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1. Organization and Nature of Operations
Our Company
Alteryx, Inc. was initially organized in California in March 1997 as SRC, LLC, commenced principal operations in November 1997, changed its name to Alteryx, LLC in March 2010, and converted into a Delaware corporation in March 2011 under the name Alteryx, Inc. Alteryx, Inc. and its subsidiaries, or we, our, or us, are headquartered in Irvine, California.
We are a provider of self-service data analytics software. Our software platform enables organizations to improve business outcomes and the productivity of their business analysts. Our subscription-based platform allows organizations to easily prepare, blend, and analyze data from a multitude of sources and benefit from data-driven decisions. The ease-of-use, speed, and sophistication that our platform provides is enhanced through intuitive and highly repeatable visual workflows.
Initial Public Offering and Follow-on Public Offering
In March 2017, we completed an initial public offering, or IPO, of our Class A common stock. In connection with the IPO, we sold 10.4 million shares of Class A common stock, which included the exercise in full of the underwriters’ option to purchase an additional 1.4 million shares in April 2017, at $14.00 per share for aggregate net proceeds of $131.4 million after underwriting discounts and commissions and offering expenses. Prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of our then outstanding convertible preferred stock held prior to the IPO were converted into Class B common stock. See Note 12 for further discussion of our Class A and Class B common stock.
In September 2017, we completed a follow-on public offering in which a total of 8.0 million shares of our Class A common stock (issued upon automatic conversion of shares of our Class B common stock) were sold by certain selling stockholders at a price of $21.25 per share. We did not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders and we incurred offering costs of $0.7 million in the year ended December 31, 2017 in connection with this offering. These costs are included in general and administrative expense in our consolidated statement of operations and comprehensive loss.
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2. Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements are presented in accordance with accounting standards generally accepted in the United States of America, or U.S. GAAP, and include the accounts of Alteryx, Inc. and its wholly owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.
On an ongoing basis, our management evaluates estimates and assumptions based on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.
Concentration of Risk
Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, investments, and trade accounts receivable. We maintain our cash and cash equivalents and investments with three major financial institutions and a portion of such balances exceed or are not subject to Federal Deposit Insurance Corporation, or FDIC, insurance limits.
We extend differing levels of credit to customers, do not require collateral deposits, and, when necessary, maintain reserves for potential credit losses based upon the expected collectability of accounts receivable. We manage credit risk related to our customers by following credit approval processes, establishing credit limits, performing periodic evaluations of credit worthiness and applying other credit risk monitoring procedures.
Accounts receivable include amounts due from customers with principal operations primarily in the United States.
Significant customers are those which represent 10% or more of our revenue for each period presented or total net accounts receivable at each balance sheet date presented. For all years presented, we had no customer which accounted for 10% or more of our accounts receivable balance or 10% or more of our revenue.
Fair Value of Financial Instruments
We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. |
Level 2 | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active near the measurement date; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The fair value of our money market funds was determined based on “Level 1” inputs.
The fair value of certificates of deposit, U.S. Treasury and agency bonds, and corporate bonds were determined based on “Level 2” inputs. The valuation techniques used to measure the fair value of certificates of deposit included observable market-based inputs for similar assets, which primarily include yield curves and time-to-maturityfactors. The valuation techniques used to measure the fair value of U.S. Treasury and agency bonds and corporate bonds included standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets or benchmark securities and data provided by third parties as many of the bonds are not actively traded.
There were no marketable securities measured on a recurring basis in the “Level 3” category.
We have not elected the fair value option as prescribed by ASC 825, The Fair Value Option for Financial Assets and Financial Liabilities, for our financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, such as our accounts receivable and payables, are reported at their carrying values.
Cash and Cash Equivalents and Restricted Cash
We consider cash and cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present an insignificant risk of changes in the value, including investments that mature within three months from the date of original purchase. Amounts receivable from a credit card processor of approximately $0.7 million and $0.3 million as of December 31, 2017 and 2016, respectively, are considered cash equivalents because they were both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
Restricted cash as of December 31, 2017 and 2016 related to amounts required to be restricted as to use by our credit card processor.
Investments in Marketable Securities
Our investments include available-for-sale marketable securities. The classification of investments is determined at the time of purchase and reevaluated at each balance sheet date. We classify investments as current or non-current based on the nature of the securities as well as their stated maturities. Investments are stated at fair value. The net unrealized gains or losses on available-for-sale securities are recorded as a component of accumulated other comprehensive loss, net of income taxes.
At each balance sheet date, we assess available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is other than temporary. We consider factors including the significance of the decline in value as compared to the cost basis, underlying factors contributing to a decline in the prices of securities in a single asset class, how long the market value of the security has been less than its cost basis, the security’s relative performance versus its peers, sector or asset class, expected market volatility, and the market and economy in general, and, if determined to be other than temporary, will record an other than temporary impairment charge.
Accounts Receivable, Allowance for Doubtful Accounts, and Sales Reserves
Our accounts receivable consist of amounts due from customers and are typically unsecured. Accounts receivable are recorded at the invoiced amount and are non-interest bearing.
The allowance for doubtful accounts is estimated and established by assessing individual accounts receivable over a specific age and dollar value, and all other balances are pooled based on historical collection experience. Additions to the allowance are charged to general and administrative expenses. Accounts receivable are written off against the allowance when an account balance is deemed uncollectible.
We estimate a sales reserve based upon the historical adjustments made to customer billings. Such reserve is recorded as a reduction of revenue and deferred revenue.
Sales Commissions and Cash-Based Performance Awards
Our sales personnel and other commissioned employees are paid commissions. Commissions are considered direct and incremental costs to customer agreements and are generally paid in the period we receive payment from the customer under the associated customer agreement. These costs are recoverable from future revenue associated with the noncancelable customer agreements that gave rise to the commissions. Commissions are amortized to sales and marketing expense over the term the respective revenue is recognized. For the years ended December 31, 2017, 2016, and 2015, we amortized to sales and marketing expense approximately $11.3 million, $9.4 million, and $6.4 million, respectively.
Certain of our sales personnel and other commissioned employees are also eligible for annual cash-based performance awards based on overall performance of the individuals. Awards that are directly related to a specific customer agreement are amortized to sales and marketing expense over the term the respective revenue is recognized. If awards are not directly related to specific customer agreements, they are expensed to sales and marketing expense during the year they are earned commencing when the award is both probable of being earned and reasonably estimable, which generally has been in the latter part of the year. For the years ended December 31, 2017, 2016, and 2015, we recognized sales and marketing expense related to these awards of approximately $0.2 million, $1.4 million, and $1.2 million, respectively.
Royalties
We pay royalties associated with licensed data sold with our platform and we recognize royalty expense to cost of revenue when incurred. For the years ended December 31, 2017, 2016, and 2015, we recognized royalty expense of approximately $9.4 million, $6.0 million, and $4.1 million, respectively. Under certain of our contractual arrangements we prepay royalties. Prepaid royalties were approximately $1.1 million and $1.3 million as of December 31, 2017 and 2016, respectively, and are included in prepaid expenses and other current assets in our consolidated balance sheet.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Useful lives by asset category are as follows:
Computer equipment |
3 years | |
Furniture and fixtures |
3 to 7 years | |
Leasehold improvement |
Shorter of useful life or lease term |
Repairs and maintenance costs are charged to expense as incurred. Upon the sale or retirement of property and equipment, the cost and the related accumulated depreciation or amortization are removed from the accounts, with any resulting gain or loss included in our consolidated statement of operations and comprehensive loss.
Intangible Assets
Intangible assets consist primarily of acquired developed technology. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives of two to eight years, using the straight-line method, which approximates the pattern in which the economic benefits are consumed.
Impairment of Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets to their carrying value. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written down to their fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. To date, no such impairments have been recorded.
Business Combinations
The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. We allocated the purchase price, including the fair value of any non-cash and contingent consideration, to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.
Contingent consideration payable in cash or a fixed dollar amount settleable in a variable number of shares is classified as a liability and recorded at fair value, with changes in fair value recorded in general and administrative expenses each period. Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expense in the consolidated statements of operations and comprehensive loss.
We perform valuations of assets acquired, liabilities assumed, and contingent consideration and allocate the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired, liabilities assumed, and contingent consideration requires us to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, the probability of the achievement of specified milestones, and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired, liabilities assumed, and contingent consideration in a business combination.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of Accounting Standards Codification, or ASC, 350, Intangibles – Goodwill and Other. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or our strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.
The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of each calendar year. At December 31, 2017, we determined our goodwill was not impaired as our fair value significantly exceeded the carrying value of our net assets.
Revenue Recognition
Our revenue is derived from the licensing of subscription, time-based software, sale of a hosted version of our software, data subscription services, and professional services, including training and consulting services. The time-based subscriptions include post-contract support, or PCS, which provides the customer the right to receive when-and-if-available unspecified future updates, upgrades and enhancements, and technical product support.
Revenue is recognized when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, the product has been delivered or the service has been performed, the fee is fixed or determinable, and collection is probable or reasonably assured. Determining whether and when some of these criteria have been satisfied often involves exercising judgment and using estimates and assumptions that can have a significant impact on the timing and amount of revenue that is recognized. Invoiced amounts have been recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
We account for revenue from software and related products and services in accordance with ASC 985-605, Software. For the duration of the license term, the customer receives coterminous PCS. We do not provide PCS on a standalone or renewal basis unless the customer renews the software subscription license and, as such, we are unable to determine vendor specific objective evidence of fair value, or VSOE, of PCS. Accordingly, revenue for the subscription of time-based software licenses and PCS is recognized ratably beginning on the date the license is first made available to the customer and continuing through the end of the subscription term. Revenue from time-based software licenses and PCS comprised more than 90% of revenue for each of the years ended December 31, 2017, 2016, and 2015.
We also recognize revenue from the sale of a hosted version of our platform which is delivered pursuant to a hosting arrangement. Revenue from hosted services is recognized ratably beginning on the date the services are first made available to the customer and continuing through the end of the contractual service term. Hosted revenue arrangements are outside the scope of ASC 986-605 software revenue recognition guidance as customers do not have the right to take possession of the software code underlying our hosted solutions.
Our arrangements may include the resale of third-party syndicated data content pursuant to subscription arrangements, and professional services. Data subscriptions provide the customer the right to receive data that is updated periodically over the term of the license agreement, and revenue is recognized ratably over the contract period once the customer has access to the data. We recognize revenue from the resale of third-party syndicated data on a gross basis when (i) we are the primary obligor, (ii) we have latitude to establish the price charged, and (iii) we bear credit risk in the transaction. Revenue from professional services, which is comprised primarily of training and consulting services, is recognized on a time and materials basis as the services are provided.
Multiple Element Arrangements
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, data, and services.
For multiple element arrangements that contain only software and software-related elements, revenue is allocated and deferred for the undelivered elements based on their VSOE. In situations where VSOE exists for all elements (delivered and undelivered), the revenue to be earned under the arrangement among the various elements is allocated based on their relative fair value. For arrangements where VSOE exists only for the undelivered elements, the full fair value of the undelivered elements is deferred and the difference between the total arrangement fee and the amount deferred for the undelivered items is recognized as revenue. If VSOE does not exist for an undelivered service element, the revenue from the entire arrangement is recognized over the service period, once all services have commenced. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue recognized in a particular period.
VSOE is determined for each element, or a group of elements sold on a combined basis, such as our software and PCS, based on historical stand-alone sales to third parties or the price to be charged when the product or service, or group of products or services, is available. In determining VSOE, a substantial majority of the selling prices for a product or service must fall within a reasonably narrow pricing range.
Revenue related to the delivered products or services is recognized only if (i) the above revenue recognition criteria are met, (ii) any undelivered products or services are not essential to the functionality of the delivered products and services, (iii) payment for the delivered products or services is not contingent upon delivery of the remaining products or services, and (iv) there is an enforceable claim to receive the amount due in the event that the undelivered products or services are not delivered.
For multiple-element arrangements that contain both software and non-software elements, revenue is allocated on a relative fair value basis to software or software-related elements as a group and any non-software elements separately based on the selling price hierarchy. The selling price for each deliverable is determined using VSOE of selling price, if it exists, or third-party evidence of fair value, or TPE. If neither VSOE nor TPE exist for a deliverable, best estimate of selling price, or BESP, is used. Once revenue is allocated to software or software-related elements as a group, revenue is recognized in accordance with software revenue accounting guidance. Revenue allocated tonon-software elements is recognized in accordance with SAB Topic 13, Revenue Recognition. Revenue is recognized when revenue recognition criteria are met for each element.
Judgment is required to determine VSOE or BESP. For VSOE, we consider multiple factors including, but not limited to, product types, geographies, sales channels, and customer sizes and, for BESP, we also consider market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. Pricing practices taken into consideration include historic contractually stated prices, volume discounts, where applicable, and price lists. BESP is generally used for offerings that are not typically sold on a stand-alone basis or when the selling prices for a product or service do not fall within a reasonably narrow pricing range.
Revenue generated from sales arrangements through distributors is recognized in accordance with our revenue recognition policies as described above at the amount invoiced to the distributor. We recognize revenue at the net amount invoiced to the distributor, as opposed to the gross amount the distributor invoices their end customer, as we have determined that (i) we are not the primary obligor in these arrangements, (ii) we do not have latitude to establish the price charged to the end-customer, and (iii) we do not bear credit risk in the transaction with the end-customer.
