ALTERYX, INC., 10-K filed on 3/8/2018
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Jun. 30, 2017
Feb. 28, 2018
Class A Common Stock [Member]
Feb. 28, 2018
Class B Common Stock [Member]
Document Information [Line Items]
 
 
 
 
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
 
Document Fiscal Year Focus
2017 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Trading Symbol
AYX 
 
 
 
Entity Registrant Name
Alteryx, Inc. 
 
 
 
Entity Central Index Key
0001689923 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
27,669,778 
32,553,260 
Entity Public Float
 
$ 331.3 
 
 
Consolidated Statements of Operations and Comprehensive Loss (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Revenue
$ 131,607 
$ 85,790 
$ 53,821 
Cost of revenue
21,803 
16,026 
10,521 
Gross profit
109,804 
69,764 
43,300 
Operating expenses:
 
 
 
Research and development
29,342 
17,481 
11,103 
Sales and marketing
66,420 
57,585 
43,244 
General and administrative
32,241 
17,720 
10,039 
Total operating expenses
128,003 
92,786 
64,386 
Loss from operations
(18,199)
(23,022)
(21,086)
Other expense, net
(205)
(1,028)
(186)
Loss before provision for (benefit of) income taxes
(18,404)
(24,050)
(21,272)
Provision for (benefit of) income taxes
(905)
208 
178 
Net loss
(17,499)
(24,258)
(21,450)
Less: Accretion of Series A redeemable convertible preferred stock
(1,983)
(6,442)
(2,603)
Net loss attributable to common stockholders
(19,482)
(30,700)
(24,053)
Net loss per share attributable to common stockholders, basic and diluted
$ (0.37)
$ (0.95)
$ (0.76)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
53,006 
32,440 
31,697 
Net loss
(17,499)
(24,258)
(21,450)
Other comprehensive income (loss), net of tax:
 
 
 
Change in net unrealized holding gains (losses) on investments, net of tax
(217)
72 
(81)
Foreign currency translation adjustments, net of tax
(128)
 
 
Other comprehensive income (loss), net of tax
(345)
72 
(81)
Total comprehensive loss
$ (17,844)
$ (24,186)
$ (21,531)
Consolidated Balance Sheets (USD $)
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 119,716,000 
$ 31,306,000 
Short-term investments
54,386,000 
21,394,000 
Accounts receivable, net of allowance for doubtful accounts and sales reserves of $1,714 and $758 as of December 31, 2017 and December 31, 2016, respectively
49,797,000 
35,367,000 
Deferred commissions
11,213,000 
7,358,000 
Prepaid expenses and other current assets
7,227,000 
5,013,000 
Total current assets
242,339,000 
100,438,000 
Property and equipment, net
7,492,000 
6,212,000 
Long-term investments
19,964,000 
 
Goodwill
8,750,000 
Intangible assets, net
7,995,000 
 
Restricted cash
200,000 
200,000 
Other assets
4,063,000 
4,525,000 
Deferred income taxes, net
613,000 
40,000 
Total assets
291,416,000 
111,415,000 
Current liabilities:
 
 
Accounts payable
522,000 
1,780,000 
Accrued payroll and payroll related liabilities
11,835,000 
7,760,000 
Accrued expenses and other current liabilities
7,941,000 
4,658,000 
Deferred revenue
110,213,000 
71,050,000 
Capital lease obligation
329,000 
329,000 
Total current liabilities
130,840,000 
85,577,000 
Deferred revenue
3,545,000 
3,084,000 
Other liabilities
3,313,000 
1,182,000 
Deferred income tax, net
214,000 
 
Total liabilities
137,912,000 
89,843,000 
Commitments and contingencies (Note 15)
   
   
Redeemable convertible preferred stock, $0.0001 par value: no shares and 14,899 shares authorized as of December 31, 2017 and December 31, 2016, respectively; no shares and 14,647 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively; aggregate liquidation preference of $0 and $87,448 of December 31, 2017 and December 31, 2016, respectively.
 
