreciation and amortization

 

 

(44,736)

 

 

(26,185)

Total property and equipment, net

 

$

63,534

 

$

50,541


(1)Assets under capital lease relate to a sub-lease agreement that commenced in the fourth quarter of 2018, as further described in Note 11(a), and consist primarily of furniture that will be acquired at a bargain purchase option at the end of the lease term.

Depreciation and amortization expense was $18.9 million, $13.1 million and $7.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company capitalized $25.3 million, $21.5 million and $13.5 million in internal-use software development costs in the years ended December 31, 2018, 2017 and 2016, respectively, of which $5.7 million, $4.2 million and $2.0 million, respectively, was stock‑based compensation expense. Amortization of capitalized software development costs was $13.0 million, $8.4 million and $5.5 million in the years ended December 31, 2018, 2017 and 2016, respectively. The amortization expense was allocated as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

    

2018

    

2017

    

2016

Cost of revenue

 

$

6,898

 

$

4,788

 

$

3,304

Research and development

 

 

5,437

 

 

3,619

 

 

2,182

General and administrative

 

 

689

 

 

 —

 

 

 —

Total

 

$

13,024

 

$

8,407

 

$

5,486

 

v3.10.0.1
Business Combinations
12 Months Ended
Dec. 31, 2018
Business Combinations  
Business Combinations

5. Business Combinations

Fiscal 2018 Acquisitions

VAI Technologies, LLC

In November 2018, the Company acquired certain assets from VAI Technologies, LLC, a Delaware corporation and a developer of a natural language processing platform. The purchase price consisted of $1.2 million in cash, of which $0.3 was withheld by the Company for a period from 18 months to 4 years and can be extended under certain circumstances.

The acquisition was accounted for as a 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 estimated fair value of the intangible assets acquired was determined by the Company.

The following table presents the final purchase price allocation recorded in the Company’s consolidated balance sheet (in thousands):

 

 

 

 

 

    

Total

Intangible assets(1)

 

$

517

Goodwill(2)

 

 

683

Total purchase price

 

$

1,200


(1)

The intangible assets consist of developed technology with the estimated useful life of 4 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 Company intends to file elections that make the goodwill deductible for U.S. 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.

Ytica.com a.s.

In September 2018, the Company acquired all outstanding shares of Ytica.com a.s. (“Ytica”), a developer and provider of a contact center reporting and analytics based in the Czech Republic, for a total purchase price of $21.8 million, paid in cash, of which $3.2 million was held in escrow with a term of 18 months.

Additionally, the Company granted 47,574 restricted stock units of the Company’s Class A common stock to a former shareholder of Ytica that had a value of $3.6 million and is subject to vesting over a period of three years. The Company is recording stock-based compensation expense as the shares are vesting.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The acquired entity’s results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the preliminary purchase price allocation recorded in the Company’s consolidated balance sheet as of December 31, 2018 (in thousands):

 

 

 

 

 

    

Total

Net tangible assets

 

$

(1,538)

Intangible assets (1)

 

 

9,920

Goodwill(2)

 

 

13,375

Total purchase price

 

$

21,757


(1)

Identifiable finite-lived intangible assets were comprised of the following (in thousands):

 

 

 

 

 

 

 

    

 

 

    

Estimated

 

 

 

 

 

life

 

 

Total  

 

(in years)  

Developed technology

 

$

9,090

 

 4

Customer relationships

 

 

830

 

 2

Total intangible assets acquired

 

$

9,920

 

  


(2)

The goodwill is primarily attributable to the future cash flows to be realized from the acquired technology platform as well as operational synergies. The Company intends to file elections that make the goodwill deductible for U.S. tax purposes.

The Company acquired a net deferred tax liability of $1.7 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet.

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 estimate the fair values of the identifiable intangible assets.

The Company incurred costs related to this acquisition of $0.6 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operation.

Pro forma results of operations for this acquisition are not presented as the financial impact to the Company’s consolidated financial statements is immaterial.

Core Network Dynamics GmbH

In August 2018, the Company acquired all outstanding shares of Core Network Dynamics GmbH (“CND”), a developer and provider of a complete software mobile network infrastructure based in Germany, for a total purchase price of $11.1 million, paid in cash, of which $2.0 million was withheld by the Company for a term of 18 months and is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

Additionally, the Company granted 35,950 restricted stock units of the Company’s Class A common stock to a former shareholder of CND that had a value of $2.2 million and is subject to vesting over a period of three years. The Company is recording a stock-based compensation expense as the shares are vesting.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The acquired entity’s results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the preliminary purchase price allocation recorded in the Company’s consolidated balance sheet as of December 31, 2018 (in thousands):

 

 

 

 

 

    

Total

Net tangible assets

 

$

(313)

Intangible assets(1)

 

 

4,500

Goodwill(2)

 

 

6,869

Total purchase price

 

$

11,056


(1)

Identifiable finite-lived intangible assets were comprised of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

life

 

    

Total

    

(in years)

Developed technology

 

$

3,910

 

4

Customer relationships

 

 

590

 

0.5

Total intangible assets acquired

 

$

4,500

 

 


(2)

The goodwill is primarily attributable to the future cash flows to be realized from the operating synergies between the acquired technology platform and the Company’s Programmable Wireless products. The Company intends to file elections that make the goodwill deductible for U.S. tax purposes.

The Company acquired a net deferred tax liability of $1.2 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet.

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 a replacement cost approach to estimate the fair values of the identifiable intangible assets.

The Company incurred costs related to this acquisition of $0.8 million that were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statement of operation.

Pro forma results of operations for this acquisition are not presented as the financial impact to the Company’s consolidated financial statements is immaterial.

Fiscal 2017 Acquisitions

Beepsend, AB

In February 2017, the Company completed its acquisition of Beepsend AB, a messaging provider based in Sweden, specializing in messaging and SMS solutions, for a total purchase price of $23.0 million, paid in cash, of which $5.0 million was held in escrow with a term of 18 months and was fully released at the escrow expiration date.

Additionally, the Company deposited $2.0 million into a separate escrow account that was subject to certain service conditions and was  released to certain employees on the first and second anniversaries of the closing date as  the conditions were met. This amount was recorded as prepaid compensation in the accompanying consolidated balance sheet and was amortized into expense as the services were rendered.

The acquisition was accounted for as a business combination and, accordingly, the total purchase price was allocated to the preliminary net tangible and intangible assets and liabilities based on their preliminary fair values on the acquisition date. The prepaid compensation subject to service 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 acquired entity’s results of operations were included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the purchase price allocation, as adjusted, recorded in the Company’s consolidated balance sheet (in thousands):

 

 

 

 

 

    

Total

Net tangible liabilities

 

$

(3,575)

Intangible assets(1)

 

 

13,700

Goodwill(2)

 

 

12,837

Total purchase price

 

$

22,962


(1)

Identifiable finite-lived intangible assets were comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

life

 

    

Total

    

(in years)

Developed technology

 

$

5,000