Deferred Revenue
Deferred revenue includes amounts collected or billed in excess of revenue recognized. Such amounts are recognized by us over the life of the contract upon meeting the revenue recognition criteria. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current deferred revenue in our consolidated balance sheet.
Cost of Revenue
Cost of revenue is accounted for in accordance with ASC 705, Cost of Sales and Services, and consists of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefit costs associated with our customer support and professional services organizations, expenses related to hosting and operating our cloud infrastructure in a third-party data center, licenses of third-party syndicated data, amortization of acquired completed technology intangible assets, and related overhead expenses. Out-of-pocket travel costs related to the delivery of professional services are typically reimbursed by the customers and are accounted for as both revenue and cost of revenue in the period in which the cost is incurred.
Research and Development
Research and development expense consists primarily of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefits costs, depreciation of equipment used in research and development for our research and development employees, third-party contractor costs, and related allocated overhead costs. Product development expenses, other than software development costs qualifying for capitalization, are expensed as incurred.
Software Development Costs
Costs incurred in the development of new software products and enhancements to existing software products to be accounted for under software revenue recognition guidance are accounted for in accordance with ASC 985-20, Costs of Software to be Sold, Leased, or Marketed. These costs, consisting primarily of salaries and related payroll costs, are expensed as incurred until technological feasibility has been established. After technological feasibility is established, costs are capitalized in accordance with ASC 985-20. Because our process for developing software is completed concurrently with the establishment of technological feasibility, no internally generated software development costs have been capitalized as of December 31, 2017 and 2016.
We account for costs to develop or obtain internal-use software in accordance with ASC 350-40, Internal-Use Software. We also account for costs of significant upgrades and enhancements resulting in additional functionality under ASC 350-40. These costs are primarily software purchased for internal-use, purchased software licenses, implementation costs, and development costs related to our hosted product which is accessed by customers on a subscription basis. Costs incurred for maintenance, training, and minor modifications or enhancements are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years. Management evaluates the useful lives 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. Development costs related to internal-use software were insignificant during the years ended December 31, 2017 and 2016 and, therefore, have not been capitalized.
Advertising Costs
Advertising costs are expensed as incurred. We incurred advertising costs of approximately $5.5 million, $5.0 million, and $3.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Such costs primarily relate to our annual customer conferences, online and print advertising as well as sponsorship of public marketing events, and are reflected in sales and marketing expense in our consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
We recognize stock-based compensation expense in accordance with the provisions of ASC 718, Compensation—Stock Compensation. ASC 718 requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors based on the grant date fair values of the awards. We use the Black-Scholes option-pricing method for valuing stock options and shares granted under the employee share purchase plan. Restricted stock units, or RSUs are valued based on the fair value of our common stock on the date of grant, less our expected dividend yield. For awards that vest solely based on continued service the fair value of an award, net of estimated forfeitures, is recognized as an expense over the requisite service period on a straight-line basis. For awards that contain performance conditions, the fair value of an award, net of estimated forfeitures, is recognized based on the probability of the performance condition being met using the graded vesting method. Stock-based compensation expense is included in cost of revenue and operating expenses within our consolidated statements of operations and comprehensive loss based on the classification of the individual earning the award.
The determination of the grant date fair value of stock-based awards is affected by the estimated fair value per share of our common stock as well as other highly subjective assumptions, including, but not limited to, the expected term of the stock-based awards, expected stock price volatility, risk-free interest rates, and expected dividends yields, which are estimated as follows:
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Fair value per share of our common stock. Prior to our initial public offering, in March 2017, given the absence of an active market for our common stock, our board of directors determined the fair value of our common stock at the time of grant for each stock-based award based upon several factors, including consideration of input from management and contemporaneous third-party valuations. The fair value of our common stock was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation. Each fair value estimated was based on a variety of factors including, the prices, rights, preferences and privileges of our preferred stock relative to those of our common stock, pricing and timing of transactions in our equity, the lack of marketability of our common stock, our actual operating and financial performance, developments and milestones in our company, the market performance of comparable publicly traded companies, the likelihood of achieving a liquidity event, and U.S. and global capital market conditions, among other factors. Subsequent to our initial public offering, the fair value of our common stock is based on the closing price of our Class A common stock, as reported on the New York Stock Exchange, on the date of grant. |
• | Expected term. We determine the expected term of the awards using the simplified method, which estimates the expected term based on the average of the vesting period and contractual term of the stock option. |
• | Expected volatility. We estimate the expected volatility based on the volatility of similar publicly held entities (referred to as “guideline companies”) over a period equivalent to the expected term of the awards. In evaluating the similarity of guideline companies to us, we considered factors such as industry, stage of life cycle, size, and financial leverage. We intend to continue to consistently apply this process using the same or similar guideline companies to estimate the expected volatility until sufficient historical information regarding the volatility of the share price of our common stock becomes available. |
• | Risk-free interest rate. The risk-free interest rate used to value our stock-based awards is based on the U.S. Treasury yield in effect at the time of grant for a period consistent with the expected term of the award. |
• | Estimated dividend yield. The expected dividend was assumed to be zero as we have never declared or paid any cash dividends and do not currently intend to declare dividends in the foreseeable future. |
In addition, we are required to estimate at the time of grant the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. Our estimated forfeiture rate is based on our estimate of pre-vesting award forfeitures.
The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change or we use different assumptions, stock-based compensation expense could be materially different in the future.
Foreign Currency Remeasurement and Transactions
The functional currency of our wholly owned subsidiaries is the currency of the primary economic environment in which the entity operates. Assets and liabilities denominated in currencies other than the functional currency are remeasured using the current exchange rate for monetary accounts and historical exchange rates for nonmonetary accounts, with exchange differences on remeasurement included in other expense in our consolidated statements of operations and comprehensive loss. Our foreign subsidiaries that utilize foreign currency as their functional currency translate such currency into U.S. Dollars using (i) the exchange rate on the balance sheet dates for assets and liabilities, (ii) the average exchange rates prevailing during the period for revenues and expenses, and (iii) historical exchange rates for equity. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income (loss) within stockholder’s equity (deficit) in the consolidated balance sheets.
Transactions denominated in currencies other than the U.S. dollar may result in transaction gains or losses at the end of the period and when the related receivable or payable is settled, which are recorded in other income (expense), net. Transaction losses were $0.3 million, $0.5 million, and $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Income Taxes
We apply the provisions of ASC 740, Income Taxes. Under ASC 740, we account for our income taxes using the asset and liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates and laws that will be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that we will not realize those tax assets through future operations.
We also utilize the guidance in ASC 740 to account for uncertain tax positions. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more likely than not to be realized and effectively settled. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately reflect actual outcomes. We recognize interest and penalties on unrecognized tax benefits as a component of income tax expense in our consolidated statement of operations and comprehensive loss.
Net Loss Per Share Attributable to Common Stockholders
In periods in which we have net income, we apply the two-class method for calculating earnings per share. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. Participating securities include convertible preferred stock. In periods in which we have net losses after accretion of convertible preferred stock, we do not attribute losses to participating securities as they are not contractually obligated to share our losses.
Under the two-class method, basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Net income (loss) attributable to common stockholders is calculated as net income (loss) including current period convertible preferred stock accretion.
Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and convertible preferred stock. As we have reported losses for all periods, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
Variable Interest Entities
In accordance with ASC 810, Consolidation, the applicable accounting guidance for the consolidation of variable interest entities, or VIEs, we analyze our interests to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity). If we determine that the entity is a VIE, we then assess if we must consolidate the VIE. We deem ourselves to be the primary beneficiary if we have both (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (ii) an obligation to absorb losses of the entity that could potentially be significant to the VIE, or a right to receive benefits from the entity that could be significant to the VIE.
As of December 31, 2017 and December 31, 2016, we determined that two of our distributors were VIEs under the guidance of ASC 810, Consolidation, due to (i) our participation in the design of the distributor’s legal entity, (ii) having a variable interest in the distributor, and (iii) having the right to residual returns. We determined that we were not the primary beneficiary of these VIEs because we did not have (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant. Therefore, we did not consolidate any assets or liabilities of these distributors in our consolidated balance sheets or record the results of these distributors in our consolidated statements of operations and comprehensive loss. Transactions with the distributors were accounted for in the same manner as our other distributors and resellers. As of December 31, 2017 and December 31, 2016, we had no exposure to losses from the contractual relationships with these VIEs or commitments to fund these VIEs. Subsequent to December 31, 2017, we acquired 100% of the outstanding equity of one of our VIEs. See Note 20 for additional information.
Recent Accounting Pronouncements
Under the Jumpstart our Business Startups Act, or the JOBS Act, we meet the definition of an emerging growth company, or EGC. We have elected to use this extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In January 2017, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU, 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, this guidance is effective for annual or any interim goodwill impairment test in annual reporting periods beginning after December 15, 2020. For as long as we remain an EGC, the new guidance is effective for any annual or interim goodwill impairment test in annual reporting periods beginning after December 15, 2021. Early adoption is permitted. While we continue to assess the potential impact of the adoption of this guidance, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. For public companies, this guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We have not yet determined the timing of adoption. We currently present changes in restricted cash within investing activities and so the adoption of this guidance will result in changes in net cash flows from investing activities and to certain beginning and ending cash and cash equivalent totals shown on our consolidated statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. This guidance removes the prohibition in ASC 740, Income Taxes, against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This guidance is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including presentation of cash flows relating to contingent consideration payments, proceeds from the settlement of insurance claims, and debt prepayment or debt extinguishment costs, among other matters. For public companies, this guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of this guidance is required to be applied using a retrospective transition method to each period presented, unless impracticable to do so. We are currently evaluating the potential impact of this guidance on our consolidated statement of cash flows.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which simplifies several aspects of the accounting for share-based payment transactions and related tax impacts, the classification of excess tax benefits on the statement of cash flows, statutory tax withholding requirements, and other stock-based compensation classification matters. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 31, 2018. Early adoption is permitted in any interim or annual period. All the amendments in the new guidance must be adopted in the same period. We expect to adopt this standard during the first quarter ending March 31, 2018. We do not expect this standard to have a material impact on our consolidated financial statements as we anticipate that the majority of our previously unrecognized excess tax benefits, recognized upon adoption, will be offset by a corresponding increase to our U.S. federal and state deferred tax asset valuation allowance. Additionally, we plan to make the policy election to account for forfeitures as they occur; however, we do not anticipate that this change will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, creating Topic 842, which requires lessees to record the assets and liabilities arising from all leases in the statement of financial position. Under ASU 2016-02, lessees will recognize a liability for lease payments and a right-of-use asset. When measuring assets and liabilities, a lessee should include amounts related to option terms, such as the option of extending or terminating the lease or purchasing the underlying asset, that are reasonably certain to be exercised. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election to not recognize lease assets and liabilities. This guidance retains the distinction between finance leases and operating leases and the classification criteria remains similar. For financing leases, a lessee will recognize the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of principal will be presented within financing activities, and interest payments will be presented within operating activities in the statement of cash flows. For operating leases, a lessee will recognize a single lease cost on a straight-line basis and classify all cash payments within operating activities in the statement of cash flows. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, and is required to be applied using a modified retrospective approach. Early adoption is permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This guidance replaces most existing revenue recognition guidance. It provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to 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 the effective date of ASU 2014-09 by one year. During 2016, the FASB continued to issue additional amendments to this new revenue guidance. For public companies, this new revenue guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2016. We are evaluating the potential impact of this guidance on our consolidated financial statements.
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3. Business Combinations
In January 2017, we acquired 100% of the outstanding equity of Semanta, s.r.o., or Semanta, a software development firm based in Prague, Czech Republic that delivers a cloud-based data governance and metadata management platform. In May 2017, we acquired 100% of the outstanding equity of Yhat, Inc., or Yhat, a data science software company based in Brooklyn, New York that provides data scientists and analysts with self-service data science tools for developing, managing, and deploying analytical models. These acquisitions were made to enhance our platform with additional data governance capabilities and the ability to deploy and manage advanced analytic models.
The following table presents details of the purchase consideration related to each acquisition (in thousands):
Company Acquired |
Month Acquired |
Cash Consideration Paid |
Equity Consideration Paid |
Cash Holdback |
Contingent Consideration Maximum |
Contingent Consideration Fair Value |
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Semanta |
January 2017 | $ | 3,944 | $ | — | $ | 500 | $ | 2,300 | $ | 1,160 | |||||||||||||
Yhat |
May 2017 | 5,535 | 5,285 | — | — | — | ||||||||||||||||||
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$ | 9,479 | $ | 5,285 | $ | 500 | $ | 2,300 | $ | 1,160 | |||||||||||||||
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The acquisition of Semanta included cash consideration held back for customary indemnification matters for a period of 24-months following the acquisition date. A portion of the cash consideration in the Yhat acquisition is currently held in escrow pursuant to the terms of the acquisition agreement and is reflected in goodwill.