99,182,000 
Stockholders' equity (deficit):
 
 
Preferred stock, $0.0001 par value: 10,000 and no shares authorized as of December 31, 2017 and December 31, 2016, respectively; no shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively.
   
   
Additional paid-in capital
257,399,000 
8,443,000 
Accumulated deficit
(103,546,000)
(86,047,000)
Accumulated other comprehensive loss
(354,000)
(9,000)
Total stockholders' equity (deficit)
153,504,000 
(77,610,000)
Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)
291,416,000 
111,415,000 
Class A Common Stock [Member]
 
 
Stockholders' equity (deficit):
 
 
Common stock
2,000 
 
Class B Common Stock [Member]
 
 
Stockholders' equity (deficit):
 
 
Common stock
$ 3,000 
$ 3,000 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Allowance for doubtful accounts and sales reserves
$ 1,714 
$ 758 
Redeemable convertible preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Redeemable convertible preferred stock, shares authorized (in shares)
14,899,000 
Redeemable convertible preferred stock, shares issued (in shares)
14,647,000 
Redeemable convertible preferred stock, shares outstanding (in shares)
14,647,000 
Redeemable convertible preferred stock, aggregate liquidation preference
$ 0 
$ 87,448 
Preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Preferred stock, shares authorized (in shares)
10,000,000 
Preferred stock, shares issued (in shares)
Preferred stock, shares outstanding (in shares)
Class A Common Stock [Member]
 
 
Common stock par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock shares authorized (in shares)
500,000,000 
Common Stock shares issued (in shares)
26,687,000 
Common stock shares outstanding (in shares)
26,687,000 
Class B Common Stock [Member]
 
 
Common stock par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock shares authorized (in shares)
500,000,000 
56,025,000 
Common Stock shares issued (in shares)
32,948,000 
32,674,000 
Common stock shares outstanding (in shares)
32,948,000 
32,674,000 
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (USD $)
In Thousands, except Share data
Total
Redeemable Convertible Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Notes Receivables from Stockholders [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Beginning Balance at Dec. 31, 2014
 
$ 41,618 
 
 
 
 
 
Beginning Balance at Dec. 31, 2014
(31,671)
 
10,902 
(2,237)
(40,339)
 
Beginning Balance, Shares at Dec. 31, 2014
 
11,240,000 
 
 
 
 
 
Beginning Balance, Shares at Dec. 31, 2014
 
 
31,290,000 
 
 
 
 
Issuance of common stock, net of issuance costs
35,000 
 
 
35,000 
 
 
 
Issuance of convertible preferred stock, net of issuance costs
 
49,225 
 
 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
2,944,000 
 
 
 
 
Issuance of convertible preferred stock, net of issuance costs, shares
 
3,659,000 
 
 
 
 
 
Repurchase of common stock
(35,006)
 
 
(35,006)
 
 
 
Repurchase of common stock, shares
 
 
(2,962,000)
 
 
 
 
Conversion of redeemable convertible preferred stock to common stock
706 
(706)
 
706 
 
 
 
Conversion of redeemable convertible preferred stock to common stock, shares
 
(252,000)
252,000 
 
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
(2,603)
 
 
(2,603)
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
 
2,603 
 
 
 
 
 
Exercise of stock options
686 
 
 
686 
 
 
 
Exercise of stock options, shares
 
 
734,000 
 
 
 
 
Stock-based compensation
1,482 
 
 
1,482 
 
 
 
Excess tax benefit from stock-based compensation
26 
 
 
26 
 
 
 
Unrealized gain (loss) on investments
(81)
 
 
 
 
 
(81)
Net loss
(21,450)
 
 
 
 
(21,450)
 
Ending Balance at Dec. 31, 2015
(52,911)
 
11,193 
(2,237)
(61,789)
(81)
Ending Balance at Dec. 31, 2015
 
92,740 
 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2015
 
 
32,258,000 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2015
 
14,647,000 
 
 
 
 
 
Issuance of common stock, net of issuance costs
21 
 
 
21 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
2,000 
 
 
 
 
Repurchase of common stock
(6)
 
 
(6)
 
 
 
Repurchase of common stock, shares
 
 
(17,000)
 
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
(6,442)
 
 
(6,442)
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
 
6,442 
 
 
 
 
 
Exercise of stock options
413 
 
 
413 
 
 
 
Exercise of stock options, shares
 
 
431,000 
 
 
 
 
Stock-based compensation
3,263 
 
 
3,263 
 
 
 
Repayment of stockholder note
2,237 
 
 
 
2,237 
 
 
Excess tax benefit from stock-based compensation
 
 
 
 
 
Unrealized gain (loss) on investments
72 
 
 
 
 
 
72 
Net loss
(24,258)
 
 
 
 
(24,258)
 
Ending Balance at Dec. 31, 2016
(77,610)
 
8,443 
 
(86,047)
(9)
Ending Balance at Dec. 31, 2016
99,182 
99,182 
 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2016
 
 
32,674,000 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2016
14,647,000 
14,647,000 
 
 
 
 
 
Issuance of common stock, net of issuance costs
131,413 
 
131,412 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
10,350,000 
 
 
 
 
Conversion of redeemable convertible preferred stock to common stock
101,165 
(101,165)
101,164 
 
 
 
Conversion of redeemable convertible preferred stock to common stock, shares
 
(14,647,000)
14,647,000 
 
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
(1,983)
 
 
(1,983)
 
 
 
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature
 
1,983 
 
 
 
 
 
Shares issued pursuant to stock awards, net of shares withheld
3,655 
 
 
3,655 
 
 
 
Exercise of stock options, shares
1,549,000 
 
 
 
 
 
 
Shares issued pursuant to stock awards, shares
 
 
1,687,000 
 
 
 
 
Equity issued in business combination
5,285 
 
 
5,285 
 
 
 
Equity issued in business combination, shares
 
 
265,000 
 
 
 
 
Stock-based compensation
8,886 
 
 
8,886 
 
 
 
Equity settled contingent consideration, value
375 
 
 
375 
 
 
 
Equity settled contingent consideration, shares
12,492 
 
12,000 
 
 
 
 
Excess tax benefit from stock-based compensation
162 
 
 
162 
 
 
 
Cumulative translation adjustment
(128)
 
 
 
 
 
(128)
Unrealized gain (loss) on investments
(217)
 
 
 
 
 
(217)
Net loss
(17,499)
 
 
 
 
(17,499)
 
Ending Balance at Dec. 31, 2017
153,504 
 
257,399 
 
(103,546)
(354)
Ending Balance at Dec. 31, 2017
 
$ 0 
 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2017
 
 
59,635,000 
 
 
 
 
Ending Balance, Shares at Dec. 31, 2017
 
 
 
 
 
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2015
Redeemable Convertible Preferred Stock [Member]
Stock issuance cost
 
$ 775 
Stock issuance cost
$ 3,344 
 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2017
Common Stock [Member]
Dec. 31, 2016
Common Stock [Member]
Dec. 31, 2015
Series C Convertible Preferred Stock [Member]
Dec. 31, 2017
Series A Redeemable Convertible Preferred Stock [Member]
Dec. 31, 2016
Series A Redeemable Convertible Preferred Stock [Member]
Dec. 31, 2015
Series A Redeemable Convertible Preferred Stock [Member]
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net loss
$ (17,499,000)
$ (24,258,000)
$ (21,450,000)
 
 
 
 
 
 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
3,957,000 
1,677,000 
759,000 
 
 
 
 
 
 
Stock-based compensation
8,886,000 
3,284,000 
1,482,000 
 
 
 
 
 
 
Provision for doubtful accounts and sales reserve, net of recoveries
820,000 
432,000 
380,000 
 
 
 
 
 
 
Deferred income taxes
(1,425,000)
(27,000)
(12,000)
 
 
 
 
 
 
Loss on disposal of assets
175,000 
66,000 
47,000 
 
 
 
 
 
 
Change in fair value of contingent consideration
190,000 
 
 
 
 
 
 
 
 
Impairment of long-lived assets
1,050,000 
 
 
 
 
 
 
 
 
Changes in operating assets and liabilities, net of effect of business acquisitions:
 