The consolidated financial statements include the results of operations of the acquired companies commencing as of their respective acquisition dates. Revenue and operating results of the acquired companies for the year ended December 31, 2017 were not material to the consolidated financial statements. During the year ended December 31, 2017, we recognized $0.9 million of acquisition related costs in general and administrative expense in the consolidated statement of operations and comprehensive loss.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the dates of each acquisition (in thousands):
Assets acquired and liabilities assumed: |
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Cash and cash equivalents |
$ | 382 | ||
Accounts receivable |
247 | |||
Prepaid expenses and other assets |
68 | |||
Property and equipment |
54 | |||
Intangible assets |
9,220 | |||
Goodwill |
8,724 | |||
Accounts payable |
(479 | ) | ||
Accrued expenses, deferred revenue and other current liabilities |
(205 | ) | ||
Deferred tax liability, included in other liabilities |
(1,587 | ) | ||
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Total purchase consideration |
$ | 16,424 | ||
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Goodwill represents the excess of the purchase consideration over the fair value of the underlying intangible assets and net liabilities assumed. We believe the amount of goodwill resulting from the acquisitions is primarily attributable to expected synergies from an assembled workforce, increased development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisitions is not tax deductible.
We determined the fair value of the completed technology acquired in the acquisitions using the multiple period excess earnings and the replacement cost models. These models utilize certain unobservable inputs classified as Level 3 measurements as defined by ASC 820, Fair Value Measurements and Disclosures. Key inputs utilized in the models include discount rates ranging from 35% to 45%, a market participant tax rate of 40%, an estimated level of future cash flows based on current product and market data, and estimated costs to recreate the technology. Based on the valuation models, we determined the fair value of the completed technology to be $9.2 million with a weighted-average amortization period of 5.7 years.
A portion of the consideration for the Semanta acquisition is subject to earn-out provisions. Additional contingent earn-out consideration of up to $2.3 million in shares of our Class A common stock may be paid out to the former shareholders of Semanta over two years upon the achievement of specified milestones. The number of shares that will be issued will be determined based on the total dollar value of consideration earned upon the achievement of a particular milestone divided by the prior 20-day average trading value of our Class A common stock calculated at the time of the issuance. We utilized a probability weighted scenario based model to determine the fair value of the contingent consideration. Based on this valuation model we determined the fair value of the contingent consideration to be $1.2 million as of the acquisition date.
Pro forma information as if the acquisitions occurred on January 1, 2016 has not been presented as the pro forma impact is not material to our consolidated financial statements.
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4. Fair Value Measurements
Instruments Measured at Fair Value on a Recurring Basis. The following tables present our cash and cash equivalents and investments’ costs, gross unrealized gains (losses), and fair value by major security type recorded as cash and cash equivalents or short-term or long-term investments as of December 31, 2017 and December 31, 2016 (in thousands):
As of December 31, 2017 | ||||||||||||||||||||||||
Cost | Gross Unrealized Gains (Losses) |
Fair Value | Cash and Cash Equivalents |
Short-term Investments |
Long-term Investments |
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Cash |
$ | 100,651 | $ | — | $ | 100,651 | $ | 100,651 | $ | — | $ | — | ||||||||||||
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Level 1: |
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Money market funds |
19,065 | — | 19,065 | 19,065 | — | — | ||||||||||||||||||
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Subtotal |
19,065 | — | 19,065 | 19,065 | — | — | ||||||||||||||||||
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Level 2: |
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U.S. Treasury and agency bonds |
44,968 | (176 | ) | 44,792 | — | 25,923 | 18,869 | |||||||||||||||||
Corporate bonds |
29,608 | (50 | ) | 29,558 | — | 28,463 | 1,095 | |||||||||||||||||
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Subtotal |
74,576 | (226 | ) | 74,350 | — | 54,386 | 19,964 | |||||||||||||||||
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Level 3 |
— | — | — | — | — | — | ||||||||||||||||||
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Total |
$ | 194,292 | $ | (226 | ) | $ | 194,066 | $ | 119,716 | $ | 54,386 | $ | 19,964 | |||||||||||
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As of December 31, 2016 | ||||||||||||||||||||||||
Cost | Gross Unrealized Gains (Losses) |
Fair Value | Cash and Cash Equivalents |
Short-term Investments |
Long-term Investments |
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Cash |
$ | 10,499 | $ | — | $ | 10,499 | $ | 10,499 | $ | — | $ | — | ||||||||||||
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Level 1: |
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Money market funds |
20,807 | — | 20,807 | 20,807 | — | — | ||||||||||||||||||
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Subtotal |
20,807 | — | 20,807 | 20,807 | — | — | ||||||||||||||||||
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Level 2: |
— | |||||||||||||||||||||||
Certificates of deposit |
10,552 | — | 10,552 | — | 10,552 | — | ||||||||||||||||||
Corporate bonds |
10,770 | 72 | 10,842 | — | 10,842 | — | ||||||||||||||||||
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Subtotal |
21,322 | 72 | 21,394 | — | 21,394 | — | ||||||||||||||||||
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Level 3 |
— | — | — | — | — | — | ||||||||||||||||||
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Total |
$ | 52,628 | $ | 72 | $ | 52,700 | $ | 31,306 | $ | 21,394 | $ | — | ||||||||||||
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There were no transfers between Level 1, Level 2, or Level 3 securities during the year ended December 31, 2017. As of December 31, 2017, there were 27 securities with a fair value of $74.4 million in an unrealized loss position for less than 12 months. The gross unrealized losses of $0.2 million as of December 31, 2017 were due to changes in market rates, and we have determined the losses are temporary in nature.
All the long-term investments had maturities of between one and two years in duration as of December 31, 2017. Cash and cash equivalents, restricted cash, and investments as of December 31, 2017 and December 31, 2016 held domestically were approximately $181.3 million and $52.9 million, respectively.
Contingent Consideration. Contingent consideration in connection with acquisitions is measured at fair value each reporting period based on significant unobservable inputs, classified as Level 3 measurement. See Note 3 for additional information on the valuation of the contingent consideration as of the acquisition date. The contingent earn-out consideration has been recorded in other liabilities in our accompanying consolidated balance sheet with any changes in fair value each reporting period recorded in general and administrative expenses in our consolidated statements of operations and comprehensive loss. Changes in fair value depend on several factors including estimates of the timing and ability to achieve the milestones.
The following table presents a reconciliation of the beginning and ending balances of acquisition-related accrued contingent consideration using significant unobservable inputs (Level 3) (in thousands):
Year Ended December 31, 2017 |
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Beginning balance |
$ | — | ||
Obligations assumed |
1,160 | |||
Change in fair value |
190 | |||
Settlement |
(375 | ) | ||
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Ending balance |
$ | 975 | ||
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Upon the achievement of certain milestones in connection with our acquisition of Semanta, we released 12,492 shares of Class A common stock to the former shareholders of Semanta in the year ended December 31, 2017. In addition, 4,824 shares were earned, but held back for customary indemnification matters in accordance with the acquisition agreement, and the value of the shares is presented within additional paid-in capital in the consolidated balance sheet as of December 31, 2017. Subject to any indemnification claims that may arise during the indemnification period, these shares will be issued to the former shareholders upon the completion of the indemnification period.
Instruments Not Recorded at Fair Value on a Recurring Basis. The carrying amounts of our financial instruments, including cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their current fair value because of their nature and relatively short maturity dates or durations.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis. The fair value of our cost method investment is measured when it is deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a business acquisition, and goodwill and other long lived assets when they are held for sale or determined to be impaired. See Notes 3 and 5 for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.
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5. Cost Method Investment
In November 2014, we entered into a definitive agreement with a privately held company, in which we agreed to invest approximately $1.1 million in exchange for shares of convertible preferred stock equal to approximately 15% ownership of the privately held company. We account for our investment in this company using the cost method of accounting and the investment balance is included in other non-current assets in our consolidated balance sheets. We evaluate the investment at each reporting date to determine if any indicators of other-than-temporary impairment exist. If such indicators are identified, we will estimate the fair value of the investment and determine if any decline in the fair value of the investment below its carrying value is other-than-temporary. The estimated fair value is determined using unobservable inputs including forecasted cash flow information from the investee’s management. These inputs are classified as Level 3. During the year ended December 31, 2017, we determined that indicators of other-than-temporary impairment existed. Based on our evaluation, we estimated the fair value of the investment and recorded an impairment for the full value of the investment of $1.1 million. The impairment is included in other expenses, net in our consolidated statements of operations for the year ended December 31, 2017.
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6. Allowance for Doubtful Accounts
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Beginning balance |
$ | 670 | $ | 280 | $ | 62 | ||||||
Charge-offs |
(337 | ) | (97 | ) | (19 | ) | ||||||
Recoveries |
(783 | ) | (283 | ) | (1 | ) | ||||||
Provision |
1,905 | 770 | 238 | |||||||||
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Ending balance |
$ | 1,455 | $ | 670 | $ | 280 | ||||||
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7. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
As of December 31, | ||||||||
2017 | 2016 | |||||||
Computer equipment & software |
$ | 5,852 | $ | 4,736 | ||||
Furniture and fixtures |
1,812 | 1,910 | ||||||
Leasehold improvements |
2,229 | 1,297 | ||||||
Construction in process |
1,493 | 765 | ||||||
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$ | 11,386 | $ | 8,708 | |||||
Less: Accumulated depreciation and amortization |
(3,894 | ) | (2,496 | ) | ||||
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Total property and equipment, net |
$ | 7,492 | $ | 6,212 | ||||
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Depreciation and amortization expense for the years ended December 31, 2017, 2016, and 2015 was approximately $2.3 million, $1.7 million, and $0.8 million, respectively.
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8. Goodwill and Intangible Assets
The change in carrying amount of goodwill for the year ended December 31, 2017 was as follows (in thousands):
Goodwill as of December 31, 2016 |
$ | — | ||
Goodwill recorded in connection with acquisitions |
8,724 | |||
Effects of foreign currency translation |
26 | |||
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Goodwill as of December 31, 2017 |
$ | 8,750 | ||
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Intangible assets consisted of the following (in thousands, except years):
As of December 31, 2017 | ||||||||||||||||
Weighted Average Useful Life in Years |
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
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Customer Relationships |
2.0 | $ | 40 | $ | (12 | ) | $ | 28 | ||||||||
Completed Technology |
5.7 | 9,180 | (1,213 | ) | 7,967 | |||||||||||
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$ | 9,220 | $ | (1,225 | ) | $ | 7,995 | ||||||||||
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We classified intangible asset amortization expense in the accompanying consolidated statements of operations and comprehensive loss as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cost of revenue |
$ | 1,213 | $ | — | $ | — | ||||||
Sales and marketing |
12 | — | — | |||||||||
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Total |
$ | 1,225 | $ | — | $ | — | ||||||
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The following table presents our estimates of remaining amortization expense for each of the five succeeding fiscal years and thereafter for finite-lived intangible assets at December 31, 2017 (in thousands):
2018 |
$ | 1,829 | ||
2019 |
1,817 | |||
2020 |
1,503 | |||
2021 |
1,293 | |||
2022 |
747 | |||
Thereafter |
806 | |||
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Total amortization expense |
$ | 7,995 | ||
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9. Accrued Expenses and Other Current Liabilities
Accrued commissions of approximately $4.9 million and $4.1 million as of December 31, 2017 and 2016, respectively, were included in accrued payroll and payroll-related liabilities in our consolidated balance sheets.
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10. Notes Receivable From Stockholder
Pursuant to a Loan and Security Agreement, dated March 18, 2011, we agreed to lend Dean A. Stoecker, the Chairman of our board of directors and Chief Executive Officer, or Borrower, up to $4.2 million, or Loan, in monthly advances of $0.1 million commencing on April 1, 2011. We were obligated to make the advances until the earlier of the termination of the Borrower’s employment agreement with us or November 1, 2017. The Loan bore interest on the outstanding principal balance at the applicable federal rate, as published monthly, and the accrued, but unpaid, interest was due and payable annually, or Annual Interest, by the Borrower no later than December 31 of each year. On or before December 31 of each year, we were obligated to pay the Borrower a bonus equal to the Annual Interest plus an amount equal to the estimated income taxes which the Borrower was required to pay on the bonus. In the event that we suspended the bonus for any reason, the Borrower’s obligation to pay the Annual Interest was also suspended until such time as we resumed payment of the bonus. The Loan was secured by our common stock held by an entity affiliated with the Borrower, or the Collateral Stock, and, prior to the Modification (as described below), was due and payable in full upon the sale of all shares of the Collateral Stock or, if less than all of the shares of the Collateral Stock were sold, the net proceeds from such sale were required to be paid to us towards repayment of the Loan.
On September 30, 2014, the terms of the Loan were modified, or the Modification, principally to (a) eliminate our obligation to make additional advances, (b) provide that the outstanding principal and accrued interest was due and payable upon the earlier of (i) the date that our unrestricted cash and cash equivalents was less than $15 million for more than thirty consecutive days, (ii) the date prior to the date we determine that the Loan would be deemed a prohibited loan under U.S. securities or other applicable laws, (iii) March 18, 2018, or (iv) the date of sale of any or all of the Collateral Stock, and (c) remove the restriction that limited our recourse solely to the Collateral Stock, resulting in the Loan becoming full recourse, or the Recourse Loan. The terms of the Loan were also modified to eliminate our obligations to pay the Borrower a bonus. Interest on the Loan balance continued to accrue monthly at the applicable federal rate. Concurrent with the Modification, the Borrower sold shares of common stock. As of December 31, 2015, an aggregate amount of approximately $2.3 million was outstanding pursuant to the Loan, including accrued, but unpaid, interest and 9.8 million shares held by the Borrower collateralized the Loan. The outstanding principal and accrued interest of approximately $2.3 million was fully repaid to us in November 2016.