 
 
 
 
 
 
 
 
Accounts receivable
(15,325,000)
(14,248,000)
(6,216,000)
 
 
 
 
 
 
Deferred commissions
(3,663,000)
(1,582,000)
(2,233,000)
 
 
 
 
 
 
Prepaid expenses and other current assets and other assets
(3,508,000)
(4,314,000)
(768,000)
 
 
 
 
 
 
Accounts payable
(1,483,000)
2,134,000 
(802,000)
 
 
 
 
 
 
Accrued payroll and payroll related liabilities
4,047,000 
1,177,000 
2,744,000 
 
 
 
 
 
 
Accrued expenses and other current liabilities
2,444,000 
1,122,000 
1,908,000 
 
 
 
 
 
 
Deferred revenue
39,835,000 
27,840,000 
15,252,000 
 
 
 
 
 
 
Other liabilities
442,000 
666,000 
874,000 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
18,943,000 
(6,031,000)
(8,035,000)
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
(3,669,000)
(4,307,000)
(2,714,000)
 
 
 
 
 
 
Purchases of investments
(91,517,000)
(5,720,000)
(36,445,000)
 
 
 
 
 
 
Maturities of investments
37,862,000 
20,762,000 
 
 
 
 
 
 
 
Acquisitions, net of cash acquired
(9,097,000)
 
 
 
 
 
 
 
 
Change in restricted cash
 
1,000,000 
(1,200,000)
 
 
 
 
 
 
Net cash provided by (used in) investing activities
(66,421,000)
11,735,000 
(40,359,000)
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from initial public offering, net of underwriting commissions and discounts
134,757,000 
 
 
 
 
 
 
 
 
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs paid
 
(350,000)
49,575,000 
 
 
 
 
 
 
Proceeds from issuance of common stock
 
 
35,000,000 
 
 
 
 
 
 
Payment of initial public offering costs
 
 
 
(2,396,000)
(948,000)
 
 
 
 
Repurchase of common stock, net of costs paid
 
(256,000)
(34,756,000)
 
 
 
 
 
 
Advance from line of credit
 
 
1,875,000 
 
 
 
 
 
 
Repayment of line of credit
 
 
(3,875,000)
 
 
 
 
 
 
Repayment of loans to stockholders
 
2,237,000 
 
 
 
 
 
 
 
Principal payments on capital lease obligations
(328,000)
(274,000)
 
 
 
 
 
 
 
Proceeds from exercise of stock options
4,342,000 
413,000 
686,000 
 
 
 
 
 
 
Minimum tax withholding paid on behalf of employees for restricted stock units
(674,000)
 
 
 
 
 
 
 
 
Excess tax benefit from stock-based compensation
162,000 
1,000 
26,000 
 
 
 
 
 
 
Net cash provided by financing activities
135,863,000 
823,000 
48,531,000 
 
 
 
 
 
 
Effect of exchange rate changes on cash
25,000 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
88,410,000 
6,527,000 
137,000 
 
 
 
 
 
 
Cash and cash equivalents-beginning of year
31,306,000 
24,779,000 
24,642,000 
 
 
 
 
 
 
Cash and cash equivalents-end of year
119,716,000 
31,306,000 
24,779,000 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
 
 
Cash paid for interest
 
 
101,000 
 
 
 
 
 
 
Cash paid for income taxes
333,000 
12,000 
7,000 
 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
 
 
 
 
 
Property and equipment recorded in accounts payable
 
38,000 
27,000 
 
 
 
 
 
 
Consideration for business acquisition initially included in accrued expenses and other current liabilities and other liabilities
1,660,000 
 
 
 
 
 
 
 
 
Consideration for business acquisition from issuance of common stock
5,285,000 
 
 
 
 
 
 
 
 
Contingent consideration settled through issuance of common stock
375,000 
 
 
 
 
 
 
 
 
Accretion of Series A redeemable convertible preferred stock
1,983,000 
6,442,000 
2,603,000 
 
 
 
1,983,000 
6,442,000 
2,603,000 
Deferred initial public offering costs included in other assets and accounts payable and accrued expense and other current liabilities
 