We accounted for the original issuance of the Loan secured solely by shares of common stock as a repurchase of common stock and a concurrent grant of an option to purchase the shares of common stock, or the Note Option, with an effective exercise price equal to the borrowings under the Loan. The fair value of the Note Option was not material. We accounted for the Modification of the Loan as an exercise of the Note Option through the issuance of the Recourse Loan. Prior to the Modification, the Collateral Stock was treated as treasury stock and therefore was excluded from the basic net loss per share computations.
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11. Line of Credit
On October 22, 2012, we entered into a line of credit agreement, as subsequently amended, with a commercial bank, or Bank, whereby we had a borrowing capacity of $10.0 million. Interest at the Bank’s prime rate was payable monthly. The loan was collateralized by a lien on substantially all of our assets. In December 2015, we paid off the line of credit in full and cancelled the line of credit agreement.
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12. Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Redeemable Convertible Preferred Stock
Upon the closing of our initial public offering in March 2017, all shares of our then-outstanding convertible preferred stock automatically converted on a one-for-one basis into shares of Class B common stock.
As of December 31, 2016, our convertible preferred stock consisted of the following (in thousands, except per share data):
As of December 31, 2016 | ||||||||||||||||||||
Shares Authorized |
Shares Outstanding |
Price Per Share |
Net Carrying Value |
Liquidation Preference |
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Series A |
8,238 | 7,986 | $ | 2.1850 | $ | 30,043 | $ | 17,448 | ||||||||||||
Series B |
3,002 | 3,002 | 6.6630 | 19,914 | 20,000 | |||||||||||||||
Series C |
3,659 | 3,659 | 13.6632 | 49,225 | 50,000 | |||||||||||||||
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Total |
14,899 | 14,647 | $ | 99,182 | $ | 87,448 | ||||||||||||||
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|
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The rights, privileges, and preferences of the Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock, or collectively, Preferred Stock, were as follows:
Dividends
Dividends on the Preferred Stock were payable only when, and if, declared by the board of directors. No dividends on the Preferred Stock were declared by our board of directors or paid since inception.
Voting
The holders of each share of Preferred Stock were entitled to the number of votes equal to the number of shares of common stock into which their respective shares were convertible.
Liquidation
In the event of our liquidation, dissolution, or winding up, the holders of Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock were entitled to receive their full preferential amounts plus any declared but unpaid dividends prior to any distribution to the holders of common stock.
Classification of Preferred Stock
The deemed liquidation preference provisions of the Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock were considered contingent redemption provisions that were not solely within our control. Accordingly, the Preferred Stock has been presented outside of permanent equity in the mezzanine portion of our consolidated balance sheets.
Reverse Stock Split
In February 2017, we effected a 2-to-1 reverse stock split of our outstanding common and preferred stock and a corresponding reduction in the number of authorized shares of preferred stock. All share and per share amounts for all periods presented in these consolidated financial statements and notes have been adjusted retrospectively to reflect this reverse stock split.
Dual Class Common Stock Structure
In February 2017, we implemented a dual class common stock structure in which each then existing share of common stock converted into a share of Class B common stock and we also authorized a new class of common stock, the Class A common stock. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class A common stock and Class B common stock have the same dividend and liquidation rights, and the Class B common stock converts to Class A common stock at any time at the option of the holder, or automatically upon the date that is the earliest of (i) the date specified by a vote of the holders of at least 66 2/3% of the outstanding shares of Class B common stock, (ii) March 29, 2027, and (iii) the date that the total number of shares of Class B common stock outstanding cease to represent at least 10% of the aggregate number of shares of Class A common stock and Class B common stock then outstanding. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, except for certain permitted transfers described in our restated certificate of incorporation, or the Restated Certificate. Upon the creation of the dual class common stock structure all outstanding options to purchase common stock became options to purchase an equivalent number of shares of Class B common stock, and all RSUs, became RSUs for an equivalent number of shares of Class B common stock.
Upon the effectiveness of the Restated Certificate in March 2017, the number of shares of capital stock that were authorized to be issued consisted of 500,000,000 shares of Class A common stock, $0.0001 par value per share, 500,000,000 shares of Class B common stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share.
Preferred Stock
Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by our stockholders. As of December 31, 2017, no shares of preferred stock were outstanding.
Repurchase of Common Stock
In connection with the Series C convertible preferred stock financing in September 2015, we conducted a tender offer to repurchase $35.0 million outstanding shares of our common stock at a price per share of $11.887 from our employees and existing stockholders. At the close of the transaction, 2.9 million shares of common stock were tendered for an aggregate price of approximately $35.0 million.
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13. Equity Awards
Amended and Restated 2013 Stock Plan
We granted options and RSUs under our Amended and Restated 2013 Stock Plan, or 2013 Plan, until March 22, 2017, when the plan was terminated in connection with our IPO. Accordingly, no shares are available for future issuance under the 2013 Plan following the IPO. The 2013 Plan continues to govern outstanding equity awards granted thereunder.
2017 Equity Incentive Plan
In February 2017, our board of directors adopted and our stockholders approved the 2017 Equity Incentive Plan, or 2017 Plan. The 2017 Plan became effective on March 22, 2017 and is the successor plan to the 2013 Plan. Under the 2017 Plan, we initially reserved (i) 5.1 million shares of Class A common stock for future issuance and (ii) 0.5 million shares of Class A common stock equal to the number of Class B shares reserved but not issued under the 2013 Plan as of the effective date of the 2017 Plan. The number of shares of Class A common stock reserved for issuance under our 2017 Plan will increase automatically on the first day of January of each of 2018 through 2027 by the lesser of (a) 5% of the total outstanding shares of our Class A and Class B common stock as of the immediately preceding December 31 and (b) the number of shares determined by our board of directors. The share reserve may also increase to the extent that outstanding awards under our 2013 Plan expire or terminate. As of December 31, 2017, an aggregate of 5.3 million shares of Class A common stock were reserved for issuance under the 2017 Plan.
2017 Employee Stock Purchase Plan
In February 2017, our board of directors adopted and our stockholders approved the 2017 Employee Stock Purchase Plan, or 2017 ESPP. The 2017 ESPP became effective on March 23, 2017. Under the 2017 ESPP, we reserved 1.1 million shares of Class A common stock for future issuance. The number of shares of Class A common stock reserved for issuance under our 2017 ESPP will increase automatically on the first day of January of each of 2018 through 2027 by the lesser of (a) 1% of the total outstanding shares of our Class A and Class B common stock as of the immediately preceding December 31 and (b) the number of shares determined by our board of directors. The aggregate number of shares issued over the term of the 2017 ESPP may not exceed 11,000,000 shares of Class A common stock.
Under the 2017 ESPP, eligible employees are allowed to purchase shares of our Class A common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. Except for the first offering period, which began on the date our Registration Statement on Form S-1 covering the initial public offering of our shares of Class A common stock was declared effective by the SEC, purchase periods are approximately six months in duration starting on the first trading date on or after February 15th and August 15th of each year. Participants are able to purchase shares of our Class A common stock at 85% of the lower of its fair market value on (i) the first day of the purchase period or on (ii) the purchase date, which is the last day of the purchase period.
In 2017, employees purchased 0.1 million shares of Class A common stock at a price per share of $11.90. As of December 31, 2017, 1.0 million shares of Class A common stock were available for future issuance under the 2017 ESPP.
Stock Options
Stock options generally vest over four years and expire ten years from the date of grant. Vested stock options generally expire three months after termination of employment. We allow for early exercise of certain stock option grants.
Stock option activity, excluding activity related to the ESPP, during the year ended December 31, 2017 consisted of the following (in thousands, except weighted-average information):
Number of Options |
Weighted- Average Exercise Price |
Aggregate Intrinsic Value |
Weighted- Average Remaining Contractual Term (Years) |
|||||||||||||
Options outstanding at December 31, 2016 |
6,318 | $ | 5.65 | $ | 51,752 | 8.1 | ||||||||||
Granted |
1,056 | 17.48 | ||||||||||||||
Exercised |
(1,549 | ) | 2.12 | $ | 25,724 | |||||||||||
Cancelled/forfeited |
(629 | ) | 8.98 | |||||||||||||
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Options outstanding at December 31, 2017 |
5,196 | $ | 8.70 | $ | 86,108 | 7.8 | ||||||||||
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Exercisable |
3,163 | $ | 5.39 | $ | 62,900 | 7.1 | ||||||||||
Vested and expected to vest |
5,016 | $ | 8.50 | $ | 84,121 | 7.7 |
The total intrinsic value of options exercised in the years ended December 31, 2017, 2016, and 2015 was $25.7 million, $4.1 million, and $6.8 million, respectively. The intrinsic value represents the excess of the fair market value of our common stock on the date of exercise over the exercise price of each option.
As of December 31, 2017, there was $11.4 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.8 years.
Valuation Assumptions
The following table presents the weighted-average assumptions used for stock options granted for each of the years indicated:
Stock Options | Employee Stock Purchase Plan | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Expected term (in years) |
6.1 | 6.0 | 6.0 | 0.4 | — | — | ||||||||||||||||||
Estimated volatility |
42 | % | 41 | % | 56 | % | 29 | % | — | — | ||||||||||||||
Risk-free interest rate |
2 | % | 2 | % | 2 | % | 1 | % | — | — | ||||||||||||||
Estimated dividend yield |
— | — | — | — | — | — | ||||||||||||||||||
Weighed average fair value |
$ | 7.53 | $ | 4.47 | $ | 4.23 | $ | 4.02 | — | — |
Restricted Stock Units
RSUs granted under the 2017 Plan generally vest over four years and expire ten years from date of grant. RSUs will be forfeited in case of a termination of employment or service before the satisfaction of the vesting schedule. RSU activity during the year ended December 31, 2017 consisted of the following (in thousands, except weighted-average information):
Awards Outstanding |
Weighted- Average Grant Date Fair Value |
Aggregate Intrinsic Value |
||||||||||
RSUs outstanding at December 31, 2016 |
373 | $ | 12.30 | |||||||||
Granted |
261 | 20.43 | ||||||||||
Vested |
(71 | ) | 12.31 | $ | 1,769 | |||||||
Forfeited |
(99 | ) | 12.66 | |||||||||
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RSUs outstanding at December 31, 2017 |
464 | $ | 16.81 | $ | 11,731 | |||||||
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RSUs outstanding as of December 31, 2016, or pre-2017 RSUs, vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards will be satisfied over four years. The liquidity condition was satisfied on September 25, 2017, which was 180 days following the closing of the IPO. Beginning on the closing of the IPO in March 2017, we recognized a cumulative stock-based compensation expense for the portion of the pre-2017 RSUs that had met the service condition. In the year ended December 31, 2017, stock-based compensation expense related to our pre-2017 RSUs was $1.8 million.
As of December 31, 2017, total unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested RSUs was approximately $4.7 million, which is expected to be recognized over a weighted-average period of 2.7 years.
We classified stock-based compensation expense in the accompanying consolidated statements of operations and comprehensive loss as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cost of revenue |
$ | 485 | $ | 106 | $ | 34 | ||||||
Research and development |
1,635 | 338 | 239 | |||||||||
Sales and marketing |
2,302 | 1,281 | 800 | |||||||||
General and administrative |
4,519 | 1,559 | 409 | |||||||||
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Total |
$ | 8,941 | $ | 3,284 | $ | 1,482 | ||||||
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14. Retirement Plan
We established a savings plan that qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, or the Code, for the benefit of our employees. Our contributions to the savings plan are discretionary and vest immediately. We contributed approximately $1.6 million, $1.1 million, and $0.6 million to the savings plan for the years ended December 31, 2017, 2016, and 2015, respectively.
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15. Commitments and Contingencies
Leases
We have various non-cancelable operating leases for our offices. These leases expire at various times through 2025. Certain lease agreements contain renewal options, rent abatement, and escalation clauses. We recognize rent expense on a straight-line basis over the lease term, commencing when we take possession of the property. Total rent expense under operating leases was approximately $4.1 million, $2.7 million, and $1.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.
The aggregate undiscounted future minimum rental payments under our leases as of December 31, 2017 were as follows (in thousands):
Year Ending December 31, |
Amounts | |||
2018 |
$ | 5,645 | ||
2019 |
6,458 | |||
2020 |
6,570 | |||
2021 |
6,304 | |||
2022 |
6,217 | |||
Thereafter |
13,702 | |||
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Total minimum lease payments |
$ | 44,896 | ||
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Indemnification
In the ordinary course of business, we enter into agreements in which we may agree to indemnify other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. In addition, we have entered into indemnification agreements with our directors, executive officers, and certain other employees that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers, or employees. The term of these indemnification agreements with our directors, executive officers, and other employees, are generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited; however, we maintain insurance that reduces our exposure and enables us to recover a portion of any future amounts paid. As of December 31, 2017 and December 31, 2016, we have not accrued a liability for these indemnification provisions because the likelihood of incurring a payment obligation, if any, in connection with these arrangements is not probable or reasonably estimable.
Litigation
From time to time, we may be involved in lawsuits, claims, investigations, and proceedings, consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business. Other than the matters described below, we are not currently party to any material legal proceedings or claims, nor are we aware of any pending or threatened litigation or claims that could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably.
On December 19, 2017, we disclosed that individuals with an Amazon Web Services, or AWS, login could have had access to a third-party marketing dataset that provided consumer marketing information intended to help marketing professionals advertise and sell their products, or the AWS Matter. This dataset is commercially available and provides some location information, contact information and other estimated information that is used for marketing purposes. It does not include names, credit card numbers, social security numbers, bank account information or passwords.
To date, four putative consumer class action lawsuits have been filed against us in U.S. federal courts relating to the AWS Matter: (1) Kacur v. Alteryx, Inc., Case No. 8:17-cv-2222 (CD Cal) (asserting claims for putative national class and Ohio subclass); (2) Jackson v. Alteryx, Inc., Case No. 3:17-cv-02021 (D. Or.) (asserting claims for putative Oregon class); (3) Foskaris v. Alteryx, Inc., Case No. 2:17-cv-03088 (D. Nev.) (asserting claims for putative national class and Nevada subclass); and (4) Ruderman et al. v. Alteryx, Inc., Case No. 8:18-cv-00022 (C.D. Cal.) (asserting claims for putative national class and Florida, New Jersey, and New York subclasses). Three actions were filed on December 20, 2017 (Kacur, Jackson, Foskaris), and the fourth was filed on January 8, 2018 (Ruderman). The plaintiffs in these cases, who purport to represent various classes of individuals whose information was contained within the dataset, claim to have been harmed or to be facing harm as a result of the exposure of their personal information. The complaints assert claims for violation of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. and state consumer-protection statutes, as well as claims for common-law negligence. Additional actions alleging similar claims could be brought in the future. These proceedings all remain in the early stages. We intend to vigorously defend against these claims. Because of the early stages of these matters, we are unable to estimate a reasonably possible range of loss, if any, that may result for these matters.
Warranty
We warrant to customers that our platform will operate substantially in accordance with its specifications. Historically, no significant costs have been incurred related to product warranties and none are expected in the future and, as such, no accruals for product warranty costs have been made.
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16. Income Taxes
The components of income (loss) before provision for (benefit of) income taxes were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Domestic |
$ | 24,460 | $ | (24,741 | ) | $ | (21,605 | ) | ||||
Foreign |
(42,864 | ) | 691 | 333 | ||||||||
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Total |
$ | (18,404 | ) | $ | (24,050 | ) | $ | (21,272 | ) | |||
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The components of the provision for (benefit of) income taxes were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 38 | $ | — | $ | — | ||||||
State |
70 | 6 | 1 | |||||||||
Foreign |
297 | 229 | 189 | |||||||||
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|
|
|
|
|||||||
Total current income tax expense |
405 | 235 | 190 | |||||||||
Deferred: |
||||||||||||
Federal |
$ | (1,564 | ) | $ | — | $ | — | |||||
State |
— | — | — | |||||||||
Foreign |
254 | (27 | ) | (12 | ) | |||||||
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|
|
|
|
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Total deferred income tax benefit |
(1,310 | ) | (27 | ) | (12 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (905 | ) | $ | 208 | $ | 178 | |||||
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For purposes of reconciling our provision for (benefit of) income taxes at the statutory rate and our provision for (benefit of) income taxes at the effective tax rate, a notional 34% tax rate was applied as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Income tax at federal statutory rate |
$ | (6,257 | ) | $ | (8,177 | ) | $ | (7,225 | ) | |||
Increase/(decrease) in tax resulting from: |
||||||||||||
State income tax expense, net of federal |
1,428 | (716 | ) | (589 | ) | |||||||
Foreign rate differential |
15,375 | (88 | ) | (46 | ) | |||||||
Stock-based compensation |
(1,086 | ) | 602 | 346 | ||||||||
Change in valuation allowance |
(20,500 | ) | 8,449 | 7,549 | ||||||||
Tax impact due to tax law change |
2,627 | — | — | |||||||||
Change in uncertain tax position reserves |
7,854 | — | — | |||||||||
Current year research credits |
(965 | ) | — | — | ||||||||
Prior years research credits |
(1,284 | ) | — | — | ||||||||
Other |
1,903 | 138 | 143 | |||||||||
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|
|
|
|
|
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Total |
$ | (905 | ) | $ | 208 | $ | 178 | |||||
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|
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|
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Significant components of deferred income tax assets (liabilities) were as follows (in thousands):
As of December 31, | ||||||||
2017 | 2016 | |||||||
Deferred revenue |
$ | 764 | $ | 812 | ||||
Net operating losses |
5,655 | 28,736 | ||||||
Accruals and reserves |
1,022 | 75 | ||||||
State taxes |
(212 | ) | (1,131 | ) | ||||
Deferred commissions |
(2,467 | ) | (1,837 | ) | ||||
Stock-based compensation |
1,572 | 690 | ||||||
Fixed assets & intangibles |
(1,327 | ) | — | |||||
Research & other credits |
2,407 | — | ||||||
Other |
289 | 499 | ||||||
Valuation allowance |
(7,304 | ) | (27,804 | ) | ||||
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|
|
|
|||||
Net non-current deferred tax assets |
$ | 399 | $ | 40 | ||||
|
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We have evaluated the available positive and negative evidence supporting the realization of our gross deferred tax assets, including our cumulative losses, and the amount and timing of future taxable income. Accordingly, we recorded a valuation allowance against our U.S. federal and state deferred tax assets to the extent that they are not expected to be recoverable as of December 31, 2017 and 2016.
The changes in the valuation allowance were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Beginning balance |
$ | 27,804 | $ | 19,355 | $ | 11,806 | ||||||
Decrease in valuation allowance due to Yhat acquisition |
(998 | ) | — | — | ||||||||
Increase (decrease) in valuation allowance |
(19,502 | ) | 8,449 | 7,549 | ||||||||
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|
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Ending balance |
$ | 7,304 | $ | 27,804 | $ | 19,355 | ||||||
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As of December 31, 2017, we had U.S. federal and state income tax net operating loss carryforwards of approximately $55.4 million and $20.3 million, respectively. The U.S. federal and state net operating losses will begin to expire in 2034 and 2025, respectively, unless previously utilized.
As of December 31, 2017 and 2016, our pre-tax unrecognized excess tax benefits of $13.6 million and $11.0 million, respectively, relating to stock-based compensation expense, were not included in the deferred tax assets, and will create a benefit to additional paid-in capital when recognized. This amount will be included in the overall adoption of ASU 2016-09, as described in Note 2.
Under Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss carryforwards and tax credits may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. We determined that such an ownership change occurred in 2015. This ownership change resulted in limitations of the annual utilization of our net operating loss carryforwards, but did not result in permanent disallowance of any of our net operating loss carryforwards.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the Tax Act became law. The legislation adopts significant changes to the Internal Revenue Code that include, among other things, reduction of the corporate income tax rate from 35% to 21%, effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and imposition of a one-time transition tax on cumulative foreign earnings at December 31, 2017. Based on our review of the Tax Act, and the applicable guidance available as of the date of this filing, we have estimated that the Tax Act will have minimal, if any, impact on our income tax provision and income tax accruals as of and for the year ended, December 31, 2017. The Tax Act requires us to measure our U.S. deferred tax assets and liabilities that will reverse after December 31, 2017 at the reduced US corporate income tax rate. As a result, we reduced our net US deferred tax asset and our valuation allowance by $2.6 million, which resulted in no net income tax expense for the year ended December 31, 2017. We have no cumulative foreign earnings at November 2, or December 31, 2017, and as a result, are not impacted by the one-time transition tax included in the Tax Act.
We have not accrued U.S. income taxes or foreign withholding taxes on the earnings of our foreign subsidiaries, as these amounts are intended to be indefinitely reinvested in operations outside the United States. As of December 31, 2017, there are no cumulative amounts of undistributed earnings at our foreign subsidiaries.
We are subject to taxation in the United States and various states and international jurisdictions. Our U.S. federal tax returns are open for examination for tax years 2014 and forward, and our state tax returns are open for examination for tax years 2013 and forward. Our tax returns for international jurisdictions are open for examination for tax years 2013 and forward. However, net operating loss and other tax attribute carryforwards utilized in subsequent years continue to be subject to examination by the tax authorities until the year to which the net operating loss and/or other tax attributes are carried forward is no longer subject to examination. Neither we nor any of our subsidiaries are currently under examination from tax authorities in the jurisdictions in which we do business.
For the year ended December 31, 2017 we recorded unrecognized tax benefits of approximately $5.8 million pertaining to transfer pricing. If fully recognized, the unrecognized tax benefits would not have an impact on our effective tax rate. We recorded no unrecognized tax benefits for each of the years ended December 31, 2016 and 2015. We had no accrual for interest or penalties related to uncertain tax positions in our consolidated balance sheets as of December 31, 2017 and 2016, and have not recognized interest or penalties in our consolidated statement of operations and comprehensive loss for the years ended December 31, 2017, 2016, and 2015.
A rollforward of the activity in the gross unrecognized tax benefits is as follows:
Year Ended December 31, 2017 |
||||
Balance at beginning of year |
$ | — | ||
Additions based on tax positions related to the current year |
5,624 | |||
Additions for tax positions of prior years |
170 | |||
|
|
|||
Balance at end of year |
$ | 5,794 | ||
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18. Segment and Geographic Information
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, or CODM, who is our chief executive officer, in deciding how to allocate resources and assess our financial and operational performance. Our CODM evaluates our financial information and resources and assesses the performance of these resources on a consolidated and aggregated basis. As a result, we have determined that our business operates in a single operating segment.
Our operations outside the United States include sales offices in Canada, Czech Republic, France, Germany, Singapore, and the United Kingdom, and a research and development center in Ukraine. Revenue by location is determined by the billing address of the customer. The following sets forth our revenue by geographic region (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
United States |
$ | 101,932 | $ | 69,420 | $ | 46,078 | ||||||
International |
29,675 | 16,370 | 7,743 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 131,607 | $ | 85,790 | $ | 53,821 | ||||||
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No countries outside the United States comprised more than 10% of revenue for any of the periods presented.
As of December 31, 2017 and 2016, substantially all of our property and equipment was located in the United States
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19. Selected Quarterly Financial Data (Unaudited)
The following table sets forth unaudited quarterly financial information for the years ended December 31, 2017 and 2016. We have prepared the unaudited quarterly consolidated statements of operations data on a basis consistent with the audited annual consolidated financial statements. In the opinion of management, the financial information in this table reflects all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of this data (in thousands except per share data):
2017 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue |
$ | 28,545 | $ | 30,319 | $ | 34,155 | $ | 38,588 | ||||||||
Gross margin |
$ | 23,719 | $ | 25,025 | $ | 28,730 | $ | 32,330 | ||||||||
Loss from operations |
$ | (5,614 | ) | $ | (8,138 | ) | $ | (2,563 | ) | $ | (1,884 | ) | ||||
Net loss |
$ | (5,667 | ) | $ | (6,994 | ) | $ | (3,299 | ) | $ | (1,539 | ) | ||||
Basic and diluted loss per share |
$ | (0.22 | ) | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.03 | ) |
2016 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue |
$ | 18,394 | $ | 19,972 | $ | 22,462 | $ | 24,962 | ||||||||
Gross margin |
$ | 14,495 | $ | 16,206 | $ | 18,400 | $ | 20,663 | ||||||||
Loss from operations |
$ | (6,406 | ) | $ | (7,215 | ) | $ | (3,850 | ) | $ | (5,551 | ) | ||||
Net loss |
$ | (6,533 | ) | $ | (7,456 | ) | $ | (4,192 | ) | $ | (6,077 | ) | ||||
Basic and diluted loss per share |
$ | (0.24 | ) | $ | (0.28 | ) | $ | (0.18 | ) | $ | (0.25 | ) |
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20. Subsequent Events
In February 2018, we acquired 100% of the outstanding equity of Alteryx ANZ Pty Limited in Sydney, Australia, our exclusive master distributor in Australia and New Zealand. The total purchase price for the acquisition was approximately $3.3 million in cash and up to $1.5 million in cash paid over two years contingent upon the achievement of specified milestones. Given the timing of the completion of the acquisition, we are currently in the process of valuing the assets acquired and liabilities assumed in the acquisition. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other disclosures.
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Principles of Consolidation and Basis of Presentation
Our consolidated financial statements are presented in accordance with accounting standards generally accepted in the United States of America, or U.S. GAAP, and include the accounts of Alteryx, Inc. and its wholly owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.
On an ongoing basis, our management evaluates estimates and assumptions based on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.
Concentration of Risk
Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, investments, and trade accounts receivable. We maintain our cash and cash equivalents and investments with three major financial institutions and a portion of such balances exceed or are not subject to Federal Deposit Insurance Corporation, or FDIC, insurance limits.