452,000 
 
 
 
 
 
 
 
Property and equipment funded by capital lease borrowing
 
987,000 
 
 
 
 
 
 
 
Conversion of redeemable convertible preferred stock to common shares
101,165,000 
 
706,000 
 
 
 
 
 
 
Series C convertible preferred stock issuance costs recorded in accrued expenses and other current liabilities
 
 
 
 
 
350,000 
 
 
 
Repurchase of common stock costs recorded in accrued expenses and other current liabilities
 
 
$ 250,000 
 
 
 
 
 
 
Organization and Nature of Operations
Organization and Nature of Operations

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.

Significant Accounting Policies
Significant Accounting Policies

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:

 

   

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.

Business Combinations
Business Combinations

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
 

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 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:

  

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  
  

 

 

 

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.

Fair Value Measurements
Fair Value Measurements

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
 

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      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
 

Beginning balance

   $ —    

Obligations assumed

     1,160  

Change in fair value

     190  

Settlement

     (375
  

 

 

 

Ending balance

   $ 975  
  

 

 

 

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.

Cost Method Investment
Cost Method Investment

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.

Allowance for Doubtful Accounts
Allowance for Doubtful Accounts

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  
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 1,455      $ 670      $ 280  
  

 

 

    

 

 

    

 

 

 

 

Property and Equipment
Property and Equipment

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  
  

 

 

    

 

 

 
   $ 11,386      $ 8,708  

Less: Accumulated depreciation and amortization

     (3,894      (2,496
  

 

 

    

 

 

 

Total property and equipment, net

   $ 7,492      $ 6,212  
  

 

 

    

 

 

 

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.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

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  
  

 

 

 

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  
  

 

 

 

 

Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

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.

Notes Receivable From Stockholder
Notes Receivable From Stockholder

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.

Line of Credit
Line of Credit

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.

Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

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
 

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  
  

 

 

    

 

 

       

 

 

    

 

 

 

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.

Equity Awards
Equity Awards

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        
  

 

 

         

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 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     
  

 

 

       

RSUs outstanding at December 31, 2017

     464      $ 16.81      $ 11,731  
  

 

 

       

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  
  

 

 

    

 

 

    

 

 

 

Total

   $ 8,941      $ 3,284      $ 1,482  
  

 

 

    

 

 

    

 

 

 

 

Retirement Plan
Retirement Plan

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.

Commitments and Contingencies
Commitments and Contingencies

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  
  

 

 

 

Total minimum lease payments

   $ 44,896  
  

 

 

 

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.

Income Taxes
Income Taxes

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  
  

 

 

    

 

 

    

 

 

 

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
  

 

 

    

 

 

 

Net non-current deferred tax assets

   $ 399      $ 40  
  

 

 

    

 

 

 

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  
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 7,304      $ 27,804      $ 19,355  
  

 

 

    

 

 

    

 

 

 

 

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  
  

 

 

 

 

Basic and Diluted Net Loss Per Share
Basic and Diluted Net Loss Per Share

17. Basic and Diluted Net Loss Per Share

As we reported losses attributable to common stockholders for all periods presented, all potentially dilutive shares of common stock are antidilutive for those periods.

The following weighted-average equivalent shares of common stock were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive (in thousands):

 

     Year Ended December 31,  
     2017      2016      2015  

Options to purchase common stock

     5,897        5,516        5,045  

Unvested restricted stock units

     415        —          —    

Conversion of convertible preferred stock

     3,290        14,647        12,198  

Contingently issuable shares

     7        —          —    
  

 

 

    

 

 

    

 

 

 

Total shares excluded from net loss per share

     9,609        20,163        17,243  
  

 

 

    

 

 

    

 

 

 

 

Segment and Geographic Information
Segment and Geographic Information

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  
  

 

 

    

 

 

    

 

 

 

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

Selected Quarterly Financial Data (Unaudited)
Selected Quarterly Financial Data (Unaudited)

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

 

Subsequent Events
Subsequent Events

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.

Significant Accounting Policies (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 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