We extend differing levels of credit to customers, do not require collateral deposits, and, when necessary, maintain reserves for potential credit losses based upon the expected collectability of accounts receivable. We manage credit risk related to our customers by following credit approval processes, establishing credit limits, performing periodic evaluations of credit worthiness and applying other credit risk monitoring procedures.
Accounts receivable include amounts due from customers with principal operations primarily in the United States.
Significant customers are those which represent 10% or more of our revenue for each period presented or total net accounts receivable at each balance sheet date presented. For all years presented, we had no customer which accounted for 10% or more of our accounts receivable balance or 10% or more of our revenue.
Fair Value of Financial Instruments
We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. |
Level 2 | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active near the measurement date; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The fair value of our money market funds was determined based on “Level 1” inputs.
The fair value of certificates of deposit, U.S. Treasury and agency bonds, and corporate bonds were determined based on “Level 2” inputs. The valuation techniques used to measure the fair value of certificates of deposit included observable market-based inputs for similar assets, which primarily include yield curves and time-to-maturityfactors. The valuation techniques used to measure the fair value of U.S. Treasury and agency bonds and corporate bonds included standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets or benchmark securities and data provided by third parties as many of the bonds are not actively traded.
There were no marketable securities measured on a recurring basis in the “Level 3” category.
We have not elected the fair value option as prescribed by ASC 825, The Fair Value Option for Financial Assets and Financial Liabilities, for our financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, such as our accounts receivable and payables, are reported at their carrying values.
Cash and Cash Equivalents and Restricted Cash
We consider cash and cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present an insignificant risk of changes in the value, including investments that mature within three months from the date of original purchase. Amounts receivable from a credit card processor of approximately $0.7 million and $0.3 million as of December 31, 2017 and 2016, respectively, are considered cash equivalents because they were both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
Restricted cash as of December 31, 2017 and 2016 related to amounts required to be restricted as to use by our credit card processor.
Investments in Marketable Securities
Our investments include available-for-sale marketable securities. The classification of investments is determined at the time of purchase and reevaluated at each balance sheet date. We classify investments as current or non-current based on the nature of the securities as well as their stated maturities. Investments are stated at fair value. The net unrealized gains or losses on available-for-sale securities are recorded as a component of accumulated other comprehensive loss, net of income taxes.
At each balance sheet date, we assess available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is other than temporary. We consider factors including the significance of the decline in value as compared to the cost basis, underlying factors contributing to a decline in the prices of securities in a single asset class, how long the market value of the security has been less than its cost basis, the security’s relative performance versus its peers, sector or asset class, expected market volatility, and the market and economy in general, and, if determined to be other than temporary, will record an other than temporary impairment charge.
Accounts Receivable, Allowance for Doubtful Accounts, and Sales Reserves
Our accounts receivable consist of amounts due from customers and are typically unsecured. Accounts receivable are recorded at the invoiced amount and are non-interest bearing.
The allowance for doubtful accounts is estimated and established by assessing individual accounts receivable over a specific age and dollar value, and all other balances are pooled based on historical collection experience. Additions to the allowance are charged to general and administrative expenses. Accounts receivable are written off against the allowance when an account balance is deemed uncollectible.
We estimate a sales reserve based upon the historical adjustments made to customer billings. Such reserve is recorded as a reduction of revenue and deferred revenue.
Sales Commissions and Cash-Based Performance Awards
Our sales personnel and other commissioned employees are paid commissions. Commissions are considered direct and incremental costs to customer agreements and are generally paid in the period we receive payment from the customer under the associated customer agreement. These costs are recoverable from future revenue associated with the noncancelable customer agreements that gave rise to the commissions. Commissions are amortized to sales and marketing expense over the term the respective revenue is recognized. For the years ended December 31, 2017, 2016, and 2015, we amortized to sales and marketing expense approximately $11.3 million, $9.4 million, and $6.4 million, respectively.
Certain of our sales personnel and other commissioned employees are also eligible for annual cash-based performance awards based on overall performance of the individuals. Awards that are directly related to a specific customer agreement are amortized to sales and marketing expense over the term the respective revenue is recognized. If awards are not directly related to specific customer agreements, they are expensed to sales and marketing expense during the year they are earned commencing when the award is both probable of being earned and reasonably estimable, which generally has been in the latter part of the year. For the years ended December 31, 2017, 2016, and 2015, we recognized sales and marketing expense related to these awards of approximately $0.2 million, $1.4 million, and $1.2 million, respectively.
Royalties
We pay royalties associated with licensed data sold with our platform and we recognize royalty expense to cost of revenue when incurred. For the years ended December 31, 2017, 2016, and 2015, we recognized royalty expense of approximately $9.4 million, $6.0 million, and $4.1 million, respectively. Under certain of our contractual arrangements we prepay royalties. Prepaid royalties were approximately $1.1 million and $1.3 million as of December 31, 2017 and 2016, respectively, and are included in prepaid expenses and other current assets in our consolidated balance sheet.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Useful lives by asset category are as follows:
Computer equipment |
3 years | |
Furniture and fixtures |
3 to 7 years | |
Leasehold improvement |
Shorter of useful life or lease term |
Repairs and maintenance costs are charged to expense as incurred. Upon the sale or retirement of property and equipment, the cost and the related accumulated depreciation or amortization are removed from the accounts, with any resulting gain or loss included in our consolidated statement of operations and comprehensive loss.
Intangible Assets
Intangible assets consist primarily of acquired developed technology. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives of two to eight years, using the straight-line method, which approximates the pattern in which the economic benefits are consumed.
Impairment of Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets to their carrying value. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written down to their fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. To date, no such impairments have been recorded.
Business Combinations
The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. We allocated the purchase price, including the fair value of any non-cash and contingent consideration, to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.
Contingent consideration payable in cash or a fixed dollar amount settleable in a variable number of shares is classified as a liability and recorded at fair value, with changes in fair value recorded in general and administrative expenses each period. Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expense in the consolidated statements of operations and comprehensive loss.
We perform valuations of assets acquired, liabilities assumed, and contingent consideration and allocate the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired, liabilities assumed, and contingent consideration requires us to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, the probability of the achievement of specified milestones, and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired, liabilities assumed, and contingent consideration in a business combination.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of Accounting Standards Codification, or ASC, 350, Intangibles – Goodwill and Other. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or our strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.
The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of each calendar year. At December 31, 2017, we determined our goodwill was not impaired as our fair value significantly exceeded the carrying value of our net assets.
Revenue Recognition
Our revenue is derived from the licensing of subscription, time-based software, sale of a hosted version of our software, data subscription services, and professional services, including training and consulting services. The time-based subscriptions include post-contract support, or PCS, which provides the customer the right to receive when-and-if-available unspecified future updates, upgrades and enhancements, and technical product support.
Revenue is recognized when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, the product has been delivered or the service has been performed, the fee is fixed or determinable, and collection is probable or reasonably assured. Determining whether and when some of these criteria have been satisfied often involves exercising judgment and using estimates and assumptions that can have a significant impact on the timing and amount of revenue that is recognized. Invoiced amounts have been recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
We account for revenue from software and related products and services in accordance with ASC 985-605, Software. For the duration of the license term, the customer receives coterminous PCS. We do not provide PCS on a standalone or renewal basis unless the customer renews the software subscription license and, as such, we are unable to determine vendor specific objective evidence of fair value, or VSOE, of PCS. Accordingly, revenue for the subscription of time-based software licenses and PCS is recognized ratably beginning on the date the license is first made available to the customer and continuing through the end of the subscription term. Revenue from time-based software licenses and PCS comprised more than 90% of revenue for each of the years ended December 31, 2017, 2016, and 2015.
We also recognize revenue from the sale of a hosted version of our platform which is delivered pursuant to a hosting arrangement. Revenue from hosted services is recognized ratably beginning on the date the services are first made available to the customer and continuing through the end of the contractual service term. Hosted revenue arrangements are outside the scope of ASC 986-605 software revenue recognition guidance as customers do not have the right to take possession of the software code underlying our hosted solutions.
Our arrangements may include the resale of third-party syndicated data content pursuant to subscription arrangements, and professional services. Data subscriptions provide the customer the right to receive data that is updated periodically over the term of the license agreement, and revenue is recognized ratably over the contract period once the customer has access to the data. We recognize revenue from the resale of third-party syndicated data on a gross basis when (i) we are the primary obligor, (ii) we have latitude to establish the price charged, and (iii) we bear credit risk in the transaction. Revenue from professional services, which is comprised primarily of training and consulting services, is recognized on a time and materials basis as the services are provided.
Multiple Element Arrangements
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, data, and services.
For multiple element arrangements that contain only software and software-related elements, revenue is allocated and deferred for the undelivered elements based on their VSOE. In situations where VSOE exists for all elements (delivered and undelivered), the revenue to be earned under the arrangement among the various elements is allocated based on their relative fair value. For arrangements where VSOE exists only for the undelivered elements, the full fair value of the undelivered elements is deferred and the difference between the total arrangement fee and the amount deferred for the undelivered items is recognized as revenue. If VSOE does not exist for an undelivered service element, the revenue from the entire arrangement is recognized over the service period, once all services have commenced. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue recognized in a particular period.
VSOE is determined for each element, or a group of elements sold on a combined basis, such as our software and PCS, based on historical stand-alone sales to third parties or the price to be charged when the product or service, or group of products or services, is available. In determining VSOE, a substantial majority of the selling prices for a product or service must fall within a reasonably narrow pricing range.
Revenue related to the delivered products or services is recognized only if (i) the above revenue recognition criteria are met, (ii) any undelivered products or services are not essential to the functionality of the delivered products and services, (iii) payment for the delivered products or services is not contingent upon delivery of the remaining products or services, and (iv) there is an enforceable claim to receive the amount due in the event that the undelivered products or services are not delivered.
For multiple-element arrangements that contain both software and non-software elements, revenue is allocated on a relative fair value basis to software or software-related elements as a group and any non-software elements separately based on the selling price hierarchy. The selling price for each deliverable is determined using VSOE of selling price, if it exists, or third-party evidence of fair value, or TPE. If neither VSOE nor TPE exist for a deliverable, best estimate of selling price, or BESP, is used. Once revenue is allocated to software or software-related elements as a group, revenue is recognized in accordance with software revenue accounting guidance. Revenue allocated to non-software elements is recognized in accordance with SAB Topic 13, Revenue Recognition. Revenue is recognized when revenue recognition criteria are met for each element.
Judgment is required to determine VSOE or BESP. For VSOE, we consider multiple factors including, but not limited to, product types, geographies, sales channels, and customer sizes and, for BESP, we also consider market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. Pricing practices taken into consideration include historic contractually stated prices, volume discounts, where applicable, and price lists. BESP is generally used for offerings that are not typically sold on a stand-alone basis or when the selling prices for a product or service do not fall within a reasonably narrow pricing range.
Revenue generated from sales arrangements through distributors is recognized in accordance with our revenue recognition policies as described above at the amount invoiced to the distributor. We recognize revenue at the net amount invoiced to the distributor, as opposed to the gross amount the distributor invoices their end customer, as we have determined that (i) we are not the primary obligor in these arrangements, (ii) we do not have latitude to establish the price charged to the end-customer, and (iii) we do not bear credit risk in the transaction with the end-customer.
Deferred Revenue
Deferred revenue includes amounts collected or billed in excess of revenue recognized. Such amounts are recognized by us over the life of the contract upon meeting the revenue recognition criteria. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current deferred revenue in our consolidated balance sheet.
Cost of Revenue
Cost of revenue is accounted for in accordance with ASC 705, Cost of Sales and Services, and consists of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefit costs associated with our customer support and professional services organizations, expenses related to hosting and operating our cloud infrastructure in a third-party data center, licenses of third-party syndicated data, amortization of acquired completed technology intangible assets, and related overhead expenses. Out-of-pocket travel costs related to the delivery of professional services are typically reimbursed by the customers and are accounted for as both revenue and cost of revenue in the period in which the cost is incurred.
Research and Development
Research and development expense consists primarily of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefits costs, depreciation of equipment used in research and development for our research and development employees, third-party contractor costs, and related allocated overhead costs. Product development expenses, other than software development costs qualifying for capitalization, are expensed as incurred.
Software Development Costs
Costs incurred in the development of new software products and enhancements to existing software products to be accounted for under software revenue recognition guidance are accounted for in accordance with ASC 985-20, Costs of Software to be Sold, Leased, or Marketed. These costs, consisting primarily of salaries and related payroll costs, are expensed as incurred until technological feasibility has been established. After technological feasibility is established, costs are capitalized in accordance with ASC 985-20. Because our process for developing software is completed concurrently with the establishment of technological feasibility, no internally generated software development costs have been capitalized as of December 31, 2017 and 2016.
We account for costs to develop or obtain internal-use software in accordance with ASC 350-40, Internal-Use Software. We also account for costs of significant upgrades and enhancements resulting in additional functionality under ASC 350-40. These costs are primarily software purchased for internal-use, purchased software licenses, implementation costs, and development costs related to our hosted product which is accessed by customers on a subscription basis. Costs incurred for maintenance, training, and minor modifications or enhancements are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years. Management evaluates the useful lives 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. Development costs related to internal-use software were insignificant during the years ended December 31, 2017 and 2016 and, therefore, have not been capitalized.
Advertising Costs
Advertising costs are expensed as incurred. We incurred advertising costs of approximately $5.5 million, $5.0 million, and $3.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Such costs primarily relate to our annual customer conferences, online and print advertising as well as sponsorship of public marketing events, and are reflected in sales and marketing expense in our consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
We recognize stock-based compensation expense in accordance with the provisions of ASC 718, Compensation—Stock Compensation. ASC 718 requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors based on the grant date fair values of the awards. We use the Black-Scholes option-pricing method for valuing stock options and shares granted under the employee share purchase plan. Restricted stock units, or RSUs are valued based on the fair value of our common stock on the date of grant, less our expected dividend yield. For awards that vest solely based on continued service the fair value of an award, net of estimated forfeitures, is recognized as an expense over the requisite service period on a straight-line basis. For awards that contain performance conditions, the fair value of an award, net of estimated forfeitures, is recognized based on the probability of the performance condition being met using the graded vesting method. Stock-based compensation expense is included in cost of revenue and operating expenses within our consolidated statements of operations and comprehensive loss based on the classification of the individual earning the award.
The determination of the grant date fair value of stock-based awards is affected by the estimated fair value per share of our common stock as well as other highly subjective assumptions, including, but not limited to, the expected term of the stock-based awards, expected stock price volatility, risk-free interest rates, and expected dividends yields, which are estimated as follows:
• |
Fair value per share of our common stock. Prior to our initial public offering, in March 2017, given the absence of an active market for our common stock, our board of directors determined the fair value of our common stock at the time of grant for each stock-based award based upon several factors, including consideration of input from management and contemporaneous third-party valuations. The fair value of our common stock was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation. Each fair value estimated was based on a variety of factors including, the prices, rights, preferences and privileges of our preferred stock relative to those of our common stock, pricing and timing of transactions in our equity, the lack of marketability of our common stock, our actual operating and financial performance, developments and milestones in our company, the market performance of comparable publicly traded companies, the likelihood of achieving a liquidity event, and U.S. and global capital market conditions, among other factors. Subsequent to our initial public offering, the fair value of our common stock is based on the closing price of our Class A common stock, as reported on the New York Stock Exchange, on the date of grant. |
• | Expected term. We determine the expected term of the awards using the simplified method, which estimates the expected term based on the average of the vesting period and contractual term of the stock option. |
• | Expected volatility. We estimate the expected volatility based on the volatility of similar publicly held entities (referred to as “guideline companies”) over a period equivalent to the expected term of the awards. In evaluating the similarity of guideline companies to us, we considered factors such as industry, stage of life cycle, size, and financial leverage. We intend to continue to consistently apply this process using the same or similar guideline companies to estimate the expected volatility until sufficient historical information regarding the volatility of the share price of our common stock becomes available. |
• | Risk-free interest rate. The risk-free interest rate used to value our stock-based awards is based on the U.S. Treasury yield in effect at the time of grant for a period consistent with the expected term of the award. |
• | Estimated dividend yield. The expected dividend was assumed to be zero as we have never declared or paid any cash dividends and do not currently intend to declare dividends in the foreseeable future. |
In addition, we are required to estimate at the time of grant the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. Our estimated forfeiture rate is based on our estimate of pre-vesting award forfeitures.
The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change or we use different assumptions, stock-based compensation expense could be materially different in the future.
Foreign Currency Remeasurement and Transactions
The functional currency of our wholly owned subsidiaries is the currency of the primary economic environment in which the entity operates. Assets and liabilities denominated in currencies other than the functional currency are remeasured using the current exchange rate for monetary accounts and historical exchange rates for nonmonetary accounts, with exchange differences on remeasurement included in other expense in our consolidated statements of operations and comprehensive loss. Our foreign subsidiaries that utilize foreign currency as their functional currency translate such currency into U.S. Dollars using (i) the exchange rate on the balance sheet dates for assets and liabilities, (ii) the average exchange rates prevailing during the period for revenues and expenses, and (iii) historical exchange rates for equity. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income (loss) within stockholder’s equity (deficit) in the consolidated balance sheets.
Transactions denominated in currencies other than the U.S. dollar may result in transaction gains or losses at the end of the period and when the related receivable or payable is settled, which are recorded in other income (expense), net. Transaction losses were $0.3 million, $0.5 million, and $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Income Taxes
We apply the provisions of ASC 740, Income Taxes. Under ASC 740, we account for our income taxes using the asset and liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates and laws that will be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that we will not realize those tax assets through future operations.
We also utilize the guidance in ASC 740 to account for uncertain tax positions. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more likely than not to be realized and effectively settled. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately reflect actual outcomes. We recognize interest and penalties on unrecognized tax benefits as a component of income tax expense in our consolidated statement of operations and comprehensive loss.
Net Loss Per Share Attributable to Common Stockholders
In periods in which we have net income, we apply the two-class method for calculating earnings per share. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. Participating securities include convertible preferred stock. In periods in which we have net losses after accretion of convertible preferred stock, we do not attribute losses to participating securities as they are not contractually obligated to share our losses.
Under the two-class method, basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Net income (loss) attributable to common stockholders is calculated as net income (loss) including current period convertible preferred stock accretion.
Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and convertible preferred stock. As we have reported losses for all periods, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
Variable Interest Entities
In accordance with ASC 810, Consolidation, the applicable accounting guidance for the consolidation of variable interest entities, or VIEs, we analyze our interests to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity). If we determine that the entity is a VIE, we then assess if we must consolidate the VIE. We deem ourselves to be the primary beneficiary if we have both (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (ii) an obligation to absorb losses of the entity that could potentially be significant to the VIE, or a right to receive benefits from the entity that could be significant to the VIE.
As of December 31, 2017 and December 31, 2016, we determined that two of our distributors were VIEs under the guidance of ASC 810, Consolidation, due to (i) our participation in the design of the distributor’s legal entity, (ii) having a variable interest in the distributor, and (iii) having the right to residual returns. We determined that we were not the primary beneficiary of these VIEs because we did not have (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant. Therefore, we did not consolidate any assets or liabilities of these distributors in our consolidated balance sheets or record the results of these distributors in our consolidated statements of operations and comprehensive loss. Transactions with the distributors were accounted for in the same manner as our other distributors and resellers. As of December 31, 2017 and December 31, 2016, we had no exposure to losses from the contractual relationships with these VIEs or commitments to fund these VIEs. Subsequent to December 31, 2017, we acquired 100% of the outstanding equity of one of our VIEs. See Note 20 for additional information.
Recent Accounting Pronouncements
Under the Jumpstart our Business Startups Act, or the JOBS Act, we meet the definition of an emerging growth company, or EGC. We have elected to use this extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In January 2017, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU, 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, this guidance is effective for annual or any interim goodwill impairment test in annual reporting periods beginning after December 15, 2020. For as long as we remain an EGC, the new guidance is effective for any annual or interim goodwill impairment test in annual reporting periods beginning after December 15, 2021. Early adoption is permitted. While we continue to assess the potential impact of the adoption of this guidance, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. For public companies, this guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We have not yet determined the timing of adoption. We currently present changes in restricted cash within investing activities and so the adoption of this guidance will result in changes in net cash flows from investing activities and to certain beginning and ending cash and cash equivalent totals shown on our consolidated statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. This guidance removes the prohibition in ASC 740, Income Taxes, against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This guidance is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including presentation of cash flows relating to contingent consideration payments, proceeds from the settlement of insurance claims, and debt prepayment or debt extinguishment costs, among other matters. For public companies, this guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of this guidance is required to be applied using a retrospective transition method to each period presented, unless impracticable to do so. We are currently evaluating the potential impact of this guidance on our consolidated statement of cash flows.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which simplifies several aspects of the accounting for share-based payment transactions and related tax impacts, the classification of excess tax benefits on the statement of cash flows, statutory tax withholding requirements, and other stock-based compensation classification matters. For public companies, this guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 31, 2018. Early adoption is permitted in any interim or annual period. All the amendments in the new guidance must be adopted in the same period. We expect to adopt this standard during the first quarter ending March 31, 2018. We do not expect this standard to have a material impact on our consolidated financial statements as we anticipate that the majority of our previously unrecognized excess tax benefits, recognized upon adoption, will be offset by a corresponding increase to our U.S. federal and state deferred tax asset valuation allowance. Additionally, we plan to make the policy election to account for forfeitures as they occur; however, we do not anticipate that this change will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, creating Topic 842, which requires lessees to record the assets and liabilities arising from all leases in the statement of financial position. Under ASU 2016-02, lessees will recognize a liability for lease payments and a right-of-use asset. When measuring assets and liabilities, a lessee should include amounts related to option terms, such as the option of extending or terminating the lease or purchasing the underlying asset, that are reasonably certain to be exercised. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election to not recognize lease assets and liabilities. This guidance retains the distinction between finance leases and operating leases and the classification criteria remains similar. For financing leases, a lessee will recognize the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of principal will be presented within financing activities, and interest payments will be presented within operating activities in the statement of cash flows. For operating leases, a lessee will recognize a single lease cost on a straight-line basis and classify all cash payments within operating activities in the statement of cash flows. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, and is required to be applied using a modified retrospective approach. Early adoption is permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This guidance replaces most existing revenue recognition guidance. It provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to 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 the effective date of ASU 2014-09 by one year. During 2016, the FASB continued to issue additional amendments to this new revenue guidance. For public companies, this new revenue guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as we remain an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2016. We are evaluating the potential impact of this guidance on our consolidated financial statements.
We accounted for the original issuance of the Loan secured solely by shares of common stock as a repurchase of common stock and a concurrent grant of an option to purchase the shares of common stock, or the Note Option, with an effective exercise price equal to the borrowings under the Loan. The fair value of the Note Option was not material. We accounted for the Modification of the Loan as an exercise of the Note Option through the issuance of the Recourse Loan. Prior to the Modification, the Collateral Stock was treated as treasury stock and therefore was excluded from the basic net loss per share computations.
18. Segment and Geographic Information
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, or CODM, who is our chief executive officer, in deciding how to allocate resources and assess our financial and operational performance. Our CODM evaluates our financial information and resources and assesses the performance of these resources on a consolidated and aggregated basis. As a result, we have determined that our business operates in a single operating segment.
|
Useful lives by asset category are as follows:
Computer equipment |
3 years | |
Furniture and fixtures |
3 to 7 years | |
Leasehold improvement |
Shorter of useful life or lease term |
|
The following table presents details of the purchase consideration related to each acquisition (in thousands):
Company Acquired |
Month Acquired |
Cash Consideration Paid |
Equity Consideration Paid |
Cash Holdback |
Contingent Consideration Maximum |
Contingent Consideration Fair Value |
||||||||||||||||||
Semanta |
January 2017 | $ | 3,944 | $ | — | $ | 500 | $ | 2,300 | $ | 1,160 | |||||||||||||
Yhat |
May 2017 | 5,535 | 5,285 | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 9,479 | $ | 5,285 | $ | 500 | $ | 2,300 | $ | 1,160 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the dates of each acquisition (in thousands):
Assets acquired and liabilities assumed: |
||||
Cash and cash equivalents |
$ | 382 | ||
Accounts receivable |
247 | |||
Prepaid expenses and other assets |
68 | |||
Property and equipment |
54 | |||
Intangible assets |
9,220 | |||
Goodwill |
8,724 | |||
Accounts payable |
(479 | ) | ||
Accrued expenses, deferred revenue and other current liabilities |
(205 | ) | ||
Deferred tax liability, included in other liabilities |
(1,587 | ) | ||
|
|
|||
Total purchase consideration |
$ | 16,424 | ||
|
|
|
The following tables present our cash and cash equivalents and investments’ costs, gross unrealized gains (losses), and fair value by major security type recorded as cash and cash equivalents or short-term or long-term investments as of December 31, 2017 and December 31, 2016 (in thousands):
As of December 31, 2017 | ||||||||||||||||||||||||
Cost | Gross Unrealized Gains (Losses) |
Fair Value | Cash and Cash Equivalents |
Short-term Investments |
Long-term Investments |
|||||||||||||||||||
Cash |
$ | 100,651 | $ | — | $ | 100,651 | $ | 100,651 | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 1: |
||||||||||||||||||||||||
Money market funds |
19,065 | — | 19,065 | 19,065 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
19,065 | — | 19,065 | 19,065 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 2: |
||||||||||||||||||||||||
U.S. Treasury and agency bonds |
44,968 | (176 | ) | 44,792 | — | 25,923 | 18,869 | |||||||||||||||||
Corporate bonds |
29,608 | (50 | ) | 29,558 | — | 28,463 | 1,095 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
74,576 | (226 | ) | 74,350 | — | 54,386 | 19,964 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 3 |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 194,292 | $ | (226 | ) | $ | 194,066 | $ | 119,716 | $ | 54,386 | $ | 19,964 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 | ||||||||||||||||||||||||
Cost | Gross Unrealized Gains (Losses) |
Fair Value | Cash and Cash Equivalents |
Short-term Investments |
Long-term Investments |
|||||||||||||||||||
Cash |
$ | 10,499 | $ | — | $ | 10,499 | $ | 10,499 | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 1: |
||||||||||||||||||||||||
Money market funds |
20,807 | — | 20,807 | 20,807 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
20,807 | — | 20,807 | 20,807 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 2: |
— | |||||||||||||||||||||||
Certificates of deposit |
10,552 | — | 10,552 | — | 10,552 | — | ||||||||||||||||||
Corporate bonds |
10,770 | 72 | 10,842 | — | 10,842 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
21,322 | 72 | 21,394 | — | 21,394 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Level 3 |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 52,628 | $ | 72 | $ | 52,700 | $ | 31,306 | $ | 21,394 | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the beginning and ending balances of acquisition-related accrued contingent consideration using significant unobservable inputs (Level 3) (in thousands):
Year Ended December 31, 2017 |
||||
Beginning balance |
$ | — | ||
Obligations assumed |
1,160 | |||
Change in fair value |
190 | |||
Settlement |
(375 | ) | ||
|
|
|||
Ending balance |
$ | 975 | ||
|
|
|
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Beginning balance |
$ | 670 | $ | 280 | $ | 62 | ||||||
Charge-offs |
(337 | ) | (97 | ) | (19 | ) | ||||||
Recoveries |
(783 | ) | (283 | ) | (1 | ) | ||||||
Provision |
1,905 | 770 | 238 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 1,455 | $ | 670 | $ | 280 | ||||||
|
|
|
|
|
|
|
Property and equipment, net consisted of the following (in thousands):
As of December 31, | ||||||||
2017 | 2016 | |||||||
Computer equipment & software |
$ | 5,852 | $ | 4,736 | ||||
Furniture and fixtures |
1,812 | 1,910 | ||||||
Leasehold improvements |
2,229 | 1,297 | ||||||
Construction in process |
1,493 | 765 | ||||||
|
|
|
|
|||||
$ | 11,386 | $ | 8,708 | |||||
Less: Accumulated depreciation and amortization |
(3,894 | ) | (2,496 | ) | ||||
|
|
|
|
|||||
Total property and equipment, net |
$ | 7,492 | $ | 6,212 | ||||
|
|
|
|
|
The change in carrying amount of goodwill for the year ended December 31, 2017 was as follows (in thousands):
Goodwill as of December 31, 2016 |
$ | — | ||
Goodwill recorded in connection with acquisitions |
8,724 | |||
Effects of foreign currency translation |
26 | |||
|
|
|||
Goodwill as of December 31, 2017 |
$ | 8,750 | ||
|
|
Intangible assets consisted of the following (in thousands, except years):
As of December 31, 2017 | ||||||||||||||||
Weighted Average Useful Life in Years |
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
|||||||||||||
Customer Relationships |
2.0 | $ | 40 | $ | (12 | ) | $ | 28 | ||||||||
Completed Technology |
5.7 | 9,180 | (1,213 | ) | 7,967 | |||||||||||
|
|
|
|
|
|
|||||||||||
$ | 9,220 | $ | (1,225 | ) | $ | 7,995 | ||||||||||
|
|
|
|
|
|
We classified intangible asset amortization expense in the accompanying consolidated statements of operations and comprehensive loss as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cost of revenue |
$ | 1,213 | $ | — | $ | — | ||||||
Sales and marketing |
12 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 1,225 | $ | — | $ | — | ||||||
|
|
|
|
|
|
The following table presents our estimates of remaining amortization expense for each of the five succeeding fiscal years and thereafter for finite-lived intangible assets at December 31, 2017 (in thousands):
2018 |
$ | 1,829 | ||
2019 |
1,817 | |||
2020 |
1,503 | |||
2021 |
1,293 | |||
2022 |
747 | |||
Thereafter |
806 | |||
|
|
|||
Total amortization expense |
$ | 7,995 | ||
|
|
|
As of December 31, 2016, our convertible preferred stock consisted of the following (in thousands, except per share data):
As of December 31, 2016 | ||||||||||||||||||||
Shares Authorized |
Shares Outstanding |
Price Per Share |
Net Carrying Value |
Liquidation Preference |
||||||||||||||||
Series A |
8,238 | 7,986 | $ | 2.1850 | $ | 30,043 | $ | 17,448 | ||||||||||||
Series B |
3,002 | 3,002 | 6.6630 | 19,914 | 20,000 | |||||||||||||||
Series C |
3,659 | 3,659 | 13.6632 | 49,225 | 50,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
14,899 | 14,647 | $ | 99,182 | $ | 87,448 | ||||||||||||||
|
|
|
|
|
|
|
|
|
Stock option activity, excluding activity related to the ESPP, during the year ended December 31, 2017 consisted of the following (in thousands, except weighted-average information):
Number of Options |
Weighted- Average Exercise Price |
Aggregate Intrinsic Value |
Weighted- Average Remaining Contractual Term (Years) |
|||||||||||||
Options outstanding at December 31, 2016 |
6,318 | $ | 5.65 | $ | 51,752 | 8.1 | ||||||||||
Granted |
1,056 | 17.48 | ||||||||||||||
Exercised |
(1,549 | ) | 2.12 | $ | 25,724 | |||||||||||
Cancelled/forfeited |
(629 | ) | 8.98 | |||||||||||||
|
|
|||||||||||||||
Options outstanding at December 31, 2017 |
5,196 | $ | 8.70 | $ | 86,108 | 7.8 | ||||||||||
|
|
|||||||||||||||
Exercisable |
3,163 | $ | 5.39 | $ | 62,900 | 7.1 | ||||||||||
Vested and expected to vest |
5,016 | $ | 8.50 | $ | 84,121 | 7.7 |
The following table presents the weighted-average assumptions used for stock options granted for each of the years indicated:
Stock Options | Employee Stock Purchase Plan | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Expected term (in years) |
6.1 | 6.0 | 6.0 | 0.4 | — | — | ||||||||||||||||||
Estimated volatility |
42 | % | 41 | % | 56 | % | 29 | % | — | — | ||||||||||||||
Risk-free interest rate |
2 | % | 2 | % | 2 | % | 1 | % | — | — | ||||||||||||||
Estimated dividend yield |
— | — | — | — | — | — | ||||||||||||||||||
Weighed average fair value |
$ | 7.53 | $ | 4.47 | $ | 4.23 | $ | 4.02 | — | — |
RSU activity during the year ended December 31, 2017 consisted of the following (in thousands, except weighted-average information):
Awards Outstanding |
Weighted- Average Grant Date Fair Value |
Aggregate Intrinsic Value |
||||||||||
RSUs outstanding at December 31, 2016 |
373 | $ | 12.30 | |||||||||
Granted |
261 | 20.43 | ||||||||||
Vested |
(71 | ) | 12.31 | $ | 1,769 | |||||||
Forfeited |
(99 | ) | 12.66 | |||||||||
|
|
|||||||||||
RSUs outstanding at December 31, 2017 |
464 | $ | 16.81 | $ | 11,731 | |||||||
|
|
We classified stock-based compensation expense in the accompanying consolidated statements of operations and comprehensive loss as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cost of revenue |
$ | 485 | $ | 106 | $ | 34 | ||||||
Research and development |
1,635 | 338 | 239 | |||||||||
Sales and marketing |
2,302 | 1,281 | 800 | |||||||||
General and administrative |
4,519 | 1,559 | 409 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 8,941 | $ | 3,284 | $ | 1,482 | ||||||
|
|
|
|
|
|
|
The aggregate undiscounted future minimum rental payments under our leases as of December 31, 2017 were as follows (in thousands):
Year Ending December 31, |
Amounts | |||
2018 |
$ | 5,645 | ||
2019 |
6,458 | |||
2020 |
6,570 | |||
2021 |
6,304 | |||
2022 |
6,217 | |||
Thereafter |
13,702 | |||
|
|
|||
Total minimum lease payments |
$ | 44,896 | ||
|
|
|
The components of income (loss) before provision for (benefit of) income taxes were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Domestic |
$ | 24,460 | $ | (24,741 | ) | $ | (21,605 | ) | ||||
Foreign |
(42,864 | ) | 691 | 333 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (18,404 | ) | $ | (24,050 | ) | $ | (21,272 | ) | |||
|
|
|
|
|
|
The components of the provision for (benefit of) income taxes were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 38 | $ | — | $ | — | ||||||
State |
70 | 6 | 1 | |||||||||
Foreign |
297 | 229 | 189 | |||||||||
|
|
|
|
|
|
|||||||
Total current income tax expense |
405 | 235 | 190 | |||||||||
Deferred: |
||||||||||||
Federal |
$ | (1,564 | ) | $ | — | $ | — | |||||
State |
— | — | — | |||||||||
Foreign |
254 | (27 | ) | (12 | ) | |||||||
|
|
|
|
|
|
|||||||
Total deferred income tax benefit |
(1,310 | ) | (27 | ) | (12 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (905 | ) | $ | 208 | $ | 178 | |||||
|
|
|
|
|
|
For purposes of reconciling our provision for (benefit of) income taxes at the statutory rate and our provision for (benefit of) income taxes at the effective tax rate, a notional 34% tax rate was applied as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Income tax at federal statutory rate |
$ | (6,257 | ) | $ | (8,177 | ) | $ | (7,225 | ) | |||
Increase/(decrease) in tax resulting from: |
||||||||||||
State income tax expense, net of federal |
1,428 | (716 | ) | (589 | ) | |||||||
Foreign rate differential |
15,375 | (88 | ) | (46 | ) | |||||||
Stock-based compensation |
(1,086 | ) | 602 | 346 | ||||||||
Change in valuation allowance |
(20,500 | ) | 8,449 | 7,549 | ||||||||
Tax impact due to tax law change |
2,627 | — | — | |||||||||
Change in uncertain tax position reserves |
7,854 | — | — | |||||||||
Current year research credits |
(965 | ) | — | — | ||||||||
Prior years research credits |
(1,284 | ) | — | — | ||||||||
Other |
1,903 | 138 | 143 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (905 | ) | $ | 208 | $ | 178 | |||||
|
|
|
|
|
|
Significant components of deferred income tax assets (liabilities) were as follows (in thousands):
As of December 31, | ||||||||
2017 | 2016 | |||||||
Deferred revenue |
$ | 764 | $ | 812 | ||||
Net operating losses |
5,655 | 28,736 | ||||||
Accruals and reserves |
1,022 | 75 | ||||||
State taxes |
(212 | ) | (1,131 | ) | ||||
Deferred commissions |
(2,467 | ) | (1,837 | ) | ||||
Stock-based compensation |
1,572 | 690 | ||||||
Fixed assets & intangibles |
(1,327 | ) | — | |||||
Research & other credits |
2,407 | — | ||||||
Other |
289 | 499 | ||||||
Valuation allowance |
(7,304 | ) | (27,804 | ) | ||||
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Net non-current deferred tax assets |
$ | 399 | $ | 40 | ||||
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The changes in the valuation allowance were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Beginning balance |
$ | 27,804 | $ | 19,355 | $ | 11,806 | ||||||
Decrease in valuation allowance due to Yhat acquisition |
(998 | ) | — | — | ||||||||
Increase (decrease) in valuation allowance |
(19,502 | ) | 8,449 | 7,549 | ||||||||
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Ending balance |
$ | 7,304 | $ | 27,804 | $ | 19,355 | ||||||
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A rollforward of the activity in the gross unrecognized tax benefits is as follows:
Year Ended December 31, 2017 |
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Balance at beginning of year |
$ | — | ||
Additions based on tax positions related to the current year |
5,624 | |||
Additions for tax positions of prior years |
170 | |||
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Balance at end of year |
$ | 5,794 | ||
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The following sets forth our revenue by geographic region (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
United States |
$ | 101,932 | $ | 69,420 | $ | 46,078 | ||||||
International |
29,675 | 16,370 | 7,743 | |||||||||
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Total |
$ | 131,607 | $ | 85,790 | $ | 53,821 | ||||||
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The following table sets forth unaudited quarterly financial information for the years ended December 31, 2017 and 2016. We have prepared the unaudited quarterly consolidated statements of operations data on a basis consistent with the audited annual consolidated financial statements. In the opinion of management, the financial information in this table reflects all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of this data (in thousands except per share data):
2017 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue |
$ | 28,545 | $ | 30,319 | $ | 34,155 | $ | 38,588 | ||||||||
Gross margin |
$ | 23,719 | $ | 25,025 | $ | 28,730 | $ | 32,330 | ||||||||
Loss from operations |
$ | (5,614 | ) | $ | (8,138 | ) | $ | (2,563 | ) | $ | (1,884 | ) | ||||
Net loss |
$ | (5,667 | ) | $ | (6,994 | ) | $ | (3,299 | ) | $ | (1,539 | ) | ||||
Basic and diluted loss per share |
$ | (0.22 | ) | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.03 | ) |
2016 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue |
$ | 18,394 | $ | 19,972 | $ | 22,462 | $ | 24,962 | ||||||||
Gross margin |
$ | 14,495 | $ | 16,206 | $ | 18,400 | $ | 20,663 | ||||||||
Loss from operations |
$ | (6,406 | ) | $ | (7,215 | ) | $ | (3,850 | ) | $ | (5,551 | ) | ||||
Net loss |
$ | (6,533 | ) | $ | (7,456 | ) | $ | (4,192 | ) | $ | (6,077 | ) | ||||
Basic and diluted loss per share |
$ | (0.24 | ) | $ | (0.28 | ) | $ | (0.18 | ) | $ | (0.25 | ) |